Article: Discovering the Trends -- January 2009
Mary Shelman, director of Harvard Business School’s Agribusiness Program, served as keynote speaker for Prepared Foods’ 2008 New Products Conference, and she noted the difficult economic environment facing food companies and consumers, particularly the fact that food prices are up 60% in the past two years. [Editor’s note: This figure was accurate at the time Shelman gave her speech.] Reasons for this increase vary: corn’s use for ethanol, prices for commodities, droughts, low inventories, as well as rising populations and incomes.
In the near future, however, demand will grow further and become more complex, she believes. Burgeoning middle classes in emerging markets are demanding processed, convenient and branded products. Shelman specifically cited circumstances in China. The country feeds 22% of the world’s population with 7% of its farmland. The country’s pork consumption has doubled since 1990. At the same time, 15-20 million individuals are moving to urban areas every year, severely reducing the labor force of farm workers. In addition, by 2010, she predicts China could have more premium consumers than the whole of Europe
Premium items are a phenomenon which Shelman described as “food as fashion:” where consumers believe what they eat says something about them personally. This could be part of the allure of organic foods, the interest in “food miles” and the appeal of premium/luxury products. At the same time, all demographics seem to be embracing functional foods and utilizing them as a form of healthcare.
Speaking from an agrobusiness perspective, Shelman noted the impact of urbanization: in 2008, 50% of the world’s population live in an urban area; by 2020, that number will have increased to 70%, creating a challenge to get fresh food to the market.
At the same time, safe food remains paramount, and supply will grow but become more variable. Yields are increasing, but not as fast as demand, she finds. Environmental resources are finite: 70% of the world’s fresh water is used for agriculture. Plus, there are competing uses for land.
Shelman believes commodity prices will remain high and be more volatile, though Americans have seen the end of “very cheap food.” Also, when considering consumer demands, she notes the importance of identifying fads vs. fundamental shifts; convenience is fundamental, she believes. When developing, companies should consider whether the product will be a three-, five- or 50-year type--that is, a fad or a long-term trend.
Likewise delving into new product development, Steve Wade, director of benchmarking programs and marketing initiatives at CAPS Research, explored supplier relationship management. “The life cycle of strategic relationships will depend on continuing commitments being met and the specific expected value being realized,” he explained.
“Key executives are going to be more engaged with suppliers,” Wade foresees. “They are key to value creation. Finding the best suppliers is critical, not more suppliers. Companies should manage their suppliers, rather than have the suppliers manage the organization.”
The role of R&D is changing, and suppliers are playing a part. In fact, many enterprises are partnering with suppliers (and others) in their R&D efforts. As John J. Smith, the former technical manager with PepsiCo’s Quaker/Tropicana/Gatorade (QTG) Division, explained, his company believes “strengthening external sourcing and collaborations will be core to our success.” Companies are striving to identify external technologies and educate R&D staff in how to work with outside collaborators. This may involve efforts in technology that drive business opportunities and, ideally, it will optimize the use of internal and external technological resources. “Become a ‘partner of choice’,” Smith advises. “Use information management to power the work systems. Rely on support functions. Promote strong personal relationships among stakeholders. Educate the team in open innovation: its principles, characteristics and required skills.”
External network entry begins with a need assessment. The team derives technology roadmaps and extracts the technological needs, after which a project brief is developed. The external network is global, diverse, freely accessible and ever-changing--with a wide variety of financial investment and each component uniquely managed: relationship, timing, cost, IP ownership and final output.
At the same time, new technical competencies must be derived, possibly requiring a tweaking of competencies. Communication is even more important than ever, Smith believes, in order to articulate the problem and communicate solutions. Leadership must champion breakthrough ideas and initiatives, and the teams must be flexible to meet changing needs.
Boomers are changing the industry, explained Steve French, managing partner with the Natural Marketing Institute: there are 78 million of them with $2 trillion in spending power. The generation is beginning to enter retirement years, and that will portend tremendous change. The 20th century saw the length of retirement surge from two years to more than 19 years.
Boomers caused Starbucks to thrive, French believes, and they are driven by convenience. However, they are not a homogeneous group, and he divides them into five distinct categories:
* “Arrivers” believe they are in control of their own destiny.
* “Strivers” feel their best years are to come.
* “Worriers” are all about relieving stress.
* “Bewildereds” are burnt out.
* “Peter Pans” deny growing old at all and feel they can and will deal with aging at a later time.
With convenience clearly important to this group, French advises companies to make it easier for this generation to integrate nutrition into their lifestyle, most likely through functional foods and supplements. However, developers must also be aware of myriad areas important to Boomers that all fall under the banner of “health:” caregiver health, emotional health, retirement health, technological health, financial and physical health.
Convenience may be of vital importance in reaching the Boomer consumer, but it is hardly less important for the rest of the consumer base. However, as Lynn Dornblaser, director, GNPD Consulting Services at Mintel, finds, convenience is changing, and it is growing to involve prepared meal components. At the same time, consumers have plenty of other demands: taste, which is leading consumers to embrace ethnic cuisine and unique flavors; variety; easily understood wellness; and value.
Emerging flavors include regional preferences expanding into other areas of the U.S. and even moving overseas. Dulce de leche, for instance, is a caramel flavor found in numerous desserts in the U.S., and it is the prime example of the impact of Latin cuisine in the country; however, Dornblaser believes dulce de leche’s popularity will not be confined stateside and that it will spread to Europe.
What flavors does Dornblaser believe hold strong potential on U.S. menus? Certain regional flavors have begun to spread around the country: cactus, starfruit, kumquat, hawthorn, persimmon and even lavender, an upscale flavor profile expected to expand from premium chocolates and drinks to become more mainstream.
She also believes curry, hot and mild versions, holds strong potential, as the dish ties in with ethnic flavors and exotic foods, as well as vegetarianism. At the same time, a curry cousin known as masala likely has some category opportunities.
For 2009, Dornblaser sees baobab as an emerging star. A tree fruit, baobab’s dried pulp is claimed to have the highest vitamin C content of any fruit, and Europe has approved its use in beverages.
Barbara Katz, president of Healthfocus International, has found that consumers are more informed about health and nutrition, and this is not solely a U.S. phenomenon. She sees this as a global trend, one which will encompass functional foods; concerns over food purity and safety; children’s health; weight management; prevention; the collisions of diet and healthcare, balance and well-being, increased stress and tiredness; and technology.
She has found that roughly 60% of consumers always/usually read food labels on packages. At the same time, believability and trust in health claims are increasing--to 63%, according to the “2007 Healthfocus International Food Trend Report.” Katz also has found that 80% of consumers are going to the Internet to diagnose their maladies before visiting the doctor, according to the Pew Internet Project. In light of that, Katz notes, “The future of health and wellness will be more about a partnership between healthcare providers, manufacturers, shoppers and retailers.” Those shoppers, she believes, need clear information to help them choose “how healthy they want to be.” While some claims simply are not believable in certain categories, Katz does see opportunities for claims in “less-healthy” categories, too.
Jay Satz, vice president of program and product development at NutriSystem, explored the impact of obesity and overweight in America. Some 66% of U.S. adults are overweight, with 32% obese and 5% extremely obese; 17% of children are overweight or obese, and 15 million individuals qualify for bariatric surgery, according to National Institutes of Health guidelines. Obesity is related to heart disease, osteoarthritis, diabetes, stroke, various cancers and gallbladder disease.
A number of con-sumers realize the problem. Some 45% are dieting, he has found: 99.3 million U.S. adults, 39% of whom are men. However, they are not terribly successful at dieting. Only 2% of past and current dieters reached their goal weight and are not currently dieting, found a “Gallup Diet Study” in 2007.
John Vernardos, vice president of worldwide regulatory and government affairs and secretary of the Herbalife International Inc. political action committee, explained lessons to be learned from the natural products and dietary supplements industries. Herbalife employs a stagegate process, whereby ideation requires 2-4 months, feasibility studies take up 3-5 months; development lasts 6-8 months; 2-4 months for launch; and 3-5 more months to discover what was learned from the process.
Vernados explained distributors are his best source of ideas and identified what he termed “red flags” when dealing with regulators: claims of two-plus pounds lost per week; the ability to eat anything and still lose weight; and the concept of sustained weight loss by wearing an item or rubbing something into the skin.
Patricia Montgomery, senior manager of Global Nutrition & Health with Campbell Soup Company, likewise noted how wellness is a huge, growing and global issue. The Nutrition Business Journal estimates it at $200 billion annually. She believes the next 10 years will see revolutionary changes in the segment due to a convergence of trends. Wellness will become all about living longer; although the population is getting older and fatter, she sees an emerging focus on positive nutrition and prevention. Wellness will serve to nourish the mind, body and spirit, and she identified Campbell’s keys to wellness product development:
* Focus on innovation, even on older, established brands and products.
* Promote based on credible science.
* Invest in clinical R&D.
* Leverage expertise from internal and external partners.
* Meet needs.
For Campbell Soup’s part, the company has worked to find solutions to meet dietary guidelines, notably reducing the negatives (sodium, trans fats) and enhancing the positives (vegetable and whole-grain content), with sodium reduction a top priority. In 2005, Campbell had 24 low-sodium options. That number increased to 55 in 2007, 68 in 2008 and will reach 100 in 2009. Furthermore, according to Montgomery, the initiative is working: 65% of consumers say the lower-sodium soup options brought them back to purchasing Campbell Soup.
Another Campbell’s goal, she explained, is to find a way to help consumers make vegetables a daily habit, a concept which has led the company to expand the popular beverage V8 into soup. At the same time, the drink has added a high-fiber version, with 5g per glass.
The Next Big Thing
With previous speakers explaining the impact of Baby Boomers upon the food and beverage industry, John Li, corporate executive chef for Kraft Foodservice, delved into what many contend will be the next big generation: Millennials. This group, which Li defines as those born since 1977, are starting families and building disposable incomes, and this is the time to build a brand relationship and loyalty. This ethnically diverse generation, full of multicultural individuals, may well extend the trends begun by their Boomer parents. At the same time, the demanding bunch expects 24/7 availability and is not accustomed to waiting, even in restaurants.
Li has found that, while this group regards itself as individualists, this also is an expression of a lack of cultural identity. The group is so tech-savvy that some one-on-one connections are missed. Some 90% of teens, he finds, feel close to their parents, and many regard them as their best friends. They are looking for opportunities to engage, whether with friends, parents or both, and food may be a route to that goal, particularly in foodservice.
Millennials are generally open and prefer to be with a group. At the same time, they are not bound to the three-meals-a-day stereotype; they snack throughout the day and have no specific breakfast daypart in their lives. Lunch is regarded as a necessity, but dinner is about connecting, Li has found.
Meals for the group fall into one of three categories. Socially driven meals are about reconnecting; they are looking for places that are nice and expansive, cool and hip, and casual. Mealtime-driven dining is food-focused; they are looking for fast and healthy, neighborhood ethnic. Snack-driven occasions are just that: a snack. “This group snacks a lot,” Li explains, “fast food, c-stores, breakfast options at any time.”
To reach them requires meeting a number of demands. It is a value-driven group that welcomes coupons, specials and value menus. They want to be in a cool and social environment, and convenience is a must; they are accustomed to omnipresent fast food locations, especially at lunch.
Millennials may well be menu developers’ best friends. It is a group less averse to menu expansions, so “the toolbox for developers is wide open,” Li finds. At the same time, developers must bear in mind Millennials’ demands for authenticity, he notes, as well as customization, a la the ordering options available at Starbucks, Chipotle and Panda Express. When it comes to health and wellness, these consumers are looking for the positives in their food options, not simply an absence of negative traits. They want “real” ingredients, Li finds, which likely explains the reasons behind organics’ continued growth.
Kevin Higar, director of operator product development for Technomic Inc., continued the exploration of foodservice trends by offering a look at the top 10 factors influencing restaurant consumers. Flavor remains important in all dayparts, while varied cooking techniques are serving to make dishes unique to specific restaurants. Premium and artisan are playing larger roles in consumer demands, and sustainability issues are increasingly influencing consumers. Consumers are expecting value from their meal occasion, but freshness remains vital. One area which Higar noted in particular is the opportunity for advances in beverages, where greater variety is needed to meet consumer wishes, perhaps by blending flavor and function with alcoholic energy drinks.
Comfort foods gaining consumer favor are tending toward traditional items with a twist, while portion-controlled dishes and appetizers likewise offer the ability to experiment with different flavors. pf
Website Resources:www.PreparedFoods.com -- Enter “Millennials” in the search field for articles on the subject from Prepared Foods
www.nbc.com/Saturday_Night_Live/video/clips/taco-town/23299 -- Li’s example of a restaurant trying to meet too many demands
www.technomic.com -- Technomic Inc.