Business Strategy

Why food upstarts are outmaneuvering Big Food

Why food upstarts are outmaneuvering Big Food

In a stunning move this month, consumer goods company Mars Food announced that it will start advising customers to limit consumption of some of its products. The company, which manufactures products like Uncle Ben’s rices and Dolmio’s sauces, will start distinguishing between “everyday” and “occasional” items on its packaging and websites.

“Consumers are more and more interested in eating a balanced diet,” Craig Annis, vice president of corporate affairs at Mars Foods, tells Fast Company. “We thought that going the extra step from a transparency perspective was really important.”

This move demonstrates how established, big food companies are trying hard to recapture customers. Just like many segments in consumer goods, food companies are losing market share to upstarts. One estimate from IRI Worldwide and the Boston Consulting Group found that smaller CPG companies have taken $18 billion worth of sales from larger corporations since 2009.

Here’s a look at the main reasons why upstarts are succeeding against Big Food and what established brands need to defend their market share.

Upstarts are more nimble.

Consumer trends are shaking up the food industry. For example, the demand for “green” (healthier and more environmentally sustainable) foods continue to rise worldwide, and consumers are breaking traditional gender stereotypes about food shopping. As the cereal industry can attest, changes in consumer behaviors have significant impact on sales.

For the most part, upstarts are in a better position than Big Food to meet emerging consumer trends. Take the rise of “free from” foods. This segment has given birth to companies like Enjoy Life Foods, a CPG upstart that enjoyed three years of 40 percent year-over-year growth before being acquired by Mondelez International.

CPG upstarts are also benefiting from a friendly investment climate. Campbell president and CEO Denise Morrison revealed in a recent analyst conference that 400 food startups have absorbed more than $6 billion in funding since 2010.

Joel Warady, chief sales and marketing officer of Enjoy Life Foods, says larger companies need to become more agile and “be more comfortable with failure” if they want to compete with smaller brands. That means keeping a close eye on consumer trends not just in the food industry, but also in the wider business landscape.

“Companies need to figure out how emerging trends in other sectors impact the behavior of their own customers,” says Warady. “Engaging with customers regularly can help brands get that insight. Getting closer to the empowered customer can help brands ‘fail faster’ and quickly weed out bad ideas from promising ones.”

RELATED: Check out How to Win Back Fickle Customers, a webinar with Joel Warady, for an insider’s perspective on the battle for consumer goods supremacy. 

Big brands have more baggage.

Many large companies have altered their products and packaging in an effort to whet consumer appetite for green food. But for the most part, these moves have been ineffective in bringing customers back. A 2015 report from Fortune found that major packaged-food companies lost $4 billion in market share in 2014 alone.

So, why do big brands continue to lose market share? In one word: reputation.

Consumers perceive products from large brands as less healthy and sustainable. Younger consumers are also suspicious of major corporations. A 2015 study conducted by the research firm Mintel, for instance, shows that 43 percent of millennials distrust Big Food companies.

“[Big Food companies] had a reputation for so long, for being a certain way, so it will take time for them to rebrand themselves,” Darren Seifer, a food and beverage industry analyst for NPD Group, tells CNBC. “For marketers, it’s not that consumers are rejecting [their] brands, it just might take five to 10 years,”

It doesn’t help that many established companies are often accused of greenwashing and healthwashing their products. For instance, many consumer products labeled as “natural” do, in fact, contain unnatural ingredients, according to Consumer Reports. Moves like this hurt the reputation of the industry.

Upstarts are seen as more authentic.

According to AdAge, consumers are increasingly migrating to smaller companies because they are “often perceived as healthier and more authentic.” More and more consumers are evaluating the authenticity of the brands they work with, and Big Food isn’t making the cut. Mintel’s 2015 study shows that 74 of millennials and 69 percent of non-millennials wish food companies were more transparent about their practices.

So how can big companies better embrace authenticity? Staying authentic at scale can be a challenge for an established brand. But as Andrew Reid, founder and president of corporate innovation at Vision Critical, argued in a recent Entrepreneur article, companies don’t need to be small to be authentic.

“No matter how hard a brand tries to simulate authenticity, eventually today’s customers will spot a fake and won’t like what they see,” says Reid. “Cultivate authenticity in the relationship by being frank about who you are and conveying your serious interest in knowing who your customers are, what motivates them and why.”

Amanda Topper, food analyst at Mintel, offers similar advice, saying, “retailers and manufacturers who establish a genuine and authentic relationship, and offer online experiences that improve convenience and product variety, will be in prime position to attract Millennial shoppers moving forward.”

How Big Food can fight back

Big Food faces a rough road ahead, but the following are good starting points for the industry.

  1. Embrace transparency and authenticity.

Simply put, established food companies need to do what they say they’ll do. As a recent Forbes article argues, this includes investing in healthier, fresh food production and avoiding misleading labels. Consumers today can see through inauthentic brands, so big companies should embrace transparency and work on improving their products.

  1. Engage with consumers for insight.

Consumer taste, behaviors and motivations will continue to change in the years ahead. Companies both big and small need to get ahead of trends by getting closer to their customers. Only by engaging with consumers regularly can companies gain the necessary customer intelligence required to come up with new food product ideas that are relevant to people’s lives.

  1. Forge an emotional connection with consumers.

Ultimately, Big Food hasn’t seen growth in years because consumers don’t trust the industry. Rebuilding that trust requires creating an authentic and long-lasting relationship with consumers.

One good example is Maple Leaf Foods. In 2008, the Canadian-based company’s reputation took a huge hit after a listeria outbreak in its facilities. As consumer trust dropped, the company focused on customer engagement to rebuild its brand.

“The company has refocused and revitalized its efforts around consumer-focused product innovation,” says a Marketing magazine case study about Maple Leaf Foods. “It introduced healthier and more convenient products across many of its brands.”

Focusing on consumers to optimize its product pipeline has paid off for Maple Leaf Foods: the company earned back consumer trust and sales increased once again.

As Maple Leaf Foods shows, companies must listen to consumers and maintain ongoing dialogue in order to strengthen people’s affinity for their brand. In the end, outmaneuvering upstarts requires more than just a revamp of packaging. Winning the long game requires more than just embracing transparency and advising consumers how they can be healthier. More than anything, business leaders in the food industry need to prioritize consumer-centric efforts and put their customers at the center of their innovation strategy.

The Davids of CPG are at the door: Webinar with Joel Warady, Chief Sales and Marketing Officer of Enjoy Life Foods



Subscribe to the Vision Critical blog

Get free customer intelligence tips and resources delivered weekly to your inbox.

By completing this form you consent to receive emails from Vision Critical. You can unsubscribe at any time. Learn more in our privacy policy.