It’s a Jungle Out There: The Consumer Products Industry

Source: Womens Running

By Richard Salvatierra

Amidst a seismic shift in consumer preferences, 2018 has been a year of wild headlines for the consumer industry as many companies struggle to woo consumers back to their legacy brands. Earlier this year, Nestle agreed to sell its legendary U.S. candy business including Butterfinger and Nerds. In September, Dunkin Donuts dropped “donuts” from its name and throughout 2018, big beer companies have announced development plans for cannabis-infused beverages. It is only natural to ask: “What the hell is going on?”

For many years, products such as Nestle’s candies and Heineken’s lager beers left grocery stores faster than they got in. Today, however, sales at consumer packaged goods (CPG) firms have stalled as consumers gravitate towards smaller brands marketed as healthier, more natural, and locally-made. The shift towards fresh items with fewer processed ingredients gained momentum in the 1990s, partially through regulations such as the Nutrition Labeling and Education Act of 1990, which requires food manufacturers to include nutritional information on their packaging. During this decade, consumers became more aware of what they were putting into their mouths and began to push for less artificial ingredients and more natural, organic foods. Most food and beverage companies, however, saw few incentives to adapt their formulas to America’s evolving palate. Many considered this time to be another health craze, reminiscent of the low-carb fad or the Atkins diet. Others had simply been enjoying a century of cash cows and saw no need to disrupt the reliable, sustained revenue their perennial product lines had been generating.

Throughout the 2000s, a swarm of small companies welcomed the change and gave large consumer companies a tremendous battle for retailers’ shelf space and a continuous drumbeat of bad sales reports. These companies came out with products that were simple, organic and healthy. They were marketed through inexpensive platforms like social media, which allowed them to establish an intimate relationship with their consumers. One example is Greek yogurt purveyor Chobani, which has given General Mills’ Yoplait a beating in the yogurt aisle. With almost no money in his pocket, Hamdi Ulukaya immigrated from Turkey to NYC twenty-three years ago on a student visa. In 2005, he managed to buy an old yogurt plant that had been shut down by Kraft Foods through a small-business loan. Ulukaya fixed the factory and produced greek-style yogurt; a thick, protein-rich and low sugar alternative to traditional yogurt. Within a decade, Chobani popularized the greek yogurt market and pushed legacy brands out of American refrigerator shelves. In a short amount of time, pesky innovators like Chobani posed a significant threat to established industry giants, who had become too complacent about legacy brands and too slow to react with innovative, money making products of their own.

The pressure from smaller, local brands set off a bout of soul-searching in the industry, giving rise to headlines seen today. Although traditional innovations in the industry like renovating existing products or rebranding are still prevalent, they are not doing enough to drive growth. To survive in today’s ever-changing business environment, consumer goods companies are relying on newer approaches and bolder moves to keep up with the rapid pace of America’s evolving palate.

Nine out of the ten largest Global 50 companies have introduced venture capital-style incubators supporting start-up companies and entrepreneurs who are more in sync with contemporary trends. FUZE Beverage, maker of FUZE enhanced juices and teas, for example, is one of many success stories pertaining to Coca-Cola’s Venturing & Emerging Brands unit. In the same vein, some consumer giants are relying on M&A activity as an path to globalization and innovation, while others have relied on divestitures to become leaner organizations focused on core brands and profitability. More interestingly, companies are investing in new digital capabilities and applications that can provide new tools to market and sell their products, as seen by AB InBev investment in Octi, a social media video content producer.

The headlines consumer goods companies are generating these days are all efforts to address the disruptive challenges posed by small and local brands. But the ability of consumer goods businesses to rapidly adapt, innovate, and differentiate themselves in the marketplace will ultimately determine their fate in the industry.

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