McKinsey & Company just published: What got us here won’t get us there: A new model for the consumer goods industry. The report explains how COVID-19 has amplified 12 trends that have been disrupting consumer packaged goods (CPG) for the past decade. You can access the report HERE.
The authors explain that CPG players need to rethink their portfolio priorities and “where to play” choices to increase their exposure to growing markets, channels and subcategories. They also need to better focus on the what’s important to today’s consumers. Price sensitivity, for example, is skyrocketing in importance in the wake of COVID-19. Younger consumers seek out brands they see as special, different and authentic. All age groups are prioritizing conscious eating and living, preferring purpose-driven brands that help them meet personal goals. Small brands are rushing in to deliver on these brand values, although execution challenges during the COVID-19 crisis have held them back, growing at only their fair share, instead of outgrowing large brands, according to the authors.
This market data is revealing. Large brands (more than $750 million in revenue) in the U.S. lost volume at the rate of 1.5% a year, from 2017 to 2019, while small brands grew 1.7% and private label grew 4.3%. Detailed analysis of the large CPGs (more than $2.5 billion in U.S. revenue) shows that all of their organic volume growth and almost 90% of their overall value growth came from their small and medium-sized brands (less than $750 million in revenue), even though those brands contributed only 42% of 2016 revenues. In recent years, the leading brands in each CPG category generated only 25% of value growth in U.S. Nielsen-covered channels, while small and medium-sized brands captured 45% of growth and private-label products 30%.
The future is niche products that meet a need.
McKinsey & Company explains that successful stand-alone small brands are very disciplined and very careful about spending. Small brands usually market efficiently with the core consumer in mind. As they grow, they leverage their community and loyalty to “export” the brand. They also tend to focus on a key channel to deliver and delight the core audience before expanding distribution points to increase purchase frequency.
Grocery shopping trends during COVID-19
Consistent with prior years, the Food Marketing Institute (FMI), in collaboration with Hartman Group, fielded research in February 2020 to support this year’s U.S. Grocery Shopper Trends. The research included a national survey (n=2,000) and qualitative interviews around the country.
To capture the dynamic changes in the intervening months, FMI updated this data through several additional weeks of survey research in March and April 2020 (n=1,000 x 4 waves). These findings have been integrated into the initial research to provide a relevant view of shopper trends as they stand at this moment in time.
“Retail food saw eight years of spending growth in one month,” reports FMI.
Here are some dairy volume sales highlights from IRI, courtesy of the Midwest Dairy Association.
- Milk sales are up 3.9% in 2020 year-to-date (YTD) through July 12, compared to the same period in 2019. In the four weeks ending July 12, volume sales increased 0.1%. Four of the eight regions are posting declines in the latest four weeks. While grocery stores continue to see growth, the “all other channel,” largely Walmart, has turned negative in the last two four-week periods. eCommerce sales continue to skyrocket.
- Cheese continues to see strong growth in 2020 YTD with volume up 16.7% YTD and 13.2% in the most recent four-week period. Large increases have been maintained despite significant price upticks of 5%. Growth is observed across all regions, top varieties, forms and types. Italian cheeses are performing particularly strong, as well as forms associated with family meals, such as shreds and grated.
- Yogurt sales are gaining strength over the last 12 weeks. Year-to-date, volume is up 3.4% with a higher increase of 4.6% in the most recent four weeks. Within yogurt packaging formats, tubs and tubes have been key growth drivers. Cups, which account for the largest volume share (56%), have been soft (-0.4% YTD).
- Butter (and butter blends) is up 31.5% YTD and up 23.4% during the most recent four-week period.
- Ice Cream/Sherbet is up 11% YTD and up 5.2% during the most recent four-week period.
- Cottage cheese is up 4.3% YTD and up 5.5% during the most recent four-week period.
- Sour cream is up 17.3% YTD and up 15.2% during the most recent four-week period.
Claims shoppers want, before and after COVID-19.
The FMI research shows shoppers continue to scrutinize products to avoid negatives and minimize processing. A large majority of shoppers (82%) reported at the outset of 2020 that they examine food and beverage packaging for specific properties they seek, similar to 2019. Few shoppers in March or April indicated paying any more or less attention to labels now than prior to the pandemic.
Shoppers focus on wholesome foods with minimal processing that help them avoid negatives, especially sugar and sodium. They also pay close attention to the level of processing, looking for claims such as natural (27%), no artificial ingredients (28%) or having no preservatives (28%).
Online shoppers tend to examine package claims more carefully, looking for cues of ethical sourcing practices in both animal treatment and business relationships. They are also more likely to seek out products offering positive nutrition, such as vitamin-enriched or antioxidant-rich claims. Shoppers who do not shop online, on the other hand, focus more on avoiding specific ingredients. Sugar is the number-one food component that all consumers avoid.
Less sugar is the new norm in the next normal.
“Sugar’s increasingly negative image due to its impact on rising diabetes rates and childhood obesity has hurt sales of sugary beverages, especially sodas, juices, and ready-to-drink sports drinks and teas,” according to the hot-off-the-press Packaged Facts report: U.S. Beverage Market Outlook 2020: Grocery Shopping & Personal Consumption in the Coronavirus Era. “People who want to reduce their sugar intake typically do not want sugar-free products but instead those with less sugar or those sweetened with natural, non-sugar ingredients. Public health recommendations and tax legislations are helping drive the move toward reduced or no/less added sugar claims. New product activity has surged for reduced-sugar varieties of beverages, with manufacturers using natural sweeteners like stevia and monk fruit, real fruit, honey and erythritol.”
It’s no wonder that less sugar was a priority for the start-up companies that were selected to participate in the 2020 Dairy Farmers of America (DFA) Accelerator program. This is how big brands become niche players.
“We’re excited about the companies for this year’s class. Not only is this the biggest group that we’ve ever had, but a lot of these companies are developing cutting-edge products and solutions,” says Doug Dresslaer, director of innovation at DFA. “Plus, on both the ag tech and food sides of the program, we have companies doing really cool things with sustainability and dairy by-products, which is a strategic focus for our cooperative and the industry.”
The DFA Accelerator is a 90-day immersive program, typically with a combination of on-site meetings and virtual programs to provide training, growth opportunities and mentorship. Most startups typically spend about four weeks in Kansas City, where DFA is headquartered. This year due to the COVID-19 pandemic, the program was managed remotely with virtual Demo Day presentations made yesterday, July 30. This is where each of the companies talked about what they’ve learned and provided their best pitches about their startups.
I was fortunate enough to be in the audience. All nine companies were very impressive. I look forward to featuring the dairy products in the Daily Dose of Dairy. Here are some highlights:
Ag Tech Innovations
- Armenta (Ra’anana, Israel): a non-invasive technology for antibiotic-free treatment of bovine mastitis
- Capro-X (Ithaca, N.Y.): a sustainable solution for whey waste from Greek yogurt production
- Livestock Water Recycling (Calgary, Alberta, Canada): a manure treatment technology, which recycles 75% of manure into clean water while segregating manure nutrients for precision fertilizer application
- Mi Terro (Los Angeles): a sustainable fashion brand that uses excess milk to make men’s and women’s t-shirts
Dairy Food Products
- Chank’s Grab-N-Go (Millville, N.J.): a handheld snack company featuring pizza cones, Philly cheesesteak cones and more (pictured)
- GoodSport (Chicago): a sports drink made from upcycled liquid dairy by-products, which uses only natural ingredients and has naturally occurring electrolytes and vitamins
- SuperFrau (Cambridge, Mass.): electrolyte drinks made from upcycling surplus whey, with real ingredients and no added sugars
- Wheyward Spirit (Eugene, Ore.): premium spirit made from whey
- Yaar Nordic Quark Bar (London, U.K.): Nordic chilled dairy snacks made with fresh quark, a mixture of cow’s milk and natural lactic acid
Since its inception, the DFA Accelerator has worked with 25 companies and has continued to work with the majority of these companies in some capacity after the 90-day program. To date, 94% of the alumni companies are still in business today. For additional information, link HERE.