A new report by A.T. Kearney, Chicago, and The Hartman Group, Bellevue, Wash., finds key food trends are slowing the growth of some of the nation’s largest food and beverage companies.
The report, titled “Is Big Food in Trouble?” shows the Top 25 U.S. food manufacturers have ceded 300 basis points to small and medium-size competitors since 2012 and have grown revenue just 1.8% compared to 11-15% growth for smaller companies. Changes in consumers’ core values—amplified by social media, celebrity chefs and a myriad of food experts—are rewarding small and medium-size companies with above-average growth and slowing the growth of the Top 25 food and beverage companies.
“Large established food manufacturers need to give consumers real reasons to remain loyal. This includes providing innovative products that meet consumers’ current and emerging needs, delivered when and where they shop and with transparency and authenticity in sourcing, production and marketing,” says Randy Burt, A.T. Kearney partner and co-author of the paper.
Some key takeaways from the report include:
- Consumers are more passionate about the food they eat, and their appetites are creating dynamic shifts in the grocery aisle.
- A focus on diet foods shifted to a focus on real food as a way to maintain health.
- More foods are being launched that go beyond basic nutrition to support heart health, digestive health and higher energy levels.
- Consumers are embracing free-from segments (non-genetically modified, organic and gluten free).
- Fresh food departments are growing at the expense of center store and processed foods.
- Locally sourced foods with a direct-to-consumer model are becoming more attractive.
- Consumers are demanding transparency in food sourcing, production and labeling.
“Consumers—led by Millennials and Gen Xers—will continue to press companies and retailers for more information and accountability about how ingredients are source and processed, how real their food products are and how responsive they are to consumers’ desire for choice and customization,” adds Laurie Demeritt, chief executive officer of The Hartman Group and co-author of the paper.
Based on industry projections, big food can tap into a $70 billion opportunity in overall food and beverage market growth over the next three years. The study provides big food companies with three strategies for recapturing profitable growth:
Strategy 1: Take advantage of cost take-out and divestiture to enable investments in growth activities.
Strategy 2: Use controlled acquisitions of smaller, established players and external venture capital development to add trending categories to a portfolio.
Strategy 3: Create venture funds to invest, seed and grow nascent brands, products and technologies that could position companies to take advantage of consumer trends with a lower entry cost.
“Larger food and beverage manufacturers need to evaluate focused acquisition strategies as well as investments in new growth category venture funds,” adds Dave Donnan, A.T. Kearney partner and co-author of the paper. “Corporate innovation models will require an open innovation platform incorporating smaller entrepreneurial companies.”