The FoodNavigator-USA reader survey results: ‘We’re in the 3G era... where cost cutting is valued over growth’

To place this into context, it’s been another tough year, with US retail sales of foods and beverages rising just 1% in 2016 to $507.54bn, while unit sales rose by just 0.4% (IRI) and retailers struggled to cope with persistent deflation.

Many legacy brands meanwhile, from Diet Pepsi to Banquet, experienced flat or declining sales in mature markets such as carbonated soft drinks, ready-to-eat cereal, and frozen meals, prompting a flurry of M&A activity as big CPG brands invested in or gobbled up their smaller, sexier, counterparts.

Seismic changes

There have also been pretty seismic changes in some categories, with bottled water consumption – for the first time - exceeding that of soda, and per capita fluid milk consumption dropping from 247lbs in 1975 to 155lbs in 2015 – a 37% decline – as Americans experiment with plant-based alternatives, or ditch cold cereal for yogurt, eggs or hot cereal at breakfast.

Meanwhile, natural and organic food & beverage sales rose 8.5% to $74.8bn in 2016, while functional food sales were up 7.6% to $59.7bn and dietary supplement sales were up 6.6% to $41.4bn (according to Nutrition Business Journal data shared at the Natural Products Expo West trade show in March).

Almost 500 respondents

Against this backdrop, 472 of our readers – from the founders of food start-ups to brand managers at Fortune 500 companies and R&D experts at ingredients suppliers - responded to our state of the industry survey in March, sharing insights into everything from the burgeoning meal kit market and the Paleo Diet to the challenges around sourcing Non-GMO ingredients and how hard it can be to find the right people to fill key roles.

We’ll be sharing the full results in a report in early summer, but here are some of the highlights:

The good news…

First, the good news: 67% of respondents felt more positive about the future of their companies than they did a year ago, while 61% expected profit margins to improve, 43% said they would take on more staff this year than last year and 61% planned to invest more in new product development this year than last year.

Almost a third (31%) felt they were getting a good return on trade spending (vs 20% who disagreed – the rest were unsure), while just 20% agreed that securing finance had been a “major challenge” this year compared to 46% who disagreed.

However, 58% agreed that their companies had experienced difficulties in finding the right people to fill key roles (compared with 31% that disagreed), and 47% agreed that navigating the GMO/Non-GMO landscape was proving a “big challenge” compared with 41% who disagreed.

‘Trends and fads based on shaky or outright disproven science’

A small number of readers also expressed frustration that GMOs were even on the agenda given competing priorities, with one commenting that, “The media has caused an unnecessary frenzy about GMOs, and it is going to cost the food business and consumers a lot of money.”

One reader told us: “It’s totally insane, at least when having to deal with the Non-GMO Project! It's a paper chase that doesn't really guarantee anything,” while another felt that frustrated that the food industry was allowing itself to jump on bandwagons, “trends and fads based on shaky or outright disproven science.”

Consistent with our November 2016 survey results, some readers were also anxious about what the Trump administration would mean for trade, although for most, rising labor and health insurance costs, soda taxes and evolving food safety regulations were a bigger headache, with one listing the following list of challenges:

“Cost-cutting, erosion of consumer trust, smaller competitors (they can take more risks than big companies because consumers inherently trust them more than big companies and they are less of a target for class action lawyers and regulatory agencies).”

Another added: “We are in the ‘3G era’ where cost cutting is valued over growth, but this isn't sustainable in the long run.”

E-commerce

One figure that stands out in the survey results is that 60% of respondents agreed that ‘Online retail channels could ultimately become as important as bricks & mortar retail for my business,’ while 64% agreed that ‘Online marketing and social media initiatives will be more important than traditional marketing to my business in 2017.’

What’s your social mission?

A whopping 86% agreed that ‘Consumers now expect food & beverage companies to have a social mission as well as just making money,’ although the comments section reflected a certain degree of cynicism, with one reader commenting: “What people claim to expect and what they actually do as consumers depends. Those with the luxury to pick and choose or make an overt ‘statement’ are more likely than someone who will buy when nobody is looking because of price (or convenience).”

One reader felt that “consumers want to see actions in this regard not hollow words,” while another said that “More consumers expect it [food companies to have a social mission], but not the majority yet,” with another adding: ”The majority of consumers are still price driven.”

Another claimed that brands’ social/ethical activities were “replacing traditional advertising for brand awareness,” but argued that this did “not create product purchase intent.”

Natural still resonates, even if its meaning is elusive

When it comes to ‘natural’ claims, while many readers doubted whether the much-maligned, and over-used, word retained much value, a surprisingly high percentage  – 76% - agreed that ‘the word ‘natural’ still resonates strongly with consumers on food & beverage product labels,’ even though “educated consumers will always look past it to the back of the label.”

Another reader added: “I think that people are ascribe a lot more meaning to it [the word ‘natural’ on a food label] than is actually guaranteed,” with another conceding: “Yes, it still resonates - even though everyone has their own definition of what it means.”

Paleo: ‘High protein is here to stay but not the absence of carbs’

As for the Paleo Diet - a hunter/gatherer-style approach to eating urging consumers to eschew grains, dairy and legumes – just 19% agreed that ‘The Paleo trend is here to stay,’ while 50% disagreed and the rest were unsure, with one arguing: “The Paleo trend is a fad and like all other fads before it, it will eventually be succeeded by the next best thing…  I think it has run its course; people are now talking more about Whole30.”

Another predicted that “High protein is here to stay but not the absence of carbs,” while others said: “The less processed trend is here to stay, but perhaps not Paleo as it exists today… I believe it is going to evolve into a less stringent practice while holding on to the core tenets… The grain-free, no refined sugars aspect will stay.”

Meal kits: Fad or trend?

We end our round-up of survey highlights with meal kits, which enable consumers to cook restaurant-quality meals at home without having to do any of the legwork. Half of our respondents agreed that ‘Meal kits are a sustainable trend that will continue to grow in scale and significance,’ while 23% disagreed and 27% were on the fence.

Here are a selection of your comments:

• Meal kits will have to increase their offering into other niches, BBQ gatherings and small to medium parties at home.
• I think this is a trend that will morph into something else over the next few years. There used to be ‘stores’ where you would get together with friends and make a number of meals for your family to use or freeze. They were hot for a while and then disappeared. I see that happening with meal kits as something else comes along…
• Yes, meal kits will grow, but I don't believe they are sustainable in their current form.
• The meal kit market will continue to grow, especially as busy Millennials become parents. This is a behavior that is normative for them.
• Meal kits will be part of a larger omni-channel strategy.
• Meal kits only appeal to a relatively small demographic.
• While meal kits are fun to try and convenient, unless costs come down significantly, I can't see this trend gaining too much traction.
• Driven by advancements in technology, the meal segment will continue to flourish.
• Price will be the [defining] factor. They are on the pricey side now.
• Meal kits still have tiny penetration. They need to be much lower in cost to go more mainstream.
• I think they need to find a way to limit waste and improve their range of delivery. Also, the space is becoming crowded; eventually there will be only a handful that outlast the others.
• There’s not enough business for everyone and eventually people will tire of the fad. Right now, they are a darling of hipsters and ‘millennial-pretures,’ but eventually some green advocacy group will expose the carbon footprint of these services and the sector will tank.
• it will be a sustainable niche market, but won't achieve mass market scale
• They are priced too high right now and seem to promote a lot of packaging waste
• The concepts will continue to evolve, but in various formats….