A Seismic Shift in How People Eat
By HANS TAPARIA and PAMELA
KOCHNOV.
6, 2015
Photo
CreditSarah Illenberger, photograph by Sabrina Rynas
IT’S
easy to make fun of people in big cities for their obsession with gluten, or
chia seeds, or cleanses.
But
urbanites are not the only ones turning away from the products created by big
food companies. Eating habits are changing across the country and food
companies are struggling to keep up.
General
Mills will drop all artificial colors and
flavors from its cereals. Perdue, Tyson and Foster Farm have begun to limit the use of antibiotics in their
chicken. Kraft declared it was dropping artificial dyes from its
macaroni and cheese. Hershey’s will begin to move away from ingredients such
as the emulsifier polyglycerol polyricinoleate to “simple and
easy-to-understand ingredients” like “fresh milk from local farms, roasted
California almonds, cocoa beans and sugar.”
Those
announcements reflect a new reality: Consumers are walking away from America’s
most iconic food brands. Big food manufacturers are reacting by cleaning up
their ingredient labels, acquiring healthier brands and coming out with a
prodigious array of new products. Last year, General Mills purchased the organic pasta maker Annie’s
Homegrown for $820 million — a price that was over four times the company’s
revenues, likening it to valuations more often seen in Silicon Valley. The
company also introduced more than 200 new products,
ranging from Cheerios Protein to Betty Crocker gluten-free cookie mix, to
capitalize on the latest consumer fads.
Food
companies are moving in the right direction, but it won’t be enough to save
them. If they are to survive changes in eating habits, they need a fundamental
shift in their approach.
The
food movement over the past couple of decades has substantially altered
consumer behavior and reshaped the competitive landscape. Chains like
Sweetgreen, a salad purveyor, are grabbing market share from traditional fast
food companies. Brands such as Amy’s Kitchen, with its organic products, and
Kind bars are taking some of the space on shelves once consumed by Nestlé’s
Lean Cuisine and Mars.
For the
large established food companies, this is having disastrous consequences. Per
capita soda sales are down 25 percent since 1998, mostlyreplaced
by water. Orange juice, a drink once seen as an important part of a healthy
breakfast, has seen per capita consumption drop 45 percent in the same period. It is
now more correctly considered a serious carrier of free sugar, stripped of its
natural fibers. Sales of packaged cereals, also heavily sugar-laden, are down over 25 percent since 2000, with yogurt
and granola taking their place. Frozen dinner sales are down nearly 12 percent
from 2007 to 2013. Sales per outlet at McDonald’s have been on a downward
spiral for nearly three years, with no end in sight.
To
survive, the food industry will need more than its current bag of tricks. There
is a consumer shift at play that calls into question the reason packaged foods
exist. There was a time when consumers used to walk through every aisle of the
grocery store, but today much of their time is being spent in the perimeter of
the store with its vast collection of fresh products — raw produce, meats,
bakery items and fresh prepared foods. Sales of fresh prepared foods have grown nearly 30 percent since 2009, while
sales of center-of-store packaged goods have started to fall. Sales of raw
fruits and vegetables are also growing — among children and young adults, per
capita consumption of vegetables is up 10 percent over the past five years.
The
outlook for the center of the store is so glum that industry insiders have
begun to refer to that space as the morgue. For consumers today, packaged goods
conjure up the image of foods stripped of their nutrition and loaded with
sugar. Also, decades of deceptive marketing, corporate-sponsored research and
government lobbying have left large food companies with brands that are fast
becoming liabilities. According to one recent survey, 42 percent of millennial
consumers, ages 20 to 37, don’t trust large food companies, compared with 18
percent of non-millennial consumers who feel that way.
Food
companies can’t merely tinker. Nor will acquisition-driven strategies prove
sufficient, because most acquisitions are too small to shift fortunes quickly.
Acquired brands such as Annie’s Homegrown, Happy Baby and Honest Tea account
for 1 percent or less of their buyers’ revenues. Moreover, these brands, along
with their missions and culture, tend to get quickly lost in the sales and
marketing machine of big food companies. It is easy for them to get orphaned.
For
legacy food companies to have any hope of survival, they will have to make bold
changes in their core product offerings. Companies will have to drastically cut
sugar; process less; go local and organic; use more fruits, vegetables and
other whole foods; and develop fresh offerings. General Mills needs to do more
than just drop the artificial ingredients from Trix. It needs to drop the sugar
substantially, move to 100 percent whole grains, and increase ingredient
diversity by expanding to other grains besides corn.
Instead
of throwing good money after bad for its lagging frozen products, Nestlé, which
is investing in a new $50 million frozen research and development facility,
should introduce a range of healthy, fresh prepared meals for deli counters
across the country.
McDonalds
needs to do more than use antibiotic-free chicken. The back of the house for
its 36,000 restaurants currently looks like a mini-factory serving fried frozen
patties and french fries. It needs to look more like a kitchen serving freshly
prepared meals with locally sourced vegetables and grains — and it still needs
to taste great and be affordable.
These
changes would require a complete overhaul of their supply chains, major
organizational restructuring and billions of dollars of investment, but these
corporations have the resources. It may be their last chance.
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