Reformulation is a gamble: The high stakes behind innovation
While the payoff for success can be worth the risk, companies must consider the potential pitfalls of changing up a consumer favorite.
Still, from 2007-2010 it was ranked as the 11th most popular candy bar sold in the United States, according to Euromonitor International.
Ferrero, which purchased Nestlé last spring, wants to reimagine the classic candy into a treat that resonates with today's consumer: someone more frequently avoiding center store and demanding fewer but better quality ingredients. At the same time, the company doesn’t want to alienate those who have been purchasing the candy bar for decades.
Reformulations — especially of beloved, well-known brands — are a delicate balance, requiring companies to avoid changing too radically and alienating their existing customer base, while also pivoting just enough to attract new consumers who will keep their brand relevant.
This pressure to reformulate becomes even more pronounced as upstart food companies begin grabbing more and more market share from industry stalwarts.
“A lot of brands are struggling with this. They’ve maybe lost sales to some of these healthier upstarts,” Jared Koerten, head of packaged food at Euromonitor International, told Food Dive. “They’re weighing is it worth risking still a very large base of consumers to try and get on board with some of these trends?”
"A lot of these brands are very established. They have formulas that consumers have liked for decades, if not centuries in some cases, and so if you are going to make any reformulations, it’s definitely a risky proposition."
Head of packaged food, Euromonitor International
Statistically, it appears that companies are choosing to take the plunge in hopes of establishing themselves as serious players in the future of food. According to the Consumer Good Forum, a global network of more than 400 retailers and manufacturers — including Ahold Delhaize, General Mills, Target and Campbell Soup — 66% of members reported they reformulated more than 180,000 products in 2016.
At the same time many packaged products are undergoing overhauls, not every change is announced with the fanfare and marketing one would expect from a company looking to bring attention to its products’ healthier profiles.
“We have seen a lot of reformulations that have not gone well,” said Koerten, who pointed to Trix cereal’s 2016 reformulation and the infamous snafu that was the 1985 New Coke reformulation. “It’s hard because a lot of these brands are very established. They have formulas that consumers have liked for decades, if not centuries in some cases, and so if you are going to make any reformulations, it’s definitely a risky proposition.”
Koerten isn't alone in this belief. Erin Lash, the director of Consumer Equity Research at Morningstar Research Services, called product reformulations “somewhat of a mixed bag.”
So if it is such a gamble for companies to revamp their products, why do they do it?
The health halo
With 91% of U.S. consumers believing food and beverage options with recognizable ingredients are healthier, according to Innova, overhauling ingredient lists has become the expectation rather than the exception.
However, reformulations are not always dramatic alterations of color, additives and preservatives. Reducing sodium and sugar were two of the most common reformulation steps reported by Consumer Goods Forum members, along with adding vitamins and incorporating whole grains. Companies said they had also taken steps to phase out artificial ingredients.
In fact, General Mills’ cereal division said it would remove artificial flavors and colors from all its products. At the beginning of 2016, the company announced it had successfully phased out artificial ingredients in 75% of its cereals.
Three years later, some artificial colors have been added back onto shelves through the reintroduction of original formula Trix and scientists are still struggling to replicate Lucky Charms’ iconic marshmallows without assistance from artificial colors and flavors. Reports on the cereal giant’s finances show the company’s reformulations have had a less-than-dramatic impact on sales. In the fourth quarter of 2016, a few months after 75% of the company’s cereals had been reformulated, net sales declined 6%. Those sales continued to slide in 2017 and by the end of 2018, sales had decreased a further 20%.
Lash explained that it is not uncommon for expectations to fall short when it comes reformulation success.
“I think that firms do take action to make sure that their products don’t go stale and make sure that they’re continuing to bring consumers back to the category, but I don’t think that reformulation is the way they do it,” she said.
Instead, she suggested that “renovations” are one way to reformulate a brand without re-imagining a new recipe. Lash noted that renovations are commonplace and can include new flavor profiles, alternate packaging formats and changes in product shape or size. The difference between the two approaches, she explained, is that there is no risk of altering the taste of a product.
For General Mills, retaining the taste consumers expect from brands like Trix and Lucky Charms is paramount, which is the most important measurement in any reformulation project, Dana McNabb, president of U.S. retail cereal for General Mills, previously told Food Dive.
"I think that firms do take action to make sure that their products don’t go stale and make sure that they’re continuing to bring consumers back to the category, but I don’t think that reformulation is the way they do it."
Director of consumer equity research, Morningstar Research Services
Koerten noted that the trend toward prioritizing taste is evident when looking at Butterfinger, which was recently acquired by Ferrero. By pouring investment into a neglected brand, he said Ferrero is working to make these candy bars relevant again by making them taste better.
"Once you do the reformulations, one of the benefits you get is (to say), 'Try our new and improved formula.' And at the very least that can get consumers who haven’t thought about Butterfinger in 15 years to see that on the shelf and say, 'Let's give that a try,' " he said.
And improved taste seems to be Butterfinger’s plan.
“We’ve really tried to stay close to Butterfinger fans during this (reformulation) process and evolve our taste with theirs,” Kristen Mandel, a marketing senior director for Ferrero division Ferrera told Food Dive in an email. The result is what Mandel called a “better Butterfinger” with a “chocolatey coating, carefully selected U.S. grown Jumbo peanuts and a simpler label free from preservatives.”
Nevertheless, it can be a gamble as to whether a product reformulation is going to be welcomed with open arms or openly flogged on social media. As such, many companies opt to perform their reformulations behind closed doors without bringing the changes to the public’s attention.
To share or not to share, that is the question
According to Mandel, Ferrero opted to keep consumers in the loop about Butterfinger's reformulation. The result, she shared “has been positive thus far.”
That experience is far from universal. Connor Young, founder and CEO of Ample Foods, which makes meal replacement shakes, told Food Dive that full transparency when communicating with consumers about reformulations is not always beneficial for the bottom line.
Young explained that if loyal patrons are aware that a product is on the list to be revamped, they may either wait a little longer until the reformulation is released to make their next purchase, or stop using the product without having even tried the new one. In either case, Young said that he would see the consequences in his sales figures.
“The reason why we don’t want to announce specifically new versions of an existing product before they go out is because ... we don’t want to cannibalize our existing sales for future sales that may not even happen,” Young said.
Many food and beverage companies seem to agree with Young’s reasoning and choose to keep their reformulations under wraps.
"The reason why we don’t want to announce specifically new versions of an existing product before they go out is because ... we don’t want to cannibalize our existing sales for future sales that may not even happen."
Founder and CEO, Ample Foods
Kraft Heinz had a high profile — and successful — "secret" reformulation. In 2015, the company announced it was reformulating to remove artificial flavors and colors. In 2016, the company announced it had been selling the new blend for three months, and sales volumes didn’t change.
“I think that they were trying to hedge their bets," Lash said. "They obviously described it as the largest blind taste test — but I think that was the concern, that there would be consumers who would balk at it if they knew that it was actually healthier for them.”
Even companies that tout the health halo that the rehabbed ingredient list gives their product can have a hard time getting consumers to accept the change, she said — which can dramatically affect sales. Campbell’s soups, she said, are a prime example.
“They were advertising a 30% reduction in sodium in their traditional red can soup and volumes faltered pretty significantly, and I think that’s attributable to the fact that consumers associated lower levels of sodium with a worse taste,” she said.
Lash believes there is an advantage to not alerting customers to reformulations. The exception is when companies expand their product offerings to include healthier alternatives to original formulas.
"I think that they were trying to hedge their bets. They obviously described it as the largest blind taste test — but I think that was the concern, that there would be consumers who would balk at it if they knew that it was actually healthier for them."
Director of consumer equity research, Morningstar Research Services
By keeping established consumer favorites and simultaneously presenting better-for-you options, Koerten says that CPG companies increase their chances of retaining their loyal consumers while attracting a new demographic to their brand.
“I would argue it’s probably better to create a separate offering because you don’t want to risk upsetting that (original) very sizable consumer base,” said Koerten. “I think a lot of the success cases you’ll see tend to be brands that launch a healthier line extension or healthier innovations.”
Producing new product lines also allows large companies to test out consumer reception of certain trends without committing to altering an established product that could risk tanking the brand. Koerten, Lash and Young also agreed that at the end of the day, it also depends what kind of brand image a company wants to project — and how much risk they’re willing to take on to pivot a brand into a new perception category.
A risky bet
Besides the predictable consumer backlash that a company that reformulates a beloved brand is almost guaranteed to endure, there are other unseen costs like enlarged expenditures in R&D and changes in manufacturing, supply chain and packaging that can make reformulations into a risky undertaking.
“It changes how the product is made. It changes how you obtain the ingredients… you totally have to change your packaging design and go back to the drawing board with that,” said Koerten. “Even before you go to market there’s a lot of investment that goes into it. There’s a lot of expense, and if it flops, that’s a huge loss for you.”
Still, when it works, it’s worth it. Koerten noted that reformulations and innovations spurred by changing consumer appetites bring new life into products and can re-imagine cast-offs. Successful innovations even have the power to reinvigorate brands like B&G’s Green Giant brand into a company’s most consistent money makers.
However, even the star products of today need to keep a pulse on what customers are asking for, because soon enough, they too will feel the pressure to stay relevant. In the ever-evolving world of consumer trends, there is pressure to continually reinvent products to keep a brand’s image at the forefront of consumers’ attention.
It is a fine balance between bringing a product back to life and bringing a new product to the shelf. One can create buzz, the other can cause customers to buzz off.