Foods, Fads & Finance

Nishitha Lingala

June 12th, 2018

 

 

Food is one of the few goods that every person consumes. As a result, the food industry as a whole is also one of the most profitable, holding permanent demand and stable profit margins. However, the industry is more complex than one would imagine. Though 90% of American grocery sales still take place in brick and mortar stores,  traditional brands are facing increased competition from newer products with unique marketing schemes that utilize space outside of the supermarket. In addition, fads continue to shape the industry, increasing the demand for certain goods and forcing older players to engage in costly new strategies to compete. 

 

One of the most significant trends in recent years within the food industry is the loss of brand power. Traditional household names have experienced a systemic decline in brand loyalty in response to innovative business models crafted by newer brands in the space. Accredited business journalist Mishra argues, “How many millennials do I know who really care about Campbell’s soup as a brand? These are old, existing companies, and they used to have this real sway where generations ago they meant something, but they’ve lost a kind of brand value as we go along.”  Some of the biggest advantages held by traditional brands include a larger marketing budget, brand credibility, product familiarity and popular taste.However, these advantages are waning as new strategies such as digital marketing, calls to social responsibility, product variety and versatility, appeal to a healthy lifestyle and diet fads cater to evolving consumer preferences. 

 

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Some traditional brands have been around for generations. For example, Campbell’s was founded nearly 150 years ago. As these brands grew, so did their marketing budgets. In 2017 Campbell’s spent an immense  $389 million on marketing. Increasingly popular start-up brands must find innovative ways to compete in this environment. These include companies such as  Halo Top - a high protein, low sugar ice cream, La Croix - a 0 calorie sparkling water beverage, HelloFresh - a recipe delivery service, providing consumers with pre-packaged portions of ingredients and step by step directions to prepare recipes to their doorstep, and Thrive Market - a membership service, providing discounts on organic groceries. To combat this disparity in their marketing budgets, brands have taken advantage of digital marketing via social media platforms, especially Instagram. La Croix particularly utilizes a vast network of “micro-influencers”, encouraging consumers to interact with the brand through posting their own experiences with La Croix. This boosts consumer loyalty to levels well-established brands are struggling to achieve with millennials.

 

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 Similarly, Halo Top has successfully utilized digital marketing on a myriad of social media platforms. They have 500,000 followers on Instagram, 27,000 followers on Twitter, and 600,000 followers on Facebook. Founder and CEO Justin Woolverton estimated that 90% of Halo Top marketing is digital, corresponding with the historic rise of social media. Specifically, Halo Top posts visual shots of unique packaging focused on the product’s nutritional advantage. The packaging claims its ice cream to be low calorie, low sugar, and high in protein,  highlighting its nutritional superiority over competitors. This marketing encourages consumers to eat an entire pint of Halo Top ice cream, driving increased sales.

 

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 On the other hand, HelloFresh has taken a more unconventional take on digital marketing by working with popular lifestyle vloggers on YouTube. The company’s sponsorship approach relies on customer loyalty as essential to success. HelloFresh uses cloud-based tools to analyze data and gain a better understanding of the effectiveness of its motto from the consumer’s perspective. Since lifestyle vloggers on YouTube present their tips to having an “ideal, convenient” lifestyle through a more personal approach,  HelloFresh is able to more effectively market to its customers.  Clearly, digital marketing seems to be an emerging yet effective alternative to the expensive marketing budgets traditional brands rely on.  

 

Alongside digital marketing, another strategy utilized by emerging brands is the promotion of social responsibility. Another advantage held by established brands is the credibility associated with being a household name. Consumers recognize brands like Campbell and feel more “safe” in purchasing them. Emerging companies have sought to mimic this sense of comfort through their appeal to ethics. One brand that has mastered this ethical awareness is Thrive Market. Thrive Market is an online grocery service that annually charges members $59.95 in exchange for discounts on 4,000 organic products - a dietary fad. For each membership, Thrive Market donates a free membership to a family, veteran, or student in need. Thrive Market has raised more than $250,000 for Hurricane Harvey. Similarly, Halo Top has also sought to engage in this strategy by actively promoting fitness in various online forums. Such appeals to common wellbeing highlight the value of the brands, making them seem more ethically responsible than their competitors. 

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Furthermore, in order to challenge the biggest advantage of household appeal and identity held by established food brands, emerging brands have relied on product variety. One common trend among Thrive Market, HelloFresh, Halo Top, La Croix, etc. is the creation of products that are contemporary, fashionable and seem “trendy to use”. Whether it be a unique type of service like Thrive Market and HelloFresh or a unique product like Halo Top and La Croix, the versatility of these products sets them apart from their older competitors. In particular, Halo Top and La Croix can be compared to conventional ice cream and soda brands. Halo Top which was only founded in 2012, claims to be the number one selling ice cream brand in US grocery stores, beating conventional leaders Häagen - Dagz and Ben & Jerry's. From 2015 to 2016, Halo Top’s sales saw a 2,500% increase, claiming to have sold 50 million pints. Similarly, La Croix has seen increased revenues from $961 million to $1.8 billion from June 1,  2013 to May 27, 2017, becoming a leader in the non-alcoholic beverage business. When viewed side by side, we can see how both brands follow a specific strategy to attract consumers through product variety. Both Halo Top and La Croix also utilize unique product design with eye-popping pastel shades and exciting fonts. While the familiarity of traditional brands may seem to make them an easier pick for consumers in grocery stores, the vibrant product designs make these brands standout. 

 

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Both brands also offer an exceptional array of unique flavors. Halo Top has created ice cream in flavors such as caramel macchiato and lemon cake while La Croix has created flavors such as coconut Pamplemousses and peach-pear. These flavors are so uncommon that they do not only grab attention, but they target a niche audience. Hence, the product designs of such brands have heavily impacted their increased demand. 

 

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On track with these trends, the most direct drive for the dramatic increase in demand for emerging brands is health consciousness. With the increasing number of dietary fads, especially those such as the ketogenic diet (high protein, low carb, low sugar), consumers have been looking out for specific ingredients, a clear shift in consumers’ tastes and preferences. The sugary Coca-Cola's and deadly-sweet Haagen-Daagz dulce de leche ice creams once popularly preferred by consumers are now starting to lose their market edge as healthy becomes the new heavenly. This can also be seen as the most obvious commonality between successful emergent brands Thrive Market, HelloFresh, Halo Top, and La Croix. All these brands serve as healthier, fad-approved substitutes for unhealthy foods. While Thrive Market offers discounts on organic foods, HelloFresh acts as a substitute for frozen dinners or unhealthy restaurant meals and Halo Top and La Croix craftily market themselves as “guilt-free” substitutes for their traditional sugary counterparts. When consumers are able to attain the same satisfaction through a supposedly healthier product, it seems only logical that they would prefer the substitute. 

 

Overall, though conventional American household names are still very popular, their dominance is slowly being eroded by newer business models. The advantages that have fueled the success of conventional grocery brands are now challenged by their trendy competitors, resulting from shifting preferences and changing demand. The use of digital marketing, appeals to ethical consumption, unique product design and dietary fads are increasingly becoming essential elements of a new class of dynamic business models.

Disclosure:

Investing involves risk, including possible loss of principal. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Opinions reflect the market conditions when written.