How COVID-19 is impacting consumer shopping behavior
Note from the editor
As the coronavirus has taken hold across the United States this year, its impact has caused seismic and potentially long-lasting changes to how consumers eat and the way food and beverage companies get their products to them.
With restaurants, sporting events and other large social gatherings closed or canceled, consumers have spent more time at home creating their own meals, snacking, drinking coffee or making their own alcoholic drinks. A trip to the local bar for a few beers or getting coffee at Starbucks with colleagues has shifted that walk to the refrigerator or the single-serve Keurig machine on the counter at home.
While there is little consensus as to whether these trends will become a permanent fixture and, if they do, how big a part of the landscape they will be, there is agreement that the ongoing pandemic is changing the way consumers buy and purchase food and beverages. In this report, you'll find:
Mondelez's "unprecedented demand" online for snacks
Consumers and manufacturers rethink DTC's promise
Online alcohol sales may see permanent change from pandemic
As meat giants face scrutiny, small and niche producers capitalize
Coronavirus boosts sales for center store products. Will it last?
Plant-based food sales outpace growth in other categories during pandemic
Private label prospects brighten as recession hits cash-strapped consumers
Once thriving craft beer industry dealt crippling blow by coronavirus
These are just a few of the many issues impacting consumer shopping behavior during these unusual times. We hope you enjoy this deep dive into the current trends.
Mondelez faces 'unprecedented demand' online for snacks during coronavirus
Glen Walter, president of North America, said the surge is especially prominent in its core snack offerings like Oreo and Ritz as shoppers gravitate toward trusted brands.
By: Christopher Doering
Mondelez International is experiencing "unprecedented demand" for its Oreo, Ritz, Triscuit and other snack offerings online as more consumers turn to e-commerce as a way to stock up and refill their pantries during the coronavirus outbreak, a top executive told Food Dive.
Glen Walter, executive vice president of Mondelez and president of North America, said the spike in consumption through e-commerce is especially prominent in its core snack offerings as shoppers gravitate toward brands that "people know and trust and love."
"There's no question we've seen unprecedented demand," Walter said. "It is normalizing a bit but still, from everything we're seeing, staying at much higher levels."
While Mondelez's focus on snacks enabled it to tap into the broader push by consumers into snacking even before the current pandemic unfolded, the company is getting a boost from peoplespending much of their time at home — in many cases with children who are munching on crackers, cookies and other foods throughout the day.
Walter declined to offer specific numbers on e-commerce sales, citing the company's quiet period ahead of earnings, except to say that all its brands are posting "growth far above their normal rates."
"There's no question we've seen unprecedented demand. It is normalizing a bit but still, from everything we're seeing, staying at much higher levels."
Executive vice president of Mondelez and president of North America
To be sure, e-commerce is responsible for a small portion of sales — in the mid-single digits, according to analyst estimates — at Mondelez.In comparison, total revenue at the maker of Chips Ahoy, Cadbury and Nutter Butter totaled nearly $29 billion last year.
Mondelez has been honing its e-commerce presence in recent years as consumers purchase more foods and beverages directly from manufacturers, retailers and third-party pickup and delivery services such as Instacart or Peapod.
During the current outbreak, Walter said the company is working closely with retailers both online and in traditional brick-and-mortar stores to simplify its portfolio to prioritize offerings such as bigger pack formats or brands that are popular right now with consumers.
Walter noted that Mondelez has improved its search capabilities so shoppers can find its products easier and worked with consumers to replicate the store experience in an e-commerce world when it comes to things like impulse buys and making sure consumers can easily find what they need.
Mondelez also has tweaked some packagingto make it unique for online channels. For example, last year it rolled out a Snapchat campaign that included special packaging with Snapcodes that let users access a cookie-themed augmented reality lens. The company has also enabled consumers to buy cookies like Oreo directly from the company that tie into holidays or birthday celebrations — further strengthening consumer loyalty.
Even now, Mondelez's marketing team has increased its online brand presence during the current pandemic by spending more time reaching out to consumers and their families at home. Its top brand Oreo has shared recipes involving the beloved cookie and challenged consumers to a TikTok contest where Mondelez will donate money to Save the Children as part of its $15 million commitment to fund coronavirus relief efforts.
"It's been a growing piece [of our sales]; clearly we're seeing a distortion in this environment," Walter said. "We're anticipating that a good portion of that will stick."
The reason, he said, is that while some consumers have turned to e-commerce to purchase their groceries, many morehadyet to embrace it — that is until the pandemic. Now more people are going online to avoid large crowds in grocery stores. Shoppers also are finding they can get many of their favorite brands on Amazon or through e-commerce channels of their local supermarket chain just as easily as they could in the store itself.
"Clearly, e-commerce is going to continue to evolve, and I think we're well positioned and certainly making the investments to make sure we capture the opportunity to grow," Walter said.
Erin Lash, a director of consumer equity research at Morningstar, told Food Dive that with Mondelez and other CPGs increasing their online presence, it's important for companies to find a way to stand out among shoppers.
"Consumers, we don't believe, will peruse the limitless number of pages for particular products, and are likely to be reordering off a list or repurchasing brands that they're incredibly familiar with," Lash said. "And so, to the extent that Mondelez is first on that list or has brands that consumers have an affinity for, that is likely to prove advantageous."
Article top image credit: Christopher Doering/Food Dive
Once thriving craft beer industry dealt crippling blow by coronavirus
With brewpubs and taprooms shuttered and consumers less willing to experiment, thousands of brewers could go out of business or experience major changes to their operations.
By: Christopher Doering
For the Blue Mountain Brewery in central Virginia, the spring season usually finds the sprawling 11-acre complex in the shadows of Appalachia's Blue Ridge Mountains packed with visitors sampling a flight of beer under umbrellas, playing Frisbee or cornhole on the grass lawn and sitting down at one of its 650-seats munching on its popular local bratwurst pizza with a glass of its signature Dark Hollow bourbon barrel stout.
This year, the 13-year-old brewery, which typically generates weekly sales of $150,000 around this time from nearly 10,000 visitors, is posting sales closer to $25,000.
The property's landscape, usually beat up from wear and tear of people running around, looks more like a Southern Living cover, with a perfectly manicured lawn and its knockout roses undisturbed, Taylor Smack, who co-founded Blue Mountain Brewery, told Food Dive. The brewery reopened May 15 to outdoor seating with spaced out tables and staff adorning face coverings. Guests are asked to remain seated once they arrive and indoor seating remains prohibited.
With customer traffic and revenue plunging, Blue Mountain has curtailed spending and canceled plans to expand its kitchen.The brewery also was going to build a BBQ-themed restaurant at its much larger Blue Mountain Barrel House production-focused facility 25 miles away, which is currently served only by a food truck. Smack halted construction in mid-March two weeks before it was slated to begin.
After the closure of its main restaurant responsible for the majorityof the company's revenue, Blue Mountain turned to other options for revenue, including curbside pickup and delivery of its food and brews, as well as an online bulk grocery store with bacon, chicken breast, toilet paper and beer.
"Dead honest, a great week doing this is less than 15% of the revenue we would get in our normal operations," Smack said. "It just doesn't keep the lights on, man. We've been through a lot, a whole, whole lot previously, but this caps it so far."
As the coronavirus leaves its mark on virtually all facets of the U.S. economy, few businesses are feeling its impact more than craft beer. The once flourishing industry built its image and growth on new trendy, cleverly named products consumers can leisurely try at more than 8,000 breweries scattered throughout the country or purchase at stores, restaurants, bars and other establishments.
With these operations shuttered or buying patterns in traditional retail channels disrupted because of the virus, craft breweries have watched revenue dry up, forcing many owners to jettison thousands of employees and leaving once-thriving operations uncertain how long they can remain in business the longer the pandemic drags on.
"We've never faced anything like this. This is unprecedented. Absolutely unprecedented," Charlie Storey, president at Harpoon Brewery, a craft operation making beer in Boston since 1986. "We're doing everything we can to ride out the storm." Revenue is down about 30% at Harpoon compared to before the pandemic, he said.
For brewers, especially smaller ones, there are not a lot of changes they can make to increase the market for their beer or connect with consumers in their community during the current crisis, analysts said.
Brewers so far have turned to many of the same practices to generate revenue, including e-commerce, food and growlers to-go, setting up mini-grocery stores to sell food items along with beer and leaning on merchandise and gift card sales — practices that collectively generate only a small fraction of what they made before.
“They have some options but these are all stopgaps," Bart Watson, chief economist with the Brewers Association, the trade group that represents the craft beer industry, told Food Dive. "At the end of the day, many of these breweries were built around brewing beer and then selling it directly at the brewery. There’s only so much you can do to pivot.”
This hasn't stop craft brewers from trying.
Blue Mountain Brewery started a series of pop-up events where it allows consumers to order its brews online and pick it up at a selected date, time and place in Virginia. Brewery employees show up, pop open the back of its the beer truck, put up a tent and start unloading products that are only a few days old. Blue Mountain also has a food truck near its second brewery that delivers beer to people within a 15-mile radius.
"We've never faced anything like this. This is unprecedented. Absolutely unprecedented. We're doing everything we can to ride out the storm."
President, Harpoon Brewery
Storey said Harpoon, which has closed two taprooms except for curbside pickup and delivery, is doing everything it can to try to replicate the discovery and experimentation of craft. A five-mile road race it sponsors in May to raise money for ALS over the last 20 years is being held virtually; runners can chart their own course and gather online later for a toast. It also started an initiative where consumers can purchase beer to-go that they can drink during a live tour of the brewery on Instagram.
"It hasn’t even come close to offsetting the loss of business, the loss of revenue we’ve had from the on-premise closure," Storey said.
Defining characteristics of craft
Nathan Greene, an analyst at the Beverage Marketing Corporation, said the craft beer industry was poised for another strong year in 2020 with new openings projected to increase 3% to 4% and sales across the segment expected to surge to another record, topping $29.3 billion posted last year. Craft makes up more than 25% of the $116 billion U.S. beer market, according to the Brewers Association.
But the spread of coronavirus has upended the once-thriving industry. Greene estimated up to 30% of craft brewers, or about a third of the 8,275 in existence in 2019, could go out of business or experience a major change to their operations, such as a closing of a taproom or turning exclusively to retail for their only source of revenue.
"There's likely going to be a number of breweries, that is a sizable percentage of the total amount, that isn't going to make it through," Greene said.
Most craft brewers, the majority of which are small and produce 1,000 barrels or less a day, generally don't have a lot of cash on hand and often have higher debt levels because of the brewing equipment they had to purchase, Watson said.
"There's a real chance that if they can't get back to some semblance of normal sales this summer that they just don't have enough cash to withstand this," he said.
Analysts said losing craft brewers risks stripping from the space the very characteristics that have come to define the sector and contribute to its robust growth during the last decade: its willingness to experiment and introduce new and never-heard-of-before brews.
"Obviously, we have to do everything we can to keep people safe. But to think about the risks that we can lose the people who are able to be super creative, that are pushing the boundaries of beer, that are blending things in new ways and aging things in new ways," Jenny Zegler, associate director of food and drink at Mintel, told Food Dive. "It really kind of breaks my heart to think that that could be something we're losing."
The current environment is not conducive for consumers attracted to brewpubs and taprooms for their relaxing, family friendly atmosphere where people can casually sample beers to see what they like and would purchase later on at stores, bars or restaurants.
With many of these establishments closed to their traditional way of doing business, analysts said craft brewers who depended on on-premise sales for the lion's share of their revenue are the ones that are most at risk — especially the longer states require these businesses to remain closed to customers.
"Obviously, we have to do everything we can to keep people safe. But to think about the risks that we can lose the people who are able to be super creative, that are pushing the boundaries of beer, that are blending things in new ways and aging things in new ways. It really kind of breaks my heart to think that that could be something we're losing."
Associate director for food and drink, Mintel
Craft brewers get about 45% of their sales on premise and 55% offsite compared to 80% and 20% across the beer industry as a whole, according to Watson. Other brewers susceptible to the current downturn include those that lack a top-tier following in their own region or are highly leveraged and spent a lot of capital to grow their business in recent years.
“One of the cruel ironies of all this is the conventional wisdom in craft breweries in the last couple of years has been that selling beer and package distribution is really hard, really competitive and so focusing on your taproom or brewpub was the smart thing," he said. "Obviously, those investments are the ones that are getting hit the hardest.”
At Russian River in California, Natalie Cilurzo, co-owner and president, said the brewer was careful not to be too dependent on its own brewpubs, with sales split roughly between their onsite establishments and wholesale shipments. Now, beer production is down about 30%, with sales coming online, a steady takeout business and at retail outlets in California, Oregon, Colorado and Pennsylvania. Russian River has furloughed 70% of its 204-person workforce and reduced hours for another 12%.
"Bottled sales are up, which is kind of been our saving grace," Cilurzo said. "We're definitely relying on wholesale distribution and online beer sales to keep our business afloat."
Russian River is no stranger to disruptions on its business from disasters outside of its control. In 2017, and again last year, the brewery was on the outskirts of wildfires that were spreading across California. The blaze in 2019 came about a mile from its new dream 195-seat brewpub in Windsor, located 100 miles west of Sacramento, resulting in a week-long evacuation and power outage.
“When you have a little more experience of going into crisis mode, and having to kind of pivot very quickly and make decisions on the fly, it really helps to have that experience. And I think that having had some of that experience already under our belt gave us an advantage,” Cilurzo said. Still, she added, "Comparing [the coronavirus] to that is really different because the fires you had more confidence that things were going to be over and that you're going to be okay, and that your business is going to survive.”
Challenges in retail
Craft brewers have attracted consumers to the category and polished their image by deepening their ties within the community through the sponsorship of sporting events, samplings, beer festivals and other gatherings where people can meet, have fun and drink beer. With these events canceled or moved online, it's harder for craft brewers to connect and build their brands.
The closure of off-premise establishments such as restaurants and bars has knocked off another meaningful revenue stream and way to create awareness for their brand. Even as retail becomes a bigger part of sales, supermarkets, convenience shops and liquor stores are besieged with their own challenges that has trickled down to craft during the outbreak. Shoppers, Greene said, are showing less of a willingness to linger or scan shelves for a new beer to try.
And as more Americans lose their jobs or work fewer hours, they will have less money to spend. These challenges could prompt consumers to switch to mainstream brews like Miller Lite or Coors Light, mid-tiered premium brands such as Corona and familiar crafts including Sam Adams or Sierra Nevada.
"It’s almost a complete 180 to what made a craft brand have an opportunity for success previously. Before it was like whoever was paving the most new and unexpected path and attracting those people seeking variety," Greene said. "And now as people seem to be shifting toward more brands they know or brands that they're very loyal to, you're more likely to see long-term brands or brands with really, really distinct and developed followings seem to be doing the best.”
Greene said even before the coronavirus, retailers were dropping some craft brands that weren't as profitable while cutting back on shelf space devoted to the space. But the segment was able to continue prospering as taprooms, which came with higher margins, represented 15% of total craft beer volume compared to 7% in 2015.
Craft's challenges on the shelf appear to have picked up momentum during the virus outbreak, with smaller brewers responsible for much of the decline. During the six-week period ended April 11, Nielsen said there were about 1,900 fewer beer, flavored malt beverages and cider items for sale across the category. The top 20 craft companies ranked by total dollar sales in Nielsen off-premise channels, sold only 28 fewer items compared to last year while the remaining players had a decline of 1,621 offerings, a drop of nearly 12%.
“The decline in number of items selling places even more pressure on small to medium-sized craft brewers that are already facing enormous challenges with the shuttering of taprooms, bars and restaurants," Danelle Kosmal, vice president of beverage alcohol at Nielsen, said in a statement.
Ripe for disruption
The craft space has become highly competitive following several years of torrid growth that has seen the number of brewers in the space increase to 8,275 in 2019, a nearly 417% jump from 1,600 operations in existence during 2009. The market saturation has been exasperated by consumers curtailing their alcohol consumption, switching to low- or no-alcohol beers or low-calorie brews, with others abandoning the space altogether by turning to more trendy drinks like hard seltzer.
"The bubble was there. A lot people were already saying that maybe, especially in the U.S., that craft beer has gotten a little bit too big," Zegler at Mintel said. "I think it's undoubtedly going to change. ... The pressures were there before the world turned upside down with this pandemic."
A survey of craft breweries in early April by the Brewers Association showed the industry itself was not optimistic about its own future the longer the pandemic drags on. It found an estimated 12% of the 525 respondents as of April 9 said they could survive between one and four weeks, while another 46% predicted they could last between a month and three months.
"We're a lot more nimble that way so the only pressure being put on us is by ourselves, and the world clearly. We're set up. We’re going to make it through this. In a year, if we have this conversion, I don’t know what our business might look like. It might look really different."
Co-owner and president, Russian River Brewing
Overall, sales were down at least 23%, with the biggest drop coming in onsite revenue where most breweries experienced declines topping 70%. Faced with little to no revenue, those brewers surveyed said they have furloughed and/or laid off nearly all of their staff. The craft industry employed 161,000 workers full-time and part-time workers before the coronavirus.
The Brewers Association also has succumbed to the challenges facing its members. The association laid off 23% of its staff in late April "in order to maintain the long-term viability of the" organization.
Even as consumers quarantine at home, people are craving the chance to rekindle a connection with their community or do what they can to save local businesses that may be in dire straights. Those who follow the alcohol space said beer drinkers could be willing to support a local brewer they have an affinity for, but if an area is saturated with multiple craft players, lower-tier operators risk losing out to a business with a more loyal following.
After the coronavirus has abated, craft breweries are expected to continue utilizing some of the new practices they've incorporated into their businesses. Russian River plans to put more emphasis on takeout at both of its breweries, and it could consider occasional shipments of its beer ordered online. Harpoon will continue looking for novel ways to recreate the craft experience virtually away from its brewery; the beerstied to the online happy hourtour and tastingcould become a permanentpart of itsfuture.
“Given our focus on the sociability of beer it’s going to require that we take new approaches to bring that to life,” Storey said. "What will change for us is how we bring our brands to life without the opportunity to put a lot of people together.”
But at the end of the day, what craft brewers ultimately decide to do may hinge on how they're most comfortable selling beer. Watson at the Brewers Association said some brewers will emerge from the coronavirus looking to diversify the ways in which they sell beer while others will view online sales or other approaches they adopted during the pandemic as temporary and "go back to doing what they did before because that's what works for them and that’s how they built their business.”
Blue Mountain, Harpoon and Russian River are among the craft brewers who said that despite the obstacles they are facing now, they're confident they'll be able to successfully emerge from the pandemic with their businesses intact. Cilurzo said Russian River has benefited because she and her husband have largely eschewed investors or board members who could pressure them financially during the downturn.
“We're a lot more nimble that way so the only pressure being put on us is by ourselves, and the world clearly. We’re set up. We’re going to make it through this," Cilurzo said. "In a year, if we have this conversion, I don’t know what our business might look like. It might look really different.”
Article top image credit: Permission granted by Blue Mountain Brewery
COVID-19 shifts summer shopping and back-to-school preparations
As more and more states ease up on restrictions and roll out plans for reopening non-essential businesses, consumers are slowly but surely preparing for the new reality of retail. Shopkick surveyed more than 18,000 consumers across the country from April 16th-April 19th, and again from May 27th-June 2nd, to see how consumer behaviors and attitudes have evolved month to month as we head into the summer.
Our findings indicate that general concern around the COVID-19 pandemic, and its effect on consumer shopping habits, are gradually subsiding. Last month, 82% of American consumers said that the COVID-19 pandemic was affecting how they shopped. This month, that number has dropped significantly to 70%. Additionally, 21% of consumers said they are less concerned about the pandemic than a month prior (up from just 8%.)
These figures are promising for the many non-essential retailers wondering when consumers will feel comfortable returning to stores. Fortunately, our data shows they won't have to wait too much longer. 55% of consumers who had yet to visit the non-essential retailers that had reopened in their area as of June 2nd said they planned to visit within the next three weeks. And for those in areas where stores hadn't yet reopened, 24% planned to visit within the very first week of opening, with an additional 46% planning to visit within the first three weeks. With 65% of consumers planning to make the majority of all summer purchases in-store, it's clear that Americans are ready and raring to return to brick-and-mortar shopping.
In a separate survey that ran from May 15th-May 26th, Shopkick uncovered what role the pandemic will play in one of the biggest shopping seasons of the year: back-to-school. Although the 2020-2021 school year is uncertain, parents, grandparents and teachers are already preparing for fall. However, more than half of those already planning for next year (63%) are thinking differently about back-to-school spending due to COVID-19, planning to put less of their dollars toward frivolous purchases and more toward essential items and remote learning tools.
The majority of back-to-school shoppers plan to get a head start this summer, with 53% planning to shop one month prior to the first day of school, 22% planning for two months prior, and 17% planning for one week prior. With tighter budgets due to the economic downturn, 80% say getting the best price is their top priority.
Further demonstrating consumer eagerness to get back to brick-and-mortar, 66% of respondents plan to do their back-to-school shopping in-store. Nearly all (95%) in-store purchases will be made at big box retailers like Target and Walmart, followed by office supply stores (37%), club stores (25%), drug stores (24%), and grocery stores (20%).
With uncertainty around returning to full-time school schedules this fall, 38 percent of respondents plan to dedicate more of this year's budget toward remote learning tools. Overall, 40% of respondents say they'll spend less than $75 per child, followed by 34% who say they’ll spend between $76-$150.
And with safety top of mind across the board, this year's back-to-school baskets will include disinfectants and protective items in addition to traditional school supplies. In fact, 83% of respondents plan to make purchases to protect their children and students returning to school, including hand sanitizer (97%), cleaning wipes (89%), paper products like tissues and paper towels (73%), masks (71%), gloves (44%) and disposable cutlery for lunchtime (44%).
"While it is reassuring that most Americans are eager to return to in-store shopping this summer, whether that be for school supplies, clothing, or just a trip to the grocery store, retailers and businesses need to be aware of customers' heightened expectations of the in-store experience," said Dave Fisch, general manager of Shopkick. "As retailers and businesses around the country ramp up plans for reopening, they must adjust to the new normal and prioritize putting in place measures to keep their spaces as safe as possible for customers, and find new ways to reward shoppers for their visits and continued loyalty in these uncertain times."
For more insights from Shopkick on COVID-19, please visit us here. To discuss how these insights can help brands and retailers get back on track, email us at [email protected].
Article top image credit: FamVeld via Getty Images
Coronavirus is boosting sales for center store products. Will the renewed interest last?
From canned tuna to beans and rice, consumers are returning to shelves they once strayed away from. Companies and analysts say this trend could continue as shoppers face economic challenges.
By: Lillianna Byington
From cans of tuna and beans to powdered milk and rice, center store sales have been sliding in recent years as consumers turn to the fresh perimeter in grocery stores. But COVID-19 quarantines and lockdowns have reversed that trend, with shoppers clearing out shelf-stable products in recent months.
Nielsen data sent to Food Dive showed exponential growth in these categories over the last nine weeks. Beans saw 82.1% growth, canned and pouch tuna jumped 75.6% and rice sales increased 84.5%, according to Nielsen figures.
"During the pandemic, consumers have begun to find comfort and a sense of safety in making sure they have enough food on hand," Melanie ZanozaBartelme, global food analyst at Mintel, told Food Dive. "Shelf-stable goods like beans and tuna offer a long shelf life and will 'be there' when consumers need them."
But as sales spike for these categories, a big question remains: Will this just be a flash in the pan or a lasting trend when the pandemic subsides?
Company leaders and analysts told Food Dive that as shoppers rediscover recipes they like and find themselves cost cutting as they deal with economic challenges, these staple products could continue to see a sales boost and build brand loyalty in the long term.
A boost from canned to frozen
Cooking sections across various go-to foodie websites have featured more recipes with canned and frozen foods as consumers buy products that will last weeks and even months indoors. Company leaders say those recipes are helping consumers remember how useful these foods can be.
Joe Perez, senior vice president at Goya Foods, told Food Dive that sales have increased as consumers remember the "versatility and nutrition" from products like beans.
"There is an enormous movement back to basics," Perez said. "Center aisle products that were sort of being shunned have become comfort food and practical food."
Goya's website features hundreds of recipes and easy-to-follow instructions for how to use different kinds of beans in various recipes, he said. Perez said there are several reasons why Goya believes the sales momentum from the pandemic will last, including more people realizing the nutrition these products can deliver.
"People who may have shunned or walked past the center aisle, rediscovered it and realized that there are quality products within those aisles worth their time and effort," he said. "The other aspect, which is unfortunate, currently with so many people out of work, their budget is a bit tighter and canned beans are nutritious, healthy, economical and very versatile. You can make different menus every night without repeating the same bean or the same presentation."
He said most items in Goya's portfolio have seen a sales jump, including canned and dried beans, rice and condiments. "We believe we have expanded the consumer base," Perez said.
Mintel analyst Zanoza Bartelme said that beans have specifically seen more interest in flexitarian eating patterns even pre-COVID because "beans have been a nice bridge for consumers looking to ease their meat consumption but maintain their protein." She said it makes sense that beans would be top of mind in quarantine shopping.
The institute concluded that frozen food will continue to be in high demand even after the crisis subsides. Half of those who purchased frozen foods since the onset of the crisis say they will purchase a lot more (18%) or somewhat more (32%) in coming months.
Sean Connolly, CEO of Conagra, said on the company's most recent earnings call that although the situation is still changing, frozen is drawing in new consumers.
"The sharp increase in at-home eating occasions is generating trial among new consumers that we did not anticipate accessing," he said. "We view this dynamic as a long-term opportunity for our portfolio overall and in particular our leading frozen business."
Frances Zelazny, CMO at Signals Analytics, which has a COVID-19 resource center that tracks food trends, told Food Dive that frozen vegetables are now center plate because fresh produce may not be readily available or easily delivered during this time.
But she said even as people turn to different products, consumers still want tasty, flavorful and healthy options. "This is not the end of the world, people are not going to eat anything just because," she said.
However, Zelazny said that the crisis is still pushing forward trends that were already seeing increased demand previously. She said products that offer CBD, clean label, plant-based, superfood and vegan attributes will continue past the pandemic.
A tuna comeback?
Overall tuna consumption has dropped 42% over the last 30 years as younger consumers turn to products that don't require a can opener, according to USDA data in 2018.
But tuna sales are turning aroundand some brands are optimistic that this crisis will deliver a silver lining to the tuna industry well into the future.
Andy Mecs, VP of marketing and innovation at StarKist Co., told Food Dive that shelf stable tuna sales in the U.S. were up 146.5% compared to the previous year for the week ending March 14. He said it has been one of the highest growth categories across the entire store in recent weeks.
"As for the current environment, I believe that some of the consumer behavior will change permanently," Mecs said. "Consumers have been introduced to new types of foods with new types of packaging and are cooking more than usual out of necessity. Also, a record number of retailer apps have been downloaded as e-commerce has suddenly become much more prevalent with groceries. Some of these behaviors are likely to remain after the isolation ends."
"As for the current environment, I believe that some of the consumer behavior will change permanently."
VP of Innovation and Marketing, StarKist
Despite the decline in tuna consumption overtime, Mecs said it has actually increased since early 2017 as consumers gravitate toward no-drain tuna pouches. StarKist was the first company to sell pouch tuna at retail and has an 83% share.
The company is continuing to innovate as well. StarKist has launched dozens of varieties of tuna, chicken and salmon pouches over the past few years that have seen success with consumers.
Tuna giant Bumble Bee also struggled, filingfor bankruptcy before it was sold to Taiwan-based FCF Fishery in January of this year. But now it is seeing renewed product interest.
Jan Tharp, president and CEO of Bumble Bee Foods, told Food Dive in an email that the company has ramped up its purchase of raw materials, added production days to factories, expanded its sourcing and narrowed its immediate focus on delivering the most in-demand products to market during this time.
"Our immediate focus is exclusively on meeting the needs of consumers in the weeks ahead as we all work through this challenging and uncertain time together," Tharp said. "When the time is right, we’ll get back to marketing a product line that we obviously believe brings a lot of value and benefits to an array of audiences."
Will these sales hikes last?
As the spread of coronavirus continues, analysts have remained confident that consumption of shelf-stable and frozen packaged foods will continue to temporarily increase, but the long-term impact is less certain.
A report from Bernstein predicted growth across these categories in the short term, but expressed more caution for the future. The analysts said at the time that they did "not expect any material impact on U.S. food companies' sales on a full-year basis at this stage."
Mintel analyst Zanoza Bartelme said that in times of anxiety, consumers seek comfort from their foods, and many turn to the dishes they enjoyed when they were young. She said these products, and ones like mac and cheese, are affordable and consumers already know what to expect from them.
That affordability will definitely drive consumers in today’s economic climate and as the country ventures into a downturn, "consumers will be looking for foods that feel low risk and a good value for their money," she said.
She said shoppers may look to private label or lower-cost options, but they could also be tempted to trade up on meal accompaniments like sauces, seasonings and condiments that ensure foods are "still tasty and exciting."
"As in the last recession, we could see manufacturers getting creative with smaller sizes or single-serve options that help consumers flavor their foods without busting their budgets," she said. "Some products and brands may be challenged to prove their value as consumers' wallets grow lighter."
Article top image credit: Lillianna Byington/Food Dive
As meat giants face scrutiny, small and niche producers capitalize
The four major meat companies have closed plants and warned of shortages during the pandemic, while local ones have offered a more transparent view of operations and seen business boom.
By: Lillianna Byington
Belcampo, a producer of organic, pasture-raised meats, saw sales more than double in its butcher shop and quadruple online during the pandemic.
Anya Fernald, co-founder and CEO of Belcampo, told Food Dive the company has its own supply chain that already focuseson being transparent with consumers by not including a middlemen to get its meat from farm to table, which helps it stand out as the industry faces increased criticism and strain on its supply and workers.
As more consumers want to know where their meat came from, she said people are turning to companies like hers who have implemented a "very aggressive approach" for safety and already openly communicate about its supply chain through its website and app.
"Basically a lot of things that we've laid the groundwork for, for years, are finding an audience. People are caring about them, they want those values that we've invested in," she said. "To be able to pivot and flex and meet consumer demand, this is a great time to do that. For us, it's actually a really great moment for the brand and company, honestly, albeit in really challenging circumstances."
As massive meat plants face challenges with tens of thousands of workers getting sick and criticism from the public about worker safety, smaller protein producers are using this opportunity to highlight their products, which have a more transparent food process, to consumers.
Tyson Foods, JBS SA, Cargill and National Beef are the four largest meatpackers in the country. Those four companies sell about 85% of beef and the pork in the U.S. and chicken markets are similarly controlled by large corporations, according to Ag Web. Although the market share will be tough to change dramatically, companies and analysts say that statistic could shift some as more consumers turn away from the big guys.
"This is really the first time in modern history when we've seen any kind of a disruption at this level, so it will be interesting to see if there are some changes," Cassandra Fish, a meat industry analyst, told Food Dive.
Consumers find alternatives to the meat giants
The issues with meat giants haven't stopped consumers from buying meat, as sales have jumped as much as 112% across the category during the outbreak, according to Nielsen. But it has led more consumers to shop for local meat.
Mike Dunn, owner of Wormuth Farm, told Food Dive that he was angry when Tyson Foods’ chairman wrote in an advertisement that the supply chain was breaking as a result of plant closures due to the pandemic. Dunn decided to criticize the ad on Twitter, garnering hundreds of likes.
"As a small poultry producer who services customers in a 100mile radius, the food supply doesn't begin and end with Tysons. And it ain't breaking," Dunn tweeted.
As a small poultry producer who services customers in a 100mile radius, the food supply doesn't begin and end with Tysons. And it ain't breaking.
He said he hopes that people will realize there doesn’t have to be just a few big companies in the U.S., and that consumers can have a more personal relationship and get better tasting food with smaller producers.
"I think that the food giants are a cartel. And I think that cartel was in operation with lobbyists years ago, and they put the screws on small distributors of food, like small meat packers and small farms. And I think people realize that now. What has happened has thrust some of this into the spotlight," he said.
Dunn, who sells poultry and eggs in the New York area, said he is preparing to sell his chickens this season and expects more interest. He runs a small operation in White Lake, New Yorkthat sold 135 birds last year, but he expects to sell 300 this year.
More niche meat products are also garnering new interest after losing their traditional outlets. When restaurants and foodservice started to shut down because of quarantines and lockdowns, the lamb industry was hit hard.
Rick Stott, president and CEO of Superior Farms, an employee-owned American lamb company, told Food Dive that 50% of the lamb goes to the foodservice side of the business and that disappeared in about a week’s time.
"It has had a pretty dramatic effect. Fortunately, like many other packers in many other segments of the protein industry, the retail ramped up dramatically," he said.
The company has had to shift its production. It's more expensive cuts oflamb, like the rack, is primarily a restaurant product and that demand and price has come down significantly, declining $30 to $40 per head for just one cut, he said. But Stott said it has found new outlets to sell the product at a lesser price, which they’ve had to absorb into their margins.
"That's been a big challenge, but at least we're starting to see some movement of that product out of the packing plant rather than going into the freezer, it's actually going out the door so that's a bit of a positive dynamic having to move how we traditionally have sold that product," Stott said.
Stott said consumers are already turning to lamb when traditional meat on shelves is depleted because of the circumstances. He said 40% of consumers have never tasted lamb and the average consumption is one pound per person per year, but more are giving it a try.
"We know that because some of our bigger retailers that track their loyalty cards are telling us that new consumers are eating lamb, and that they're coming back for more," he said. "The silver lining of this, quite frankly, is that more people are experiencing lamb... we think we're getting a whole new group of consumers into our product that will be there for many years to come."
Higher prices during an economic downturn
However, when it comes to cost, smaller meat producers tend to offer more expensive products.Business Insider reported that buying four pounds of organic chicken each week would cost you about $105 morethan buying non-organic over the course of a year.
With the economy in a downturn and nearly 40 million Americans on unemployment, not everyone will be willing to pay more for protein. But companies say the pandemic could push people to pay for higher-quality products in the long term and realize the low cost isn't worth it.
"I think [the industry]made a deal with the devil on the efficiencies and it's incredibly cheaper than it's ever been in history, but I think that comes at a cost: a cost to humans, a cost to animals and a cost to environment. So I'd like to be an agent of change to break up that system because I don't think it's serving a long-term picture of human health," Belcampo's Fernald said.
"They're going to read these horrible stories about how the workers are being treated and be like, 'Do I want to pay for that system? Do I want to support that? Do I feel safe eating that?'"
Fernald said that she thinks more people are going to recognize how consolidated the meat supply is and consider the trade-offs that consumers are making to get the incredibly competitive price.
"They're going to read these horrible stories about how the workers are being treated and be like, 'Do I want to pay for that system? Do I want to support that? Do I feel safe eating that?'" she said.
Across the food industry, at least 22,000 plant workers have tested positive for coronavirus and at least 76 workers have died as the virus has spread among the facilities where people often work shoulder-to-shoulder.
Dunn said that not everybody will want to pay more than 99 cents a pound for chicken, but he hopes there will be more people who realize they don’t need to buy from the giants. At his farm, he said a customer can meet him, and see how the chickens are raised and treated in an outdoor environment — vastly different from factory farming.
Unlike chicken and other more common household meats, Stott said the lamb industry doesn't really see a decline in consumption in recession periods because it's still such a small consumption in the U.S. and people who people who buy lamb often buy it for a specific purpose so the price sensitivity is less impacted.
Could more small meat producers pop up as a result?
Fish, the meat industry analyst, said she has heard more people talking about potentially opening smaller chains, butcher shops or packing plants, and there could be some "really good interest" from the consumer in that for the time being.
Although niche producers could gain more shoppers as a result, it will still be challenging because of the sheer volume and geographical distribution of the major meat producers. "Not just anybody can accommodate that," she said.
"The majority of people in the United States purchased their protein, either in foodservice or retail, something that came from one of the four largest packers,” she said. "It could be an opening, but I think it would be difficult for, like, Kroger to go that direction just because of their sheer size, just using them as an example."
Fish said the national supply chain is complex and challenging for smaller, niche meat producers.
"One of the biggest challenges for niche marketing has really been ‘How do I get that in front of my consumers 52 weeks out of the year.’ It's that consistent supply that's challenging for smaller operations as opposed to the big ones," she said.
There have also been reported challenges with smaller meat producers being able to keep up with the increased demand. But across the globe, some grocers and e-commerce outlets have been looking into more local meat options for retail.
As small meat producers rise to the occasion, could this pandemic also change how the big producers act? Fish said the large meat companies are already being "more transparent today than they've ever been" as they face COVID-19 challenges and criticism.
"I've been in this business a very long time, they've been more forthcoming with information than they normally have been. They're typically pretty closely held with information. So it has already had the effect of making them more transparent,” she said. "So if the question I guess would be will they continue to be more transparent, I would guess they will be to some degree."
Article top image credit: Permission granted by Belcampo
Plant-based food sales outpace growth in other categories during pandemic
By: Megan Poinski
Plant-based food has seen a higher growth rate than general food sales during the coronavirus pandemic, according to SPINS statistics for the 16 weeks ended April 19 analyzed by the Plant Based Foods Association.
Compared with last year, plant-based sales were up 90% in mid-March as consumers stocked pantries and freezers. In the four weeks after that, plant-based food sales grew at a rate of 27% more than 2019 and 35% faster than the food category in general.
Sales of plant-based meat have skyrocketed during the pandemic. All plant-based meat sales are up 148% versus 2019, and sales grew twice as fast as conventional equivalents during the four months analyzed. Refrigerated plant-based meat saw the most growth, with sales spiking at 241% compared to 2019 during the pantry loading peak. In the weeks following, the category has grown 113% over last year.
Other plant-based categories also have seen strong sales peaks. Plant-based cheese sales were up 95% compared to 2019 in mid-March. Sales in this category have remained on an upward trend, with a growth rate of 54% in the four weeks after the consumer buying peak. Tofu and tempeh sales were up 88% over 2019 in mid-March, and have grown at a 35% clip since then.
Even without a pandemic keeping people at home, experts forecast sales growth in the plant-based sector in 2020. After all, there are more products at a growing number of retailers, different items that are closer to the real thing, and a growing acceptance for plant-based food as a mainstream option. A pre-pandemic analysis of SPINS data by the Plant Based Foods Association and Good Food Institute found the entire plant-based food market was worth $5 billion, with dollar sales up 29% during the previous two years.
This halo is extremely important to consumers now.
“Since the beginning of the pandemic, there has been a continued shift in consumer purchasing toward natural and organic products that enhance health and immunity,” Tony Olson, owner and CEO of SPINS, said in a written statement with the data. “Our data shows, the plant-based meat boom of last year continues and as reports of animal-based meat shortages increase, we can expect plant-based meat to gain even more traction.”
Plant-based food has the added bonus right now of coming from what could be viewed by consumers as a safe source. After all, scientists say the coronavirus was an animal disease that spread to humans. Plant-based food companies have long detailed the risks to human health and the environment posed by animal agriculture. In the current situation, consumers may be more apt to believe them.
The factories where plant-based food is made also are viewed as healthier. While crowded worker conditions in meat processing plants have led to coronavirus outbreaks— forcing plants to temporarily shut down and straining the meat supply — plant-based food factories haven't had any of the same problems. These operations require less manual labor than their conventional counterparts and tend to have social distancing built in. Conscientious consumers may decide to buy plant-based products to support an industry with better working conditions.
While the recent sales growth in plant-based foods is impressive, it's hard to decipher what it really means. Plant-based meat and cheeses have been on a growth trajectory for years, and consumer options have multiplied in the burgeoning space. Many manufacturers have been increasing distribution of their products this year, meaning more consumers have an opportunity to buy them. For example, Impossible Foods began 2020 with its products only in a small handful of grocery stores nationwide. Now, they're in about 2,700 locations, an 18-fold increase.
The statistics do reinforce a couple of basic premises. Plant-based eating is a trend that's here to stay. The fact that sales were so high for tofu and tempeh — two stalwarts that were at the center of many vegetarian meals decades before "plant-based" was a commonly used term — shows this kind of diet is being embraced by many age groups right now. When the pandemic has abated, it will be interesting to see if plant-based alternatives represent a larger percentage of what's on consumers' plates.
Article top image credit: Follow Your Heart
Consumers and manufacturers rethink DTC's promise as pandemic alters shopping habits
PepsiCo, Mondelez and Unilever are among the companies that have deployed direct-to-consumer shipping, which offers convenience for shoppers but complicated logistics.
By: Christopher Doering
With millions of Americans locked down at home during April because of the coronavirus, Gibu Thomas, senior vice president and head of e-commerce at PepsiCo, sensed a shift in the marketplace over how once-reluctant consumers viewed the online space to purchase their groceries.
The convenience and simplicity of online shopping, commonplace in areas such as electronics and toys but slow to gain momentum in food and beverage, had suddenly grown more attractive; sales of PepsiCo's soda, oatmeal, juice, chips and other offerings soared.
So Thomas issued a challenge to his team of technology experts and CPG veterans: combine the deep bench of resources at the CPG giant with the speed and agility of a startup to create a direct-to-consumer platform in 30 days. To quicken the process, the company had to make some tradeoffs. PepsiCo, at least initially, is eschewing some of its popular brands such as Pepsi and Mountain Dew or Starbucks ready-to-drink coffees, though they will likely be added later.
"I didn't actually think [the team] would be able to do it in 30 days, but you know, you have to make it somewhat aspirational," Thomas said. "Amazingly, the team responded and built from the ground up end-to-end capabilities."
In May, PepsiCo unveiled its first major foray into direct-to-consumer sales with a pair of websites.
At PantryShop.com, consumers can order specialized bundles like the "Rise & Shine" kit with Tropicana juice, Quaker oatmeal and Life cereal, or the "Workout & Recovery" with Gatorade protein bars, Muscle Milk and enhanced electrolyte water Propel. The other site, Snacks.com, houses many of Frito-Lays' brands, including harder-to-find iterations like Ruffles Lime & Jalapeno, Lay’s Lightly Salted and Cheetos Xtra Hot that may not always be in stores but were in demand among consumers looking for nostalgic treats that made them feel good during the pandemic.
PepsiCo had dabbled in direct-to-consumer before, but it was largely centered on brands they were incubating that didn't have broad retail distribution, Thomas said. For the 122-year old company to commit to the platform with its portfolio of iconic drinks and salty snacks, it needed to do more than just give shoppers another way to buy PepsiCo's products. Instead, it needed to give people a reason to come back because it was meaningfully different from the other ways in which they went about purchasing their items.
"The test for direct-to-consumer always is, can you provide a value proposition that really resonates with the consumer, right? Because that's when you get the repeats. That's when you get the sustainable proposition," Thomas said. "We'll continue to invest in it and will continue to iterate and pivot until we find the propositions that consumers find delightful and sticky."
Simplicity for the consumer, but complicated for manufacturer
Consumers using direct-to-consumer services has gradually increased. In 2014, only 1.4% of consumers used direct-to-consumer services once in the prior 12 months to purchase food and drinks, according to Global Data, an analytics and consulting company. The figure steadily climbed to 5.8% in 2018.
For shoppers, the coronavirus has highlighted the convenience and simplicity that comes with a direct-to-consumer model. Consumers can go to a website, chose their favorite products and have them shipped straight to their door, saving a trip to the store. But shipping food and beverages is riddled with challenges. Produce, for example, is easily perishable and something consumers often prefer to pick out themselves. A 12-pack of soda is heavy to ship.
Analysts said snacking items such as cookies, nuts or other small frequent indulgences are ideally positioned to benefit from the direct-to-consumer model. Products replenished regularly, such as water or coffee pods, or items where there is strong brand preference and loyalty, also lend themselves to the platform. Food manufacturers also could use it more often to test new products and get immediate feedback or to offer nuanced flavors, package sizes or ancillary products that aren't in as high demand — much like PepsiCo has done with certain Frito Lay extensions on its Snacks.com site.
"Direct-to-consumer is growing, but it won't become the predominant method of buying food. It's just not the most efficient way of servicing the customer."
Managing director, Global Data
Neil Saunders, managing director with Global Data, said direct-to-consumer will be more enticing for CPG companies because it will give them a way to boost their product penetration while having greater control over the supply chain without being as beholden to grocers to display their items. Manufacturers can also sell the products at retail price, rather than at wholesale, and reap the benefits of higher margins.
Saunders said growth in direct-to-consumer sales will "accelerate" because of the ongoing pandemic and the benefits it offers the public to purchase a few items rather than do a full shop at a store or online using a service like Instacart.
Still, he said, the service is not for every company because shipping straight to consumers is complicated and requires the CPG firms to become more intricately involved in extra steps of the delivery process — they can't just ship massive pallets of products to Kroger or Walmart and let them do the rest.
Saunders also noted companies need to implement new business practices as they interact more directly with customers, from how to handle product returns or issues with last-mile delivery services. If a product arrives damaged, for instance, it can reflect negatively on the brand.
"Direct-to-consumer is growing, but it won't become the predominant method of buying food," Saunders said. "It's just not the most efficient way of servicing the customer."
'Grown like a weed'
But the complications doesn't mean direct-to-consumer services lack value for some companies or brands. A handful of big CPGs have moved methodically in transitioning some of their products online.
Nestlé's home delivery business, which includes its Nespresso coffee platform and its ReadyRefresh water and beverage service, has been strong, especially during the pandemic. Unilever's food and refreshment division in the United States uses direct-to-consumer with its T2 tea brand, Maille condiments and its popular Ben & Jerry's ice cream.
Hanneke Faber, president of Unilever's foods and refreshment division, said the consumer goods company started partnering with food delivery operators like Uber Eats and Grubhub and pizza chain Domino's in 2018 to deliver containers of Ben & Jerry's.
"It made much more sense for us to partner with these players who already have huge traffic, know how to convert and have delivery systems in place to actually get it to you in 30 minutes. Our capabilities are in brand development and product development and innovation.That's what we're good at. We're not a delivery company."
President, Unilever's foods and refreshment division
When consumers order a pizza or purchase Chinese food, they can add on the ice cream and the driver can pick up a container at a designated location. The business has "grown like a weed," Faber said, with significant growth since March.
"It made much more sense for us to partner with these players who already have huge traffic, know how to convert and have delivery systems in place to actually get it to you in 30 minutes," she said. "Our capabilities are in brand development and product development and innovation.That's what we're good at. We're not a delivery company."
At Mondelez International, Glen Walter, president of North America, called direct-to-consumer "an interesting opportunity" and another way for the snacking giant to connect with shoppers. It can use the platform to increase awareness for a brand that isn't as widely distributed such as premium cookie maker Tate's Bake Shop or personalize an already popular offering.
Consumers can create a custom mix of Mondelez's Sour Patch Kids by color and package size or personalize it with their name on it. Iconic cookie brand Oreo allows consumers to purchase personalized gift boxes for special occasions like birthdays, graduations or weddings. Currently, only "a handful" of its brands are participating in direct-to-consumer, Walter told Food Dive.
"The way we look at direct-to-consumer would be more of a way in which we're activating brands versus a significant channel" for sales, he said.
Erin Lash, a director of consumer equity research at Morningstar, said while direct-to-consumer could prove advantageous in some categories, CPGs will be reluctant to fully commit to the space because they are too dependent on retailers and don't want to damage that relationship. Food manufacturers are dependent on supermarkets when they want to pass through price increases, gain better shelf space or make room for new products they want to bring to market.
"It might make those conversations more difficult," she said.
Howard Dorman, a partner and practice leader for the food and beverage sector at Mazars who represents several food distributors, told Food Dive while a growing number of smaller upstart brands would embrace direct-to-consumer because it might be hard to get on retail shelves, especially in the current coronavirus environment, he was skeptical the platform was going to become more prevalent anytime soon among larger CPG brands.
"If you can go online and order it, ... what you have done, you've cut out retailers, you've cut out slotting fees, you've cut out costs. That could be a game changer," Dorman said. "That's constriction in the marketplace and I don't think we're ready for that to happen yet."
First time for everything
This hasn't stopped scores of small brands or companies that don't have a major presence from dabbling in the space, in some cases out of sheer necessity.
As food and beverage manufacturers grapple with a shutdown in foodservice and disruptions in retail, businesses have turned to direct-to-consumer, many for the first time, as a way to generate revenue, move inventory and keep workers employed. Ocean Spray introduced Atoka, a line of herbalist crafted, plant-based functional beverages, available only through its direct-to-consumer online site, the cranberry cooperative's first foray into the delivery space.
Hundreds of craft beer purveyors have turned to shipping their novel, cleverly named brews to consumers as their revenue-generating brewpubs and taprooms have been forced to close their doors.
At Russian River in California, Natalie Cilurzo, co-owner and president, said "desperate times" have forced the company to ship its ales and barrel-aged beers to consumers for the first time in its history despite the logistical challenges. Cilurzo said the once-a-week exercise is very labor intensive and expensive, and at times during the pandemic, supply chain bottlenecks have slowed the delivery of cans, bottles and boxes to ship the beers in.
"We don’t have a department handling beer sales. This is not something we were interested in doing on a regular basis, but things change, right? We’re really not set up to do this," she said. "This is not an Amazon fulfillment center.”
When United Sodas introduced itsline of better-for-you premium drinks in May, founder and CEO Marisa Zupan bypassed retail and launched directly to the consumer in order to better understand her audience and have more control cultivating its relationship with shoppers — a connection that gets lost when a store is added to the mix.
"We wanted to have that relationship ourselves," Zupan said. "Being a brand that's launched in 2020, to have your own distribution channel and to own your customer relationship is very important and smart."
Before the coronavirus forced restaurants and other foodservice outlets to close, East Coast distributor Baldor Specialty Food depended on these establishments for nearly 90% of its revenue. As the pandemic worsened in March, executives gradually rolled out direct-to-consumer delivery starting in New York City before expanding the service to Philadelphia and Washington, D.C. two months later. Further expansion is being considered.
With hospitals, retailers and some restaurants still open, many of Baldor's 300 trucks were already on the road. At the same time, with consumers stuck at home or reluctant to leave, the 29-year old company saw an untapped market for its fruits, cheeses, pastries and meats, among other products.
To make orders usually delivered in bulk more compatible for a consumer at home, Baldor and its suppliers reduce their size. Crushed tomatoes that usually came in a dozen 32-ounce square containers are now sold individually, while proteins like chicken or beef typically available in 10-pound or 20-pound cases come in smaller packs.
Direct-to-consumer "has been a big step for the company," Bill Hodge, general manager of Baldor Specialty Food in Washington, DC., who uses the home delivery service himself, told Food Dive. "When you're in the middle of that change, it's challenging and it took a lot of people to make it happen, but when you look back at it now and you realize the synergies that you have, it seems very logical."
If a growing number of businesses decide to sell more of their brands online, what is now a sparsely populated space when the number of brands being sold are taken into account could quickly expand. The impetus will be on food manufacturers to entice the consumer with a reason to not only shop direct-to-consumer, but to choose their site over the other ones available.
"We're not going to become a complete direct-to-consumer society. It just isn't going to work like that," Saunders said. "You can't sell every single product via direct-to-consumer because what consumers don't want is to have 300 different odd places that they go to buy all the products that they need. ... The idea of having to visit tens, if not hundreds of different sites and have all these kind of different arrangements, is nowhere near as convenient as just going to the supermarket."
Article top image credit: Permission granted by PepsiCo
Online alcohol sales may see permanent rise as coronavirus alters shopping habits
Data insights firm Kantar estimates that 30% of new customers who try buying booze through e-commerce for the first time during the pandemic will remain long-term users.
By: Christopher Doering
As more consumers turn to the convenience of e-commerce to deliver alcohol during the coronavirus outbreak, the recent surge could be indicative of a broader shift that could buoy the largely untapped segment for beer, spirits and wine long after the virus has dissipated.
With consumers spending more time at home sipping drinks or holding virtual happy hours and get-togethers with friends, food and beverage purchases have soared — and e-commerce sales of alcohol has been far and away one of the biggest beneficiaries.
"When shelter-in-place began, we were uncertain of whether or not this would be a short-lived trend, or long-term change," Lindsey Andrews, CEO of Minibar, told Food Dive in an email. "What the growth numbers in April have shown us is that online alcohol delivery is here to stay. COVID-19 has shifted consumer behavior permanently."
Alcohol e-commerce retail sales have more than doubled from the week ended March 7 through April 18 compared to the same period a year ago, according to Nielsen. Spirits have grown the fastest, while wine continues to be the largest category, commanding almost 70% of online alcohol retail sales.
Andrews said while growth won't "realistically ... stay at this level," the awareness for alcohol online that has permeated the mainstream media and broader culture overall during the outbreak should spur further increases in sales.
Slow to adapt
Until now, alcohol delivery has lagged behind grocery delivery, and there is hope that the habits ingrained during the current pandemic will become permanent once the outbreak has abated. The coronavirus also has forced both large retailers and mom-and-pop shops to find new ways of doing business and embrace an online marketplace faster than they otherwise would have.
"Alcohol consumption as a whole is looked at very differently now. Those people who have adopted to e-commerce have realized it's much easier, and these companies have paved the way to make it much easier to facilitate e-commerce orders. The pipes have been laid and they're not going to lie dormant."
Executive vice president of digital and e-commerce, Kantar
Reid Greenberg, executive vice president of digital and e-commerce at Kantar, said alcohol sales for online alcohol delivery companies such as Drizly and Minibar that focus exclusively on this category have risen "triple digits" during the coronavirus outbreak, with similar increases posted at e-commerce sites Instacart and Postmates.
"Alcohol consumption as a whole is looked at very differently now," Greenberg said. "Those people who have adopted to e-commerce have realized it's much easier, and these companies have paved the way to make it much easier to facilitate e-commerce orders. The pipes have been laid and they're not going to lie dormant."
The shift, at least for now, could show how much value shoppers place in convenience. U.S. consumers are still willing to treat themselves with alcohol during shelter-in-place, according to Nielsen. Nearly 75% agree they expect to pay more for a delivered spirit than in a retail store.
Greenberg estimated across all e-commerce channels, including alcohol, about 30% of new customers that try the service for the first time during the coronavirus will remain long-term users.
Convincing the consumer
For now, growth remains robust. Instacart, the grocery delivery company, said the number of orders containing alcohol grew more than 75% during March. At Minibar, the on-demand liquor service said since March 11, overall sales have shot up 160%, with an increase in average order size by 22%.
Minibar, whose customer base is 90% made up of smaller liquor stores, has posted record sales during the period due in large part to a nearly 600% increase in people placing orders on its app or website. It also has experienced a seven-times increase in customers, mostly small or family-owned businesses, requesting to join its delivery platform.
Similar success has been replicated at competitor Drizly. Founded in 2012, Drizly reported during the week of April 26th that sales were up 392% over baseline, or what the company would have expected to normally see in this time period. Much of this growth comes from an influx of new customers, which now account for 27% of orders compared to a usual rate of 15%.
While Drizly, which uses its software to connect retailers or liquor stores with consumers, was growing even before the epidemic, the recent outbreak "certainly has accelerated that" pace of growth, Liz Paquette, head of consumer insights at Drizly, told Food Dive.
She said a major hurdle for faster growth in e-commerce delivery of alcohol had been convincing consumers that purchasing alcohol online was something they could do legally. As of late March, 31 states allow wine and beer to be purchased and sent directly to a consumer's home. Drizly and Minibar, which usually delivers alcohol to consumers in under an hour, have asked shoppers to give them two hours or more in some cases as they digest the surge in demand, a request people have been willing to accept.
"Given that this is a service that people are seeking out during this time and referring to their friends, I think the landscape is going to look much different moving forward, both from a consumer perspective because of that awareness level and the trial that's happening now for folks," Paquette said.
With consumers more reluctant to visit stores or their nearby local liquor shop for booze amid the outbreak, alcohol delivery becomes an increasingly more enticing option. Paquette noted its company'ssocial media mentions are up 800% as more people mention the service to each other.
"None of us could have prepared for this," she said. "People are just seeking this out right now."
The e-commerce company said leads from retailers interested in working with the startup to deliver their alcohol have increased 300% since the coronavirus began. Retailers, especially neighborhood liquor stores, value the service as a way to offset lost sales for shuttered locations during the coronavirus, or as another channel to sell their alcohol.
While Drizly currently doesn't disclose sales or total customers, it serves "a few million people" in 180 markets in the U.S. and Canada each year. Minibar offers same-day delivery to 50 cities across the U.S. and has more than 500 retail customers.
While the flood of new partners has slowed how quickly retailers get added to Drizly's platform, the company has devoted more resources to alleviate the backlog.
"Our team is working in overdrive to make sure these businesses don't get left behind as quickly as we can," Paquette said. "I won't lie to you. The first couple weeks of this happening it was like triage mode, right, making sure we could actually meet this demand working with our retail network to step up to the challenge."
'An uphill climb'
Nick Johnson, an equity analyst with Morningstar, was far less optimistic about the future of alcohol online. He said e-commerce is riddled with a slew of challenges that will make it harder for the segment to become the preferred way for consumers to purchase beer, wine and alcohol.
"I think it's going to be an uphill climb," he said.
For companies that prioritize alcohol, the products are cumbersome and sometimes fragile to deliver. Similar to other last-mile delivery companies, it's difficult for those in alcohol to amass the scale they need to compete profitably in a market or to offer the service to shoppers at a price point that makes it attractive for more people to use it, he said.
Even as more consumers use e-commerce for alcohol delivery, people, especially in urban areas, have plenty of choices in their neighborhoods to purchase alcohol. With this convenience, shoppers in a post-coronavirus world may be less willing to foot the delivery fee attached to each order or the markup attached to the products they purchase when they could simply venture out a few minutes from their homes, Johnson said.
In addition, with so much alcohol being consumed at bars, clubs, sporting events and other ventures, consumers may end up drinking more at home in the long run but these establishments will remain the preferred way for people to imbibe.
"I definitely think there is an opportunity there but I don't think it's going to be a dominant channel," Johnson said. "I just don't see much of an appetite for it."
Analysts said while a few alcohol delivery companies could conceivably stay independent, the ones that successfully entrench themselves in the space and become profitable after the pandemic could be attractive acquisition targets. Others could find themselves better off folded into a bigger company where the economics are more favorable.
E-commerce doesn't need "another intermediary just to focus on alcohol delivery to the home," Johnson said.
Andrews from Minibar said while there could be consolidation, it's not a priority for her company in the near term.
"We believe there is a huge opportunity to build a massive business and that is what we are focused on," she said.
"I definitely think there is an opportunity there but I don't think it's going to be a dominant channel. I just don't see much of an appetite for it."
Equity analyst, Morningstar
For his part, Greenberg noted those businesses that emerge from the coronavirus outbreak will further increase their value and have the opportunity to raise money, or attract a suitor, at a higher valuation. Companies can increase their value going forward by working closely with state and federal governments that oversee alcohol sales, strengthening their balance sheet and developing a closer relationship with the shoppers by improving features such as product recommendations.
"I remain very bullish on the long-term impact that COVID-19 will have on e-commerce ordering in grocery, more specifically in alcohol," Greenberg said. "But the economics behind it are tricky. It's best to have it combined with other products in the shopping cart, not just alcohol by itself, because it's very expensive to pick, pack and ship a bottle of wine."
Article top image credit: Permission granted by Minibar
Private label prospects brighten as recession hits cash-strapped consumers
Even before the pandemic, sales growth in the sector was forecast to outpace that of national brands for the fourth straight year, according to IRI.
By: Christopher Doering
Private label offerings of pasta, sauces, granola and other foods are surging with millions of Americans out of work due to the pandemic, but the specter of a prolonged recession could make the $90 billion-plus category even more attractive to consumers — putting pressure on brand-name products currently in the middle of a much-needed surge in demand.
"Consumers feel the need to be careful with their money because that is a lesson that everybody has learned from" the Great Recession a decade ago, Krishnakumar Davey, president of strategic analytics at IRI, told Food Dive. "This means private label is going to do well. It's a nice tailwind for private label under the current environment."
Even before the shutdown of restaurants, sporting events and social gatherings from the coronavirus prompted people to spend more time cooking at home, private label was forecast to have a strong 2020 with sales growth expected to outpace that of national brands for the fourth straight year, according to IRI.Once dismissed by consumers as inferior, private label has now become a standard go-to item for many people when they shop — generating billions in additional revenue for the companies that manufacture these products.
In large format stores such as grocery, Walmart, Target and club outlets, IRI estimated private label sales of food and beverages are forecast to increase between $10 billion and $12 billion this year, up from a $2.5 billion increase a year ago, to $93 billion to $95 billion.
Private label's market share of food and beverage consumption in these channels is expected to grow about half a percentage point to 19.2% after jumping 0.4% in 2019. If this trajectory continues, the segment could grow sales another $10 billion next year, Davey said.
All eyes on Washington, D.C.
TreeHouse Foods, the nation's largest manufacturer of private label products, said sales accelerated in April as unemployment surged to levels not seen since the Great Depression. U.S. employment has shed about 20 million jobs, or 13%, since February, the month before the pandemic prompted states to shutter parts of their economies, according to The Wall Street Journal.
To meet growing demand, TreeHouse, especially during the initial stock-up run by consumers in late March, worked with retailers to identify the most popular SKUs to help streamline operations and increase their output. It expanded production at some plants from five to seven days, and added extra shifts when needed, Amit Philip, TreeHouse Foods' chief strategy officer, told Food Dive.
"Consumers feel the need to be careful with their money because that is a lesson that everybody has learned from" the Great Recession a decade ago. "This means private label is going to do well. It's a nice tailwind for private label under the current environment."
If Congress and the White House decide not to extend that subsidy this summer — payments are scheduled to end after July 31 — shoppers would have less money in their pockets to spend. This would make private label more enticing for value-hunting consumers. While private label's market share would increase by about half a point in the back half of 2020with the benefits in place, if it's not renewed, its share increase could double or triple over that same period, Philip said.
"If that subsidy goes away, then people are really going to be hurting, and unfortunately what that means is there is a lot more movement into finding value, and that's what private label offers," Philip said.
During the pandemic, private brand sales have jumped 34%, outpacing national brands, according to a report from Daymon, a sign they are "resonating with consumers as they look for alternative solutions." Similar data from Nielsen showed during the 14-week period ending June 6 that private label sales surged 23% while brand names jumped slightly less at 21%.
TreeHouse said meal-prep items such as pasta, broth,red sauces and macaroni and cheese have posted the largest increases in recent months. Pasta alone was up roughly 70% during the peak of the outbreak. Cookies and crackers also have surged but their sales increases have been less robust.One occasion "that has struggled a bit" is bars, with consumers spending less time commuting or grabbing a snack at places such as work or the gym, Philip noted.
At 8th Avenue Food & Provisions, jointly owned by Post Holdings and private equity group Thomas H. Lee Partners, Scott McNair, president and CEO, told Food Dive in an email the company saw demand for its pasta, nut butters, granola and other products "spike as consumers gravitated toward items that were easy to prepare."
Investing in private label
Since the last recession more than a decade ago, retailers such as Kroger, Aldi, Costco, Wegmans, Publix, Trader Joe's and even Dollar General have invested heavily in the space through better package designs, improved quality and multi-tiered offerings.
"While many grocers offer private label products, [our private label offerings are] a real differentiator for Kroger," Rodney McMullen, Kroger's CEO, told analysts during the company's earnings report last December. "Our customers tell us through blind taste tests that Our Brands' quality is better than not only the competitors' private label products but also many leading national brands as well."
TreeHouse's Philip said the company is being asked by "really powerful retail brands" for private label products with attributes such as better quality, organic or healthier. It's no longer enough for them to offer a national brand or slightly less than a national-brand equivalent.
For supermarkets, they are a valuable way to build consumer loyalty and increase the volume of shopper trips to their stores. More than half of shoppers reported they picked a store specifically for its private brand offerings while 89% said they trust them as much as traditional offerings, Daymon said. At the same time, more than 80% consider private label to be a better value for their money.
"There are a bunch of distractions going on for the retailers right now but ... once the retailers get organized, I’m sure they will push private labels to the economically challenged shoppers because they will be making less and spending less so they will try to get a higher share of the wallet" through their own brands, Davey said.
Retailers who have invested in their private label brands and have managed to build a strong reputation among consumers "are likely to grow" the most under the current climate, he said.
Lessons from the Great Recession
Early on during the pandemic, shoppers were stockpiling at home, leading to a shortage of several items on shelves. If their favorite brand name was out of stock or they wanted to fill their pantry, many consumers turned to private label to load up their carts. This could create a long-term swell to the private label category if shoppers are won over by quality and price, turning them into permanent buyers.
A survey of consumers by Magid in early April and May found 68% said they would likely continue buying private label products after the coronavirus threat subsides.
"The days of private label being a substitute quality choice are long gone," McNair said.
The Great Recession offers a study in how private label could benefit again this time around under another economic downturn.
“Certainly that recessionary period was a really accelerated time of growth for private label and literally did come as a shock, I think, for a lot of the branded companies," Neil Saunders, managing director with Global Data, told Food Dive. "There had been a little bit of growth on private label before that, but it is really when a lot of consumers, especially middle Americans, did turn more heavily to private label to try to save money.”
For private label, the economic downturn from 2008 to 2010 marked a coming-out of sorts for the category as it not only managed to grow market share and sales but used it as a springboard for future expansion that has been ongoing ever since.
"Even if the economy rebounds fully, we believe there will be new work norms that will enable more people to work from home — and there will be increased household consumption of the private brands they grew to love during the stay-at-home time."
President and CEO, 8th Avenue Food & Provisions
In recessions in the early 1990s and 2000s following the dot.com collapse and 9/11, private label managed to grab market share only to give much of it back after the economy improved, TreeHouse's Philip said. But the Great Recession saw millennials starting to enter the workforce, and today, they and their Gen Z cohorts are more value oriented, brand agnostic and more willing to try new things. Private label is among the biggest beneficiaries.
"Another recession would indicate similar purchase behavior," McNair said. "However, even if the economy rebounds fully, we believe there will be new work norms that will enable more people to work from home — and there will be increased household consumption of the private brands they grew to love during the stay-at-home time."
According to IRI, the then-nascent private label category added $8 billion in sales between 2008 and 2010, with products such as meat, salad, cheese and sugar that already had a strong presence in the space posting the biggest growth. Nearly $3 billion in the new revenue came from private label grabbing market share from brand-name goods.
The "trade down" to private label during the Great Recession was mainly centered on value, with consumers looking for the lowest price point they could find, Saunders said. Today, with private label firmly entrenched, another recession could push shoppers to try new categories within the space.
'Continue to prosper'
At Treehouse, executives are closely monitoring consumer eating habits as states gradually reopen businesses to assess how home eating habits and grocery shopping patterns change. They're watching areas where conditions have improved to determine if they should bring back SKUs so consumers have the product choices they are used to.
Even as things improve across the country, TreeHouse, after investing the last few years to improve its data analytics capabilities, is watching where cases are spiking or falling on a county-by-county effort to prepare for future demand and know which products might be popular with consumers.
For 8th Avenue Food & Provisions and TreeHouse, the companies are optimistic the long-term outlook for private label remains bright even when the economy improves and millions of Americans are back to work. Similar to previous economic downturns, the hope within the industry is that more customers who tried private label brands this time around will become long-term buyers.
"Through everything that has gone on there have been a number of people that have been exposed to private brands, or have been forced to switch brands because their brand wasn't available or they were looking for better value," Philip. "We've had a lot of trial [with people] and so private brands will just continue to prosper over the next few years."
Article top image credit: Christopher Doering/Food Dive