In 2019, both everything and nothing will be new in the food and beverage business.
As the year unfolds, there are sure to be trendy products, major deals and paradigm-shifting innovations rocking the industry. But the major trend lines in the industry have all already started, and will continue to grow and develop this year.
Functional foods are going to become more refined and popular — especially with the potential addition of now-legal cannabinoid CBD. More big M&A deals — as well as many small ones — will chart the course for where Big Food is heading next. Packaging and production will continue to be more earth friendly, and companies will be moving closer to fulfilling their sustainability pledges. Products will continue to roll out to meet consumers’ health and wellness desires, and plant-based meats will keep making a dent in the market.
Here is a look at our projections for 2019 in food and beverage.
Both consumers and manufacturers have been buzzing about including cannabis in food and beverage in the last several years. And with President Trump's signature on the 2018 Farm Bill, items made from the plants known for their psychoactive and relaxation qualities are getting closer to being a part of everyday grocery carts.
Under the Farm Bill, cultivation of hemp — a plant in the cannabis family — becomes legal. And derivatives from hemp — including the cannabinoid CBD, which is known as an aid for relaxation, anxiety and pain — are no longer considered Schedule I narcotics.
And while the FDA still prohibits food and beverage containing CBD from crossing state lines, the stage is set for it to be the next big functional ingredient. FDA Commissioner Scott Gottlieb said his agency will plan public hearings to determine the best way to consider and regulate CBD in the future, while companies are launching snacks, beverages, and even marketing groups dedicated to products with CBD.
"There will be a rush for people to incorporate it into their food products," Phil Kafarakis, president of the Specialty Foods Association, told Food Dive. "I'm sure I'm going to see a lot more products [with CBD] being entered into application for the association."
But CBD is just the beginning. Marijuana is also an up-and-coming food and beverage ingredient. Currently legal in some form in 33 states and Washington, D.C., industry watchers predict full federal legalization of marijuana by 2021.
According to a report on the cannabis edibles market from BDS Analytics, which specializes in granular market research on the substance, spending on cannabis edibles is expected to grow to $4.1 billion by 2022 from $1.5 billion in 2018.
"There will be a rush for people to incorporate it into their food products. I'm sure I'm going to see a lot more products [with CBD] being entered into application for the association."
President, Specialty Foods Association
Aside from the year-end breakthrough for CBD, 2018 saw a lot of movement in establishing cannabis and its derivatives as part of food and drink. Use of cannabis in all forms has been legal in Canada since mid-October, and the northern neighbor has been considered a bellwether for what may happen if full legalization comes to the United States.
Alcoholic beverage companies have made big investments in the cannabis space, touting new products for the Canadian market. In August, Constellation Brands invested $3.9 billion in cannabis company Canopy Growth. The global alcoholic beverage giant inspired others to follow its lead. Molson Coors announced last summer that its Canadian business formed a joint venture with Hydropothecary Corp. to make nonalcoholic, cannabis-infused drinks to sell in Canada. As part of the deal, Molson Coors Canada gained a 57.5% controlling interest in the firm. Diageo has been rumored to be in talks with Canadian cannabis companies. And AB InBev and cannabis company Tilray just announced a partnership to invest $100 million in researching nonalcoholic cannabis drinks.
Kafarakis told Food Dive he sees cannabis food and drink products expanding in 2019. The regulatory aspect will begin developing — pinpointing checkpoints, quality inspections and supply chain regulations. He also expects to see a big change in the money invested in the space. CBD's legalization opens the market up to banking — and manufacturers can freely put their money into CBD products.
Troy Dayton, CEO of The Arcview Group — an organization to support and promote cannabis-related businesses — told Food Dive that as cannabis becomes trendier, every food and beverage company is angling to get into the space.
"There's not a single large CPG company in the world that doesn't have somebody, and in some cases, an entire team evaluating the cannabis sector right now," Dayton said.
Mergers and acquisitions
A busy 2018 in mergers and acquisitions could lead to a more subdued 2019 as Conagra Brands, General Mills, Campbell Soup and other big-name CPG companies digest recent multi-billion dollar deals. Food and beverage companies have been active acquirers in recent years in a bid to overhaul their portfolios to better reflect growing consumer interest in snacking and consumption of better-for-you fare, or to enter new faster-growing markets altogether.
In 2018 alone, General Mills spent $8 billion for natural pet food maker Blue Buffalo, Conagra Brands doubled down on its presence in frozen foods with its $10.9 billion purchase of Pinnacle Foods, and Campbell Soup closed its $5 billion purchase of snacking giant Snyder's-Lance — the company's largest-ever acquisition.
In addition, Nestlé, the world's largest food company, shed its American candy business to Nutella owner Ferrero Group for $2.8 billion and paid $7.15 billion to Starbucks to sell the chain's coffee beans and drinks in grocery stores and other outlets around the world. Coca-Cola also purchased British chain Costa Coffee for $5.1 billion and took a minority stake in BodyArmor. There were also many smaller deals.
"It's more smaller M&A, not necessarily transformational M&A. As we head into 2019, I think it's going to be more about companies pruning portfolios."
Analyst, Edward Jones
Brittany Weissman, an analyst at Edward Jones, told Food Dive companies will spend 2019 simplifying and refocusing their portfolios, in some cases jettisoning brands or swapping assets with other operations that are more in-line with their long-term growth plans. She pointed to Kellogg, which announced plans to sell its cookie and fruit snacks businesses — including Keebler and Famous Amos — to bring a sharper focus to its core operation.
"It's more smaller M&A, not necessarily transformational M&A," Weissman said. "As we head into 2019, I think it's going to be more about companies pruning portfolios."
The wild card in M&A is Kraft Heinz, which has reportedly long been on the lookout for another mega-deal after it was rebuffed in its 2017 attempt to snag Unilever for $143 billion. Similar to other CPG companies, it has faced shifting consumer eating patterns and less demand for its packaged food products, leading many experts to think that private equity firm 3G Capital, which controls Kraft Heinz — along with billionaire investor Warren Buffett — may want to look outside the CPG sector for its next target.
As consumers have grown increasingly concerned about what they eat and ever-rising medical costs become more prominent in an aging population, functional foods have taken a more prominent role in the American diet. No longer a niche segment, the global functional foods and beverage market is anticipated to grow close to 8% annually through 2021, according to a report from Technavio.
"I don't see it going away," Lizzie Kasparek, a dietitian at the Sanford Sports Science Institute, told Food Dive. "People are interested in their health, and if they can pay the price pay for the option that has added fruits and vegetables, or added omega-3 or added probiotics, (they) are looking for those different packages that make it seem like they are getting benefits from those foods."
Probiotics, once only associated with yogurt, are especially attractive to large food companies and are making their way into a variety of foods and drinks like bars, water and cereal. In 2016, PepsiCo acquired beverage maker KeVita and launched its Tropicana Essentials Probiotics line, bringing the live microorganisms to the mainstream juice aisle. And the venture capital arm of General Mills led a new round of funding in 2017 for Farmhouse Culture, a fermented and probiotic food and beverage startup.
Plant-based options also are infiltrating foods like pizza crust made with cauliflower and butternut squash, chickpea pasta and bread fortified with beets and carrots.
“We’re going to keep seeing more and more vegetables added to things that maybe are making us feel a little bit healthier than if we just went for the normal version,” Kasparek said.
"People are interested in their health, and if they can pay the price pay for the option that has added fruits and vegetables, or added omega-3 or added probiotics, (they) are looking for those different packages that make it seem like they are getting benefits from those foods."
Dietitian, Sanford Sports Science Institute
Mintel said recently that longer lifespans have given food and drink manufacturers an opportunity to design products that maintain and enhance bone, joint, brain and eye health. Already, functional food products are in the works as scientists extract beta glucan from mushrooms to help bolster the immune system, produce fiber-rich inulin flour from chicory root and explore numerous beneficial nutrients from algae.
Roger Clemens, an adjunct professor at the University of Southern California with a background in biological chemistry and nutrition, told Food Dive the Food and Drug Administration should come up with a definition of functional foods so industry and consumers can better understand the nascent space and what to expect. He also supports additional testing and research to determine the impact that consuming more functional ingredients might have on a person’s health, an initiative he expects to continue in 2019 as demand for these foods increases.
"There is a great deal of potential, but we just need to seek to understand that potential. We need to understand the complexities of food," Clemens said. "We've made great progress, and there is a lot of interest in (the) yet-to-be-defined food category within the U.S. It is critical that the industry not overpromise and underdeliver."
He cautioned that any efforts to craft a functional foods definition or better understand the benefits of certain bioactives on human health is unlikely to gain traction in 2019 amid political gridlock in Washington, D.C. — despite a greater willingness to move forward on these fronts in other parts of the world.
Healthy, natural and better-for-you are terms and phrases that have dominated the food industry in recent years and forced CPG companies to evolve. Consumers' healthier eating habits — especially millennials and Generation Z — are pushing Big Food to switch up their portfolios and consider swapping legacy brands for newer, healthier ones. That will likely continue to accelerate in 2019 as consumers pressure brands to keep up with changing tastes. Another strong motivator is the bump many companies saw to their bottom line in 2018 when shifting their strategy to healthier products.
"Once you've become mindful about the role that food plays in your life, it's hard to go back," Mike Lee, the founder of The Future Market, told Food Dive. "There's so many people coming out with different solutions in different ways to define better-for-you. Not only that, but better-for-you is not a one size fits all thing."
Hershey and General Mills are among the companies that have announced plans to continue expanding their portfolios in 2019 to appeal to younger consumers who want healthier snacks. Other brands will likely look to innovate already established brands — like Conagra did with Healthy Choice — and launch new better-for-you products.
But this isn't a new trend. Kara Nielsen, an expert in food and beverage trends, told Food Dive that better-for-you snacks is a category that people have been talking about for 12 years and products in that space will continue to increase. She said there continues to be a lot of innovation in the healthy snack space and increased interest in clean label.
"The reason that health in general is getting so prominent is people are finally starting to connect the importance of what you consume in your body to longevity and to your health overall. There's almost nothing off limits now."
Natural products industry veteran and chef
"The big companies are using health and wellness as a big positioning and as a big reason to innovate," she said.
Despite it being a huge movement in the industry for years, a recent report found that companies aren't doing enough to improve the nutritional quality of their products. But that could change this year as the demand for healthier fare continues to grow.
Mareya Ibrahim, a natural products industry veteran and chef, laid out eight healthier food and beverage trends that she thinks will dominate in the new year, with everything from healthy frozen foods to jicama.
"The reason that health in general is getting so prominent is people are finally starting to connect the importance of what you consume in your body to longevity and to your health overall," she said. "There's almost nothing off limits now."
Last year proved that the days of flat veggie burgers to give vegetarians something to put in a hamburger bun are history.
While traditional veggie burgers are still out there, manufacturers like Beyond Meat and Impossible Foods are making vegetarian products for meat eaters. These items are designed to give consumers another option that is more sustainable and healthier — without sacrificing the taste, feel and even look of meat.
"People in companies are even rethinking this idea of what meat is," Caroline Bushnell, senior marketing manager at the Good Food Institute, told Food Dive. "Essentially, it's a combination of aminos, minerals, lipids and water. Instead of cycling plants through animals to transform them into meat, why not make meat directly from plants?"
This science — and taste — based approach is making the market extremely lucrative. According to Nielsen and SPINS data featured on the website of the Good Food Institute, the total plant-based food market is worth more than $4.1 billion today. Data from Nielsen and the Plant Based Foods Association reported by Bloomberg last summer shows plant-based meat alternatives totaled $670 million in sales — a 24% jump, compared to 6% in 2017.
"People in companies are even rethinking this idea of what meat is. Essentially, it's a combination of aminos, minerals, lipids and water. Instead of cycling plants through animals to transform them into meat, why not make meat directly from plants?"
Senior marketing manager, The Good Food Institute
In 2018, the market leaped forward, and manufacturers have plans to continue that growth in 2019. The Impossible Burger is available at 5,000 restaurants nationwide — including at fast food chain White Castle — and will be sold in grocery stores later this year. Beyond Meat, which has sold its Beyond Burgers in grocery store refrigerated cases next to their ground beef counterparts, filed for a $100 million IPO in November. Beyond Burgers are also getting their fast food debut at Carl's Jr. And Nestlé plans to bring its meat-free Incredible Burger to grocery stores in the spring.
While burger alternatives are charging forward, Bushnell said there are many opportunities for plant-based forms of other kinds of meat. After all, she said, burgers now represent 50% of plant-based meat sales, but just 1% of all fish products sold now are plant-based. Good Catch Foods, which has plant-based tuna, burgers and crab cakes, is set to revolutionize the market. Products are set to launch early in 2019, and the company raised $8.7 million in capital funding last August.
While plant-based meat is currently less than 1% of the total retail meat market, Bushnell said she expects its share to increase. She compared it to another popular plant-based product: nut and grain-based milk.
"Plant-based milk now accounts for 13% of total milk sales and is still significantly growing. That growth has not slowed," she said. "We expect plant-based meat to follow a similar trajectory."
In recent years, U.S. consumers have been looking for more sustainability from food industry practices. From packaging to production, shoppers have been willing to pay more to feel like they are helping the environment. As sustainable business practices across the food and beverage industries become the norm, companies have begun to change their ways to gain a competitive edge and boost profits.
Mars, PepsiCo, Coca-Cola, Unilever and Walmart have all announced sustainability pledges, focusing on where products come from, the production and manufacturing processes and the impact that makes on the environment. But in 2019, many are expected to deliver on those promises to accommodate consumer demand.
Some companies are even pushing their industries to make big changes. Chocolate manufacturer Barry Callebaut has ambitiously made the goal of not only sustainably sourcing its own chocolate but making it the industry norm by 2025, pushing other chocolate brands to level up and compete with its promises.
Lee, founder of The Future Market, told Food Dive that a number of brands are in the early stages of getting into regenerative agriculture because it is better for the planet. General Mills and Danone are among the big food companies touting these new methods.
"For every sustainable food conversation you hear about, I feel like there's a third as many things about the packaging, and that's sort of the elephant in the room."
Founder, The Future Market
"That's maybe where the conversation is going to shift next year," Lee said in an interview in late 2018. "Regenerative is kind of the evolution of the sustainability conversation."
Although consumers are increasingly looking for companies to take the initiative on environmental issues, there are still many barriers to sustainability, like in packaging. But this year, companies could prioritize solutions even if they face challenges. Major bottled water manufacturers — such as Danone, PepsiCo, Nestlé and Coca-Cola — are already investing in alternatives and pledging to increase the amount of recycled plastic in their bottles.
"For every sustainable food conversation you hear about, I feel like there's a third as many things about the packaging, and that's sort of the elephant in the room," Lee said.
But Ibrahim, the natural products industry veteran and chef who has been predicting food and beverage trends for the last seven years, told Food Dive that compostable packaging is already getting more shelf space. That, as well as other methods to combat food waste, could be expected for 2019.