Packaged foods manufacturers, especially larger companies, have struggled in recent years as consumers' eating and purchasing trends shift. But several companies and categories have found ways to adapt and sustain growth, and to imitate that success means identifying the trends and strategies that produce results.
The recent report "Taking Stock of CPG Past and Future: Gear Up Now for a Year of Growth" from IRI Worldwide illustrates what those fastest-growing categories are and what growth trends are pushing companies forward in 2016. From the rise of beverages to targeting the new path to purchase, understanding and engaging with these consumer and growth trends enables manufacturers to develop their own strategies to be more agile and adaptable in the coming year.
Positioned for growth
Among the largest CPG categories, bottled water topped the list for highest growth year over year for the 52 weeks ended November 1, 2015. The category's popularity is growing steadily as consumers look for beverage options beyond soda and as bottled water makers introduce new varieties of flavored water and sparkling water.
Beer/ale/alcoholic cider followed, driven in large part by the expansion of craft beer. Salty snacks were escalated by consumers' push for more convenient foods and by fast-growing categories like popcorn. Chocolate candy saw growth in dollar sales but a dip in unit sales, as the cocoa shortage takes hold and chocolate manufacturers push premium chocolate to boost sales and margins.
As for fastest-growing categories, refrigerated lunches was the leader, a category that consumers' desire for more convenient foods similarly boosted. But the industry has also seen the expansion of this category from Kraft Heinz's Lunchables brand to lunches that appeal to consumers across age groups, including health-conscious consumers, according to Susan Viamari, vice president of thought leadership at IRI.
Beverages made up six of the top 10 fastest-growing categories in IRI's report, including refrigerated tea and coffee (10.5%), ready-to-drink tea and coffee (10.3%), spirits (8.3%), energy drinks (8.1%), bottled water (7.1%), and sports drinks (7%). As soda falls out of favor with consumers (though the category did post 1.4% dollar sales growth during the time period, while unit sales fell 0.7%), this drives consumers to other beverage options, and these categories have benefited the most so far. 2015 was the sixth consecutive year that the spirits segment outpaced the beer industry in market share gains, driven by categories like whiskey, cognac, and tequila.
Forging a new path (to purchase)
"How hasn't it changed?" Viamari said regarding consumers' path to purchase for CPG products. These changes range from the ways consumers think about purchases to the actual methods used to close the sale.
During the recession, "Consumers were forced to take a much more measured approach when it came to shopping because budgets and finances were tight, so pre-planning, while it had always been an activity for some, became pervasive for many," Viamari said. And that measured approach hasn't left for many consumers who haven't yet returned — and may never — to the "free-spending" behaviors common before the recession, she continued.
Technology developments in the last decade, such as the explosive growth of e-commerce and social media, have facilitated this new pervasive level of pre-planning that goes into food and beverage purchases. Consumers are more likely to consult online resources before making a purchase, and though traditional word of mouth is also still prevalent, it's happening in new ways thanks to social media, where families and friends interact to share ideas, opinions, and purchase histories.
While food and beverage has been slow on the uptake for e-commerce sales, more companies have embraced this purchase channel in the past year. Mondelez committed to increasing its e-commerce business to $1 billion in 2020, while introducing "buy now" buttons in shoppable ads and debuting promotional products like Oreo Colorfilled for the holidays. Snyder's-Lance launched Snack Shack to more easily sell its products online. A General Mills exec described e-commerce as "mission critical" in an interview with Food Dive last year.
According to IRI's report, online dollar sales' contribution to CPG growth is expected to more than quadruple from about $8 billion in 2013 to an estimated $36 billion in 2018.
Taming the "clutter"
But with these new paths to purchase comes the tendency to inundate consumers with marketing messages, which has created "a lot of clutter" that drowns out food and beverage campaigns, especially online, Viamari said. But marketers today also have tools that can help them rise above the clutter and deliver carefully targeted messages that are more visible and impactful — "Doing More With Less (Media)," as the report called it.
"Now through advanced analytics, we have the ability to marry all kinds of disparate data sets, so that we can understand a much more 360-degree picture of the consumers that are the best consumers," Viamari said.
This better targeted approach could come from slimming down social media channels, as Hershey recently did when it enacted its new masterbrand marketing approach and shut down individual brands' social media profiles in lieu of a single Hershey account. Or it could mean focusing on specific fast-growing channels, such as Periscope, without adopting every new platform that comes to market.
Hispanic market 'top of mind' for marketers
Like the millennial market, the fast-growing Hispanic market is far from homogeneous, and food and beverage manufacturers and marketers who keep that diversity in mind will have the best outcomes from their products and campaigns, Viamari said.
Honing product development and marketing messages are equally important when targeting this market, which is "top of mind" for CPG marketers today, Viamari said. But preferences and tastes are varied, so a key strategy is to identify how these different groups learn and share information about food and beverage products.
"Some pieces of the market may be more inclined to call mom or their sister, whereas others are going be more tech-savvy and look on social media. What are the sites they frequent the most? They're not going to be same because of the different cultures that are melting together," Viamari said.
Granularity from customer analytics plays an important role, but so far marketers have lacked access to much of this data.
"Store-level understanding has been further challenged by difficulty in gaining visibility into specialty markets such as independent stores, called bodegas," according to the report.
With or without access to this data, incorporating cultural traditions and values is crucial for attracting this particular market, while keeping level of acculturation in mind. Certain age groups, such as younger demographics, are more likely to embrace acculturation than older consumers, and those insights play a role in effective targeted marketing.
But Viamari suggested that when it comes to products, finding the right ingredients and flavors are central to these efforts. Food and beverage companies have done a better job of understanding this in recent years, she said.
"Consumers in general are looking for excitement in their food and beverages, such as textures, flavors, or ingredients that are unexpected," Viamari said. "With Hispanics coming from different countries, it's different ingredients that are going to resonate more with one group versus another group, and CPGs really need to understand, what are the ingredients that sing, if you will, to the markets that they’re targeting.”
Other key growth trends for food and beverage
IRI identified several other growth trends prevalent in CPG, including food and beverage:
- Consumers' adoption of healthier-living strategies
- Consumers’ desire for transparency and authenticity
- Increased use of big data to drive "smart" growth
- On-the-go lifestyles contribute to rise of snacks, convenient foods
- Manufacturers' internal consolidation plus strategic acquisitions "to fill white space growth opportunities"
IRI's trends report and the categories and companies succeeding in today's evolving food and beverage environment demonstrate how the industry is flush with opportunities to expand and excel, despite the rapidly-changing atmosphere that manufacturers face today.