In areas devoid of conventional grocery stores — food deserts — challenges can give way to opportunities unique to this retail ecosystem.
Adapting to food deserts often means adjustments for manufacturers. These might include innovating products and packaging to better serve "fringe" retailers. Brands may introduce products that can provide the nutrients and functionality in place of the fresh produce and whole foods these regions often lack. As manufacturers realize the growth potential and untapped markets that underserved populations offer, companies can improve bottom lines and expand food access.
Manufacturers have a two-fold opportunity. They can develop snack versions of products to appeal to consumers seeking convenience; a trend prevalent in the industry. Hormel created products like this last year with Spam Snacks and Jennie-O All Natural Turkey Breast Sticks.
Another option is to innovate product selection and packaging to provide consumers with the foods they need to cook a meal at home even though they're shopping at a convenience store. Mari Gallagher, food desert expert and head of Mari Gallagher Research & Consulting Group, suggests that manufacturers bundle their products or combine with other manufacturers' products to create easy meal plans, such as rice and beans plus lean chicken.
"Since the product lines are already there, that would be an opportunity to not only put some healthier products in but to group them in a way, make it fun," said Gallagher. "People don't just want a bag of beans — they want to know how they're going to make their meal."
Being among the first to introduce healthier products into a food desert, a company won't face much competition and could grab the attention of health-conscious consumers living in these regions.
"As people graduate up with their food choices, you don't want to lose the market share, so it's also a way to protect that market share," said Gallagher.
Bridging the gap
What won't work, Gallagher said, is if manufacturers begin introducing high-end trendy products in a food desert retailer where consumers are used to spending less on products less focused on "healthy" ingredients. A region's food environment and consumers exist on a continuum in terms of the product price and quality that they buy, she said. Manufacturers have the opportunity to create products that help consumers along that continuum.
"People won't necessarily jump from one end of the dichotomy to the other, so there has to be steps that people can take" said Gallagher. "That's an opportunity for these manufacturers to test out those push points in these underserved markets. It's not really being done."
In the case of Hormel, for example, a consumer used to buying canned meat isn't necessarily going to start buying premium all-natural meat products from the cooler at the local convenience store overnight. Instead, the company might introduce products with quality and price points in between the two extremes, such as a canned meat without artificial flavors or preservatives at a slightly higher price.
"It's about getting people to take some action, to step a little bit up ahead and maintain it, and then step a little bit more ahead after that," said Gallagher. "It's more sustainable on the consumer side and more realistic on the producer side in terms of introducing healthier options."
Manufacturers can find opportunities in the "fringe" stores that tend to populate food deserts. These stores are often local consumers' only access to store-bought food, according to Gallagher.
Fringe stores mainly include dollar stores and convenience stores, but they can also be liquor stores and other establishments that sell a limited selection of food.
Manufacturers' main strategy for dollar stores has been to innovate packaging to produce smaller sizes that yield an applicable price tag.
These packaging sizes appeal to low-income households and consumers who are still limiting their food budgets since the recession. Though the products are sold at a lower price, the package size is small enough that margins can actually be greater in this retail channel than conventional grocery stores.
General Mills reported an 8% sales increase in the dollar and drug store channel in 2014, as compared to 1% growth of overall net sales in the same year. Dollar stores have a 6.5% CAGR from the end of the decade, above the 4% CAGR of conventional grocery stores. Also, consumers are 30% more likely to make a purchase during a visit to a dollar store, according to research released last year.
Manufacturers have also identified the growth potential of convenience stores. In October, Hershey announced it planned to expand its c-store presence by strategizing product placement and innovating packaging to adapt to consumers’ needs in this retail format. General Mills demonstrated its own interest in the c-store channel that same month with a report for convenience retailers from General Mills Convenience & Foodservice.
Manufacturers can capitalize on untapped market potential through products tailored for these markets, such as specialized packaging sizes for fringe stores or products with incremental health benefits and pricing differences to move consumers along a continuum. With the right strategy, manufacturers can provide increased access to "healthier" foods for consumers in food deserts, which balances fulfilling a social need and uncovering revenue opportunities.