Private Label is in the Public Eye

The Brandless Company Model

Calling itself the “Procter & Gamble for Millennials,” San Francisco e-commerce company Brandless™ made its U.S. debut this past July eager to disrupt the CPG industry. The startup, which has secured over $50 million in funding, sells a variety of organic food and home goods all for an everyday low price of $3.

Brandless™ says it’s able to keep its prices low by eliminating the BrandTax, a moniker the company hopes to trademark and defines as the “hidden costs you pay for a national brand.”


Aldi's Award Winning RoséAt the 33rd annual International Wine Competition in United Kingdom, The Exquisite Collection Cotes de Provence Rosé 2016 won a silver medal. Judges gave the wine top honors after two weeks of blind taste testing, describing its flavor as “ripe summer stone fruits with a generous acid palate and crisp bright finish.”

But what surprised judges–and wine spectators–the most wasn’t its $8 price point or French origin. It was that the wine belonged to Aldi’s.


WHY IT’S HAPPENING

In its August 2017 Private Label Report, IRI reports that 49% of consumers say they are making sacrifices to make ends meet, with 29% reporting difficulties in affording groceries.

Consumers in all income and generation groups report buying private label

Consumers are embracing a variety of money-saving strategies to cut down on household costs, but opting for private labels is common across all generations and income brackets.

The cause is twofold:

  1. Despite the creation of two million jobs in 2016, which brought unemployment to 4.5%, wage growth has been stuck at 2.5%[1] for the past two years. It’s hitting younger consumers the hardest. On average, full-time, year-round working millennials are earning nearly $12,000 less per year than the national average for workers age 35–65.[2]
  2. Private label has, in many instances, managed to bridge the quality gap with national brands. With a focus on premium and even super-premium tiered items (all natural, organic, non-GMO, etc.) private labels are delivering a better product experience to customers.

WHAT WE THINK

The value proposition of national brands vs. private label is being aggressively questioned by today’s savvy consumer.

As private label brands have improved their quality and consumers are finding themselves with less discretionary income, shoppers are questioning if national brands are really worth the extra cost.

WHAT’S NEXT

To stave off private label encroachment, national brands must do a better job of demonstrating why their products are worth the extra investment.

Deliver on both sides of the equation

The majority of national brands built their reputation–and consumer preference–on signature product formulations that taste great, perform reliably and consistently deliver a high-quality experience again and again. And that used to be enough. But today’s consumer also wants more transparency with shorter, cleaner ingredient statements. Private labels often struggle to successfully deliver on both sides of this value equation. If national brands can consistently deliver an exceptional product experience while making it with cleaner ingredients, consumers will pay the extra cost.

Focus on customer engagement

Younger customers, particularly millennials, want more from brands than just a high-quality, good-tasting product. It’s about what else that brand brings to the table to enrich their lives. Advertising, event activation and social media strategies can bring the value-beyond-product story to life through personal connections.

Be purposeful with price promotions

While strategic price promotions are important in driving incremental purchases, long-term discounts undermine the value of a brand. They also position your brand as competing directly with a retailer’s own brand.

Invest in strategic retailer programs

Unlike private labels, which traditionally have very low marketing funds, national brands possess highly coveted marketing and advertising dollars. As traditional retailers face ever-increasing competition from non-traditional players like Amazon and Brandless™, national brands investing in ad campaigns—that drive customer visits and higher basket rings—are incredibly valuable.

 

[1] “Why Wage Growth is Too Slow and What To Do About It.” Washington Post. September 1, 2017.
[2] “Here’s How Much Millennials Are Making in One Chart.” Fortune Magazine. March 29, 2017.

The Rising Cost of College Dining

“Like many college students, I have a full bookcase and an empty fridge.”

In a March 2017 Op Ed, Olivia Ellison–a senior at University of Colorado majoring in Exercise Science–shares her experience and thoughts on an alarming C&U student trend: food insecurity.

Ten years ago, Georgia State University officials became worried about the impact of pricier student housing on the ability to afford earning a degree. Research was commissioned to examine the connection and the results were sobering: for every $5,000 in unmet financial need, a student was 12 percent less likely to graduate[1].

As the higher education industry faces declining undergraduate enrollment and falling numbers of high school graduates, basic and affordable amenity options are quickly becoming top priority with C&U leadership looking to attract increasingly cash-strapped students and their families.

WHY IT’S HAPPENING

Consider the following statistics regarding the costs of higher education:

100% increase in college tuition since 2000; 28% increase in room and board in last decade; 50% increase in student meal plan costs since 2006.

It shouldn’t be a big surprise that 83% of Americans say they can’t afford a college degree for themselves or a family member.

With tuition, class materials and student fees being inflexible fixed costs, students are opting out of meal plans–or buying the bare minimum–to save money. In addition to declining meal plan revenue, campuses are now also battling double-digit levels of food insecurity* among students.

According to a recent food insecurity study of college students[4]:

  • 47% of students enrolled at four-year colleges say they experienced food insecurity in the last 30 days.
  • 43% of students at four-year colleges and enrolled in a campus meal plan say they experienced food insecurity in the last 30 days.

*Food insecurity is defined as the state of being without reliable access to a sufficient quantity of affordable, nutritious food.

WHAT WE THINK

The projected financial reality of future C&U students and their families makes changes to dining services inevitable.

The desire for quality, nutritious and delicious food is universal among students. But the average college and university charges about $18.75 per day, for a three-meal-a-day dining contract, compared to the less than $11 a day a single person spends for food[5]. As the number of financially stressed students who see cost as a barrier to selecting a meal plan that fits both their budget and hunger state increases, so do the risks to current C&U dining services models.

WHAT’S NEXT

It’s important to proactively anticipate these conversations and be prepared with both product and business solutions to help foodservice directors navigate this next evolution in C&U dining.

Consider the case of Jerry Rackliffe, Georgia State University’s vice president for finance administration:

After seeing the research on financial need and graduation rates, he convinced the housing department to open a “tiny-dorm” option that would include smaller rooms, more basic amenities and an unlimited meal plan that would collectively cost less than a room alone at other upperclassmen units. When Patton Hall opened in the fall of 2009, it filled up faster than any other campus housing option. It was so popular, the school converted two local hotels to the same concept in 2011.

A basic-tier plan that provides unlimited meals could be a mutually beneficial solution: increasing meal plan participation among financially at-risk students and relieving pressure from stop-gap hunger solutions like food banks and student meal donations.

Just some Thought for Food™

 

[1] “Why Universities Are Phasing Out Luxury Dorms.” The Atlantic. August 21, 2017.
[2] “Tuition and Fees and Room and Board Over Time.” The College Board. 2016
[3] U.S. Department of Education. 2017.
[4] “Hunger on Campus: The Challenge of Food Insecurity for College Students.” Dubick, Matthews and Cady. October 2016.
[5] The Hechinger Report. 2016.

Lessons From Organic Water

This past July, Vermont businessman Adam Lazar celebrated a remarkable achievement: getting USDA organic certification on his new line of bottled water, Asarasi.

Asarasi; the USDA's first certified-organic water

Asarasi; the USDA’s first certified-organic water

Yep, you read that right. Organic water.

Because water has no carbon molecules and is therefore technically inorganic, the USDA has previously excluded water as an ingredient making organic claims. But Lazar’s company found a loophole: because the water is naturally filtered through, and extracted from, living maple trees, Asarasi meets the definition of organic.

Quite possibly more remarkable than Lazar’s new certification is the level of customer demand. According to its 2016 Bottled Water Category Report, Mintel found a whopping 25% of Americans say their ideal bottled water would be organic.

WHY IT’S HAPPENING

While the customer demand for organic continues to increase, so does the confusion around what organic really means. In its 2016 Healthy Eating Consumer Trend Report, Technomic found that when it comes to “natural” vs. “organic,” the majority of consumers understand these labelings as umbrella terms for better-for-you.

Consumers see "organic" and "all natural" as umbrella terms

WHAT WE THINK

Brands should go beyond “natural” and “organic” to better communicate the value of better-for-you products to customers.  

It’s not to say that “organic” and “natural” do not hold value; these umbrella terms are still the most widely recognized and sought-after by customers. Rather, brands have an opportunity to bolster their credibility by providing additional clarity around these terms to ensure customers can make more informed choices.

WHAT’S NEXT

Customers have become much more savvy in their ability to pick out meaningful claims vs. marketing fluff when it comes to their food and beverage purchases. As food marketers we must consider the following when crafting better-for-you narratives:

Be judicious

If a brand or product narrowly meets a specific better-for-you classification–or falls within it due to a little-known loophole–proceed with caution. We risk jeopardizing customer trust when we exploit technicalities in the labeling process.

Be specific

Provide context to broad claims by getting specific about your practices and production methods. Rather than just using “antibiotic free” as a claim, provide details on whether it’s a judicious use of antibiotics, no human antibiotics, or no antibiotics ever.

Be consistent

Customer confusion occurs when manufacturers use different terms to describe the same thing, such as using “natural” and “all natural” interchangeably. Create tightly defined parameters to determine whether an item meets a specific classification, but also enact strict guidelines on the words used to describe them.

Winning with Big Food: Part 3

“Is Blue Apron a tech startup or a food company?” was the question CNBC writer Todd Haselton set out to answer in his recent article “Every Company Is a Tech Company Now.” Haselton writes that though the company provides perfectly portioned farm-fresh ingredients and modern chef-inspired recipe guides, Blue Apron is also using highly sophisticated algorithms and logistics to do something older companies, like grocery chains, hadn’t considered until recently: delivering meals you can cook yourself.

WHY IT’S HAPPENING

At their spring 2017 Anthropology, Culture, Trends (A.C.T.) Conference, The Hartman Group explained we’re in the midst of a seismic food revolution due to the collision of four unique forces:

  • Unprecedented technological capabilities in food production
  • Collective recognition of natural resource limitations
  • Changing customer demands and expectations for their food
  • The emergence of big data

Which is why a deluge of food-tech startups are looking to disrupt how we procure, grow, harvest and serve sustenance, such as Memphis Meats, Gotham Greens and Perfect Day Foods.

WHAT WE THINK

Big Food must embrace the role of Big Food-Tech to ensure long-term growth and success.

There is no question that the overarching food system of today is not the model that will provide sustenance to millions of consumers worldwide ten or twenty years from now. Big Food has the unique advantage of having access to financial capital, human resources, and sophisticated supply and logistic chains to heavily shape what the food system of tomorrow can and should be.

WHAT’S NEXT

The shift from food company to food-tech company requires a shift in business priorities.

Establish merger and acquisition targets for both product/brand portfolios and food technology

Acquiring new brand/product portfolios will always be important for sustained growth, but Big Food must also gain access to the required food technology in order to stay competitive.

Prioritize the investment in front-end innovation

Much of our industry’s current innovation focuses on the end product to the customer. Features and benefits like product shelf life, taste, and incorporation of on-trend ingredients or preparation methods are common areas of focus for R&D. But the same focus must also be placed on innovating front-end production–whether that’s on the farm or at the plant.

Innovations that improve/preserve natural resources, provide better quality of care for animals or even improve the conditions of those working within the supply chain will become more important factors in how customers choose food and beverage products moving forward.

Support relevant product/category accelerators

The good news is that many Big Food companies have started to make these investments. Accelerators not only help propel category innovation, but position Big Food as Big Thinkers. Land O’Lakes recently launched its Dairy Accelerator program to invest in dairy startups to drive category innovation and stave off competition from plant-based alternatives.

Just some Thought for Food TM

Read Winning with Big Food: Part 2
Read Winning with Big Food: Part 1

Winning with Big Food: Part 2

The battle between Big Food and small food was no more apparent than last month when the Brewers Association (BA) unveiled its Verified Independent Craft Brew seal.  The association—whose mission is to promote and protect America’s small and independent craft brewers—makes the seal free to all members.

Brewers Association Independent Craft Brew seal
Brewers Association Independent Craft Brew seal

The catch: Breweries must “run their business free of influence from other alcohol beverage companies, which are not themselves craft brewers.”

Cue frustrated response from a group of independent brewers who are technically owned (25% or more) by Big Beer:

"At the end of the day, the beer does the talking - not the label on the package - and the consumer makes up their own mind. The problem is, the Brewers Association continues to refuse to let the consumer make up their own mind and tries to make it up for them." Garrett Wales, Owner, 10 Barrel Brewing Co.

Why It’s Happening

Over the last few years, we’ve seen Big Food purchase smaller brands for a variety of reasons, yet the customer response is increasingly negative. They threaten boycotts, rant on social media and accuse independent owners of selling out. What’s behind the vitriol?

Consider the following:

  • *35% of U.S. consumers distrust big brands.
  • *60% of U.S. consumers distrust corporate America.

It all boils down to customers believing that Big Food will change—or destroy—what they know and love about the brand.

What We Think

Big Food should proactively prioritize building—or rebuilding—customer trust by focusing on the interpersonal customer relationship.

In their 2016 “Customer Quotient™ U.S. Report,” C Space reveals that customer trust “is about much more than having confidence in the reliability of a product. It is founded in the relationship.”

Big Food has done remarkably well in developing beloved brands that are high in quality, safe for families and delicious.  But in a world where those deliverables are considered table stakes, Big Food must also work to strengthen those personal connections customers have with the brand and the company behind it.

What’s Next

To get personal with customers, Big Food needs to be more personable.

Speak with an authentic human voice. Communicate like a real personremove the marketing fluff and the corporate talking points. We must say what we mean rather than forcing customers to interpret our message.

Case in point: In the days following a forcible removal of a passenger from a United Airlines flight in April 2017, the company’s CEO Oscar Munoz learned just how damaging corporate-speak can be in the midst of a scandal. On April 10, Munoz released a statement that was regarded as callous by customers. 

Corporate voice example from United

The statement caused a firestorm on social media and United Airlines’ stocks began tanking as news of the incident and the company’s response went viral. Less than a day later, Munoz issued a mea culpa to the press.

Human voice example from United

Highlight your people. Customers crave a personal connection, so help them get to know you on a deeper level. The Johnsonville Sausage campaign from 2016 is a great example; the ads were inspired by—and featured—real employees.

Keep Small-Brand Acquisitions Autonomous. The frequency of mergers and acquisitions within the food and beverage space is likely to continue for Big Food to realize continued growth. But to ensure those small-brand customers stay with you, Big Food must encourage any acquired company to stay true to its roots.

Stay tuned for our third and final installment of “Winning with Big Food” in September.

Missed Part 1? Read it here

*Source: “Untruth and Consequences.” Iconosphere 2017. Iconoculture Consumer Insights.

Rethinking a Facts-First Approach

Sanderson Farms isn’t backing down from its antibiotic use in poultry, despite most major players in the poultry  industry moving toward “no antibiotics ever”.  Faced with mounting customerand shareholdercriticism, the company released a comprehensive infographic backed by outside professional resources explaining its position.


(click to see full graphic)

The experts are reputable. The facts are correct. The rationale is sound. Yet I’m willing to bet this newest effort will fall on mostly deaf (and likely defiant) customer ears.

Why It’s Happening

At their 2017 Iconosphere research presentation “Untruth and Consequences,” strategists Lindsey Roeschke and Derek Stubbs argued when customers accuse brands of lyingas many Sanderson Farms customers have done when it comes to the safety of their chicken productsit has little to do with facts. Roeschke and Stubbs point out that today’s customer increasingly believes that a lie is “anything I disagree with.” We are now called liars when our company’s actions suddenly misalign with our customer’s personal values.

Roeschke and Stubbs aren’t alone in this assertion; the Oxford Dictionaries declared “post-truth” as the word of the year for 2016. Sanderson Farms’ current situation illustrates that post-truth has moved from politics to plate.

What We Think

Sanderson Farms would be more successful if they reprioritized its communication to values-first, facts-second.

The problem isn’t Sanderson Farms’ position, it’s how the company is arguing it. The company’s current approach seems to be “our facts are better than your facts;” an argument that is unwinnable with today’s customer. The disconnect here isn’t about facts. It’s about customers feeling that the safety of themselvesand their familiesis at risk and their concerns aren’t being acknowledged.

What’s Next

Changing our approach to prioritize values alignment requires us to rethink how we talk to customers about hot-button issues.

Identify the real issue. By looking beyond what they say, to what they mean, we can address our customers’ real concerns.

Identify the real issue.

Share their concern first. By acknowledging—and sharing—their real concerns upfront, we are putting our customers’ needs ahead of our own.

Share their concern first.

Follow it with the facts and/or company position. Facts are still important. But facts only matter when we trust the source. By placing values first, we help to build customer trust.

Follow it with the facts and/or company position.

Finish by reiterating the real issue. By bookending a response with the real issue, we reinforce our common ground.

Finish by reiterating the real issue.

 

Just some Thought for FoodTM

Winning With Big Food: Part 1

‘How can ‘Big Food’ win?’ was a question on everyone’s mind at this year’s Iconosphere conference in Las Vegas. As one of the industry’s leading consumer insights conferences, hosted by Gartner (formerly CEB), food & beverage strategists reiterated arguably the biggest challenge ‘Big Food’ faces in today’s marketplace: small and medium manufacturers are driving half the growth in the CPG channel.

Smallest Manufacturers are Driving More than Half of Growth in CPG

2017 The Nielsen Company (US), LLC

Even though this data only represents retail data, we can’t ignore that changing customer demands in one channel aren’t influencing product decisions across foodservice, or even food at retail.

WHY IT’S HAPPENING

Most analysts agree small and medium brands’ ability to respond to rapidly shifting trends, their focus on ‘clean’ ingredients, and increased availability have largely contributed to their success.  

These explanations highlight a common theme: ‘Small Food’ is perceived, by customers, to be better than ‘Big Food.’ Whether it’s the impression they use better ingredients, follow a better process, or create better-for-you products, ‘Small Food’ is increasingly perceived as a better choice.

WHAT WE THINK

‘Big Food’ needs to tell its story.

Brands and manufacturers of all sizes are necessary and vital players in today’s dynamic food system. ‘Big Food’ plays a significant role in bringing food to our kitchen tables, favorite dining spots and emerging spaces where millions seek sustenance on a daily basis. This isn’t a David vs. Goliath narrative; it’s about reminding customers the importance each party plays.

WHAT’S NEXT

Customers want to feel good about their food and beverage purchases, and ‘Big Food’ has a great story to tell, particularly in three key areas:  

  • Consistent supply. We’ve been with many of our customers since their beginning. We’re on the shelf, in the case, and in the kitchen when and where we’re needed without fail.
  • Record of safety. Our size gives us the ability to ensure the safest possible food with investments in the latest technology and equipment available.
  • Higher standards. Volume speaks loudly. We can dictate which farmers/co-ops we work with, demand more responsible care of our crops and animals, and ensure we get first choice on ingredients which, ultimately, means higher quality for our customers.

Look for Winning with Big Food: Part 2 next month!

The Customer Insight Behind Lidl’s Success

German grocery-discount chain, Lidl, recently announced the locations of its 20 six-aisle small-format stores opening this summer. But what struck me most was Lidl’s U.S. CEO’s comment on the new stores:

Lidl's new U.S. small-format store

"When customers shop at Lidl, they will experience less complexity, lower prices, better choices and greater confidence." Lidl U.S. CEO, Brendan Proctor


Lidl’s new U.S. small-format store

Less complexity. Meaning, fewer choices. At first this sounds counterintuitive to what we know about customers demanding choice and customization at every turn. But choice requires decisions, and that activity is increasingly causing anxiety.

Why It’s Happening

In her 2017 Iconosphere address, Kathleen Vohs, Distinguished McKnight University Professor at the University of Minnesota, argued that people today are increasingly choice-fatigued. In fact, she revealed the average person makes 225 food decisions per day.

Similarly, Gartner (formerly CEB) found in their 2016 research that 20% of U.S. consumers experience anxiety in everyday decisions, with younger generations reporting even higher levels.

What We Think

Curating customer decision-making must be a pillar of today’s customer-service framework.

Rather than simply providing choice, we should strive to curate relevant solutions. That means understanding our customers’ needs, and their customers’ values, on a deeper level. Executed properly, brands have the opportunity to differentiate themselves as a true business consultant.

What’s Next

In theory, it’s simple: make it easier for customers to buy your products.

  • SKU rationalization: Eliminate underutilized items or expand offerings based on customer needs.
  • Optimize the decision-making process: Make it efficient to find – or proactively provide – only the most relevant product/brand information for your customers.
  • Understand strategic sacrifice: All choices require sacrifice. Understand the ‘must have’ and ‘nice to have’ criteria of your target customer to make more meaningful recommendations.

Because sometimes, less really is more.

Just some Thought for Food TM

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