A Balancing Act: 5 food and beverage categories losing market share — an analyst perspective
Editor's note: "A Balancing Act" is a series for Food Dive, where experts examine trends uncovered in earnings reports and discuss strategies that impact the balance sheet. You can read the first piece in the series here.
Amid industrywide fluctuations due to consumer needs and regulatory changes that are in a state of flux, market share loss is weakening manufacturers in key portfolio categories. Analysts from Euromonitor and Mintel shared with Food Dive five categories showing a decline in market share.
We look at what manufacturers are doing to reverse the fall. If brands are able to regain market share, the strategies they implement could be instructive for the industry — at least until consumer preferences change or pending regulations become reality.
Carbonated soft drinks
Dollar sales: -0.8%
Unit sales: -1.1%
The soda category hit its 11th straight year of decline in 2015. The category faces challenges related to ingredients, such as sugar levels, use of artificial sweeteners, and links to obesity and other health issues. But soda also contends with factors beyond its recipes, particularly an increase in the number of beverage options consumers deem healthier, such as RTD tea, cold brew coffee, cold-pressed juices, and bottled water, including sparkling water.
Action taken: Soda makers have embraced cane sugar as a replacement to high fructose corn syrup to appeal to health-conscious consumers and craft soda drinkers. But without effective marketing campaigns, these craft brands could fall flat, according to Eric Penicka, U.S. drinks research analyst at Euromonitor International.
Outlook: An ingredient change is only half the fight. To avoid a 12th year of decline, soda producers need to weigh consumers' behavior around drinking soda and find new ways to highlight benefits that balance or overcome health concerns, such as indulgence or convenience.
"Consumers desire a wide assortment of functions and benefits from their CSDs, from relaxation and energy, to health and hydration," said Elizabeth Sisel, beverage analyst at Mintel. "There is an opportunity to highlight some of these individual attributes and better connect with consumers in situations that address their consumption needs."
Dollar sales: -1.0%
Unit sales: -2.3%
In its latest earnings report, Kellogg reported a 0.2% gain in cereal market share, though sales for its U.S. morning foods segment dipped 1.2%. Post's Post Consumer Brands segment, which includes cereal, reported a 0.8% increase in comparable sales, but volumes declined 1.9%. Kellogg CEO John Bryant said on the earnings call that he remained upbeat on the potential for positive U.S. cereal sales this year.
According to a recent Mintel report, consumers said they choose breakfast foods with more protein and fiber (31% and 27%, respectively) over cereal.
Action taken: General Mills and Kellogg announced the removal of artificial colors and flavors from cereals last year. Kellogg has looked beyond breakfast to other eating occasions for cereal, such as snacks and dessert. To support that strategy, Kellogg has developed products like Kellogg's To Go Breakfast Mix and teamed up with celebrity chefs to introduce new ways to view cereal as an ingredient.
General Mills recently announced pumpkin spice-flavored Cheerios, which demonstrates an attempt at flavor innovation.
Outlook: "Opportunities to reinvigorate overall category sales include making cereal more portable and focusing on satiety, energy and nutrition, emphasizing less processed/natural ingredients, and promoting use in snacking occasions outside of breakfast," John Owen, senior food and drink analyst at Mintel, told Food Dive.
But cereal producers need to keep flavor in mind, as "three in 10 (consumers say) they choose cereal that tastes good regardless of how nutritious it is," Owen said.
Manufacturers should be mindful of both the flavors they choose and the brands they choose them for, because certain innovations can turn off a brand's loyal customers. For example, a flavor of the week approach could backfire for a more traditional brand like Cheerios, but a brand like Kellogg's Kashi may have more leeway to experiment with exotic flavors and ingredients.
Juice (Shelf stable / Refrigerated)
Dollar sales: +0.5% / +0.7%
Unit sales: -0.9% / +0.7%
While Nielsen data shows a slight uptick, analysts confirm that the overall sales trend for juice has been a downward slope. According to recent data from the Beverage Marketing Corporation, fruit beverage volumes declined by 2.1% last year.
Products that are 100% juice struggle with high levels of sugar and calories, but are perceived as healthier and good sources of nutrients. They also tend to be less versatile and pigeonholed as primarily breakfast options, according to Beth Bloom, food and drink analyst at Mintel. Juice drinks can mitigate sugar and calories with artificial sweeteners and other ingredients but are thought to be less natural, Bloom said.
Action taken: Cold-pressed juice is a small but fast-growing segment within the juice industry, and major beverage manufacturers have taken notice. Coca-Cola took a 30% stake in Suja last year, and PepsiCo launched the Naked Pressed line of cold-pressed juices under its popular premium juice brand early this year.
PepsiCo aligned itself with another key consumer-driven trend when it began labeling several Tropicana varieties as non-GMO. However, looking more closely into that move, oranges are not genetically modified, so no ingredients changes were involved.
Outlook: "A diversification in flavors and packaging formats will likely benefit 100% juice drinks, while a focus on clean labels can benefit juice drink brands," said Bloom. "… Clean product positioning appears to be benefiting the juice drinks segment, with brands featuring a more wholesome and natural positioning outperforming those traditionally associated with a sugary, kid focus."
Another option is to embrace smoothies, which have seen strong sales growth as consumers look for products with whole ingredients and that are more substantial with added fiber and protein.
Concentrates (Frozen / Powdered instant drinks)
Dollar sales: -7.4% / -3.8%
Unit sales: -9.4% / -9.5%
Frozen concentrates and powdered instant drinks are among the worst performers in the larger juice and juice drinks category. In addition to sugar-related concerns, Penicka points to the country's economic recovery as one key reason.
"They're kind of economy categories," said Penicka. "They do well during recessions when people have to pull back their spending. But they're also a little extra work compared to just buying juice or carbonates or bottled water."
Action taken: PepsiCo has been a leader in this segment with powdered versions of Gatorade and the Propel flavored water brand. Sports and energy mixes comprise about one-quarter of the $1.3 billion powdered instant drinks category, according to a recent IbisWorld report.
Nestle continues to be a dominant global player in instant chocolate powder drinks. Nestle has been researching medical foods to combat various chronic illnesses, and prescription-based powdered drinks have been one aspect of that.
Outlook: For beverage manufacturers with more diverse portfolios, such as PepsiCo and its Gatorade brand, consumers' shift from concentrates to RTD drinks won't be as damaging, particularly if the manufacturer makes varieties in both categories.
"I don't think Gatorade is sad that people are moving from powdered to RTD, which is going to be higher profit margin for them," said Penicka. PepsiCo did not repsond to a request for comment on differences between the categories for the Gatorade brand.
But as with juice, Penicka recommends that manufacturers return to a focus on natural ingredients, healthy properties, and the value add that will drive consumers back to these products.
Dollar sales: -0.5%
Unit sales: -3.4%
Retailers' offerings for impulse-buys at the checkout counter have shifted, and gum brands have been among those most negatively impacted.
"Consumers are more interested in spicy foods, ethnic cuisines, so you still have pretty strong demand for products to freshen their breath after eating these foods," Jared Koerten, senior food analyst for U.S. packaged foods at Euromonitor, told Food Dive. "But they really turned away from gum and are turning instead toward mints."
One issue for gum is the inconvenience of having to dispose of it, and mint sales rose as a result. Another reason for gum's decline is the increasing prevalence of better-for-you snacks at checkout, such as snack bars and RTD popcorn, Koerten said.
Action taken: Gum packaging that fits in car cup holders has been one innovation for brands like Hershey's Ice Breakers and Wrigley's Eclipse, but it hasn't been enough, Koerten said. About 14% of consumers use their cup holders to hold gum or mints. The idea has merit, but because mints are also using this packaging, gum hasn't benefited.
Outlook: Gum manufacturers can find other ways to combat slowing sales, particularly through marketing.
"A brand will take a chance with a marketing campaign and then sort of fade back," said Koerten. "But for keeping gum front of mind, maintaining consumer interest, and having consumers even think about the product, marketing is going to continue being important for a lot of these big gum brands."
Whether these categories can bounce back is a point of contention for analysts and manufacturers. But if they do, the strategies that led to success would be most critical.
The "A Balancing Act" series is brought to you by BMO Harris Bank, a leader in commercial banking. To learn more about their Food & Beverage expertise, visit their website here. BMO Harris Bank has no influence over Food Dive's coverage.