• by Joy Peters , John Zealley , April 18, 2018

The U.S. food and beverage industry is experiencing a seismic shift. Changing consumer preferences, macro-economic forces, a new competitive landscape and rapid technology innovation are creating a challenging environment for large CPG food and beverage manufacturers. Many are experiencing slow growth, decreasing market share and brand value as a result. 

While current market performance may suggest that leading brands don’t matter to consumers as much as they used to, new research indicates that U.S. consumer preferences haven’t changed as much as we think. When it comes to food, taste and price remain the top priorities when making purchasing decisions. However, there are additional factors that are rapidly gaining importance, particularly to younger consumers, around health, trust and sustainability. It’s forcing leading brands — those in #1, #2 or #3 place in a category — to adapt their strategy to maintain their position.

Brands can’t win on taste and price alone

A good price, strong product and heritage brand are no longer the only winning ingredients needed to drive food and beverage sales. With emerging brands — such as Peet’s Coffee, Wholly Guacamole, and Noosa — placing significant emphasis on factors such as health benefits and social impact, consumers are changing the way they evaluate products and are shifting preference to new labels. 

Consumers increasingly care about what the product stands for and what it can do for them. New research suggests that 60% of Gen Z and Millennial consumers in the U.S. expect food and beverage brands to support the issues they believe in, and a similar percentage want brands to anticipate their needs. While this sentiment is most prolific across younger consumers, their influence is driving demand across all generations. As a result, brands that want to accelerate growth need to differentiate on a new, more holistic set of criteria to appeal to consumers.

The importance of creating “experiences”

While leading brands continue to be the largest players by a wide margin, they still have strong customer loyalty and their size affords an advantage for securing shelf space and driving sales velocity, even they need to be aware of growing consumer appetite for “experiences.”

Consumers make more considered brand choices around goods that offer experiences, such as coffee, cosmetics or skin care. Low mind-share or “utility” products that consumers don’t typically spend a long time thinking about — such as toilet paper, detergent and bleach — are most at risk as they place a lower value on such items. Over two-thirds of leading brands in experience categories are growing compared to just half in utility categories. To maximize customer engagement, it’s imperative that brands create experiences relevant for their particular category.

Succeeding in a crowded market

The U.S. remains a profitable market with an attractive environment for food and beverage brands, but brand owners need to continue building and refining their capabilities to achieve growth. To succeed, they need to commit to moving to become a modern CPG and invest in disruptive technologies — such as AI, IoT, autonomous vehicles robotics — which can help them unlock savings that can be reinvested in growth areas, and refresh their category go-to-market playbook around three capabilities: 

1. Leveraging consumer insight to inform brand portfolio strategy: Brand owners need to have an intimate understanding of their consumers and continually evaluate the positioning of each brand in a category through their eyes to ensure a compelling, balanced brand portfolio strategy. That’s means analyzing the ‘utility’ versus ‘experience’ perception of a category, which can be used to inform where to play and areas ripe for disruption. Furthermore, by looking at purchasing journeys through a consumers’ lens, brands can reimagine the experience as customer needs evolve.

2. Delivering hyper-relevant customer experiences: Telling authentic brand stories is critical to engaging with consumers on a deeper level. Brands must clearly define their purpose and what they stand for, and use digital tools to connect with consumers in a timely and targeted way. Companies must also drive rapid innovation to ensure they’re delivering the experiences customers want and expect. The willingness to challenge the brand’s status quo, test and iterate new concepts, and create innovative partnerships will be essential to remaining connected to consumers.

3. Creating an agile operating model: Companies of brand owners must become “living businesses” with modular, plug-and-play structures that adapt to changing market conditions in real-time. They will also need to engage with ecosystems to find the right partners that can help enhance and create new customer value. 

The U.S. market remains a must-win for CPG food and beverage manufacturers. Success is ultimately dependent on brand relevance — not size. This requires next-generation capabilities that can help CPG companies manage a portfolio of different brands that meet specific customer needs. It may seem a lot to undertake, but the stakes are high. Consumers increasingly expect more from brands, and the implications of falling outside the top #2 or #3 spots in a category can be material.