• by David See , Columnist, July 20, 2018

Following the abrupt retirement of Campbell CEO Denise Morrison in May, much has been made of the impending doom of large food and beverage manufacturers. Reports indicating that “their business models and pricing power are crumbling” abound. One could be forgiven for assuming that these manufacturers are simply scrambling to delay the inevitable, and that, eventually, the music will stop.

Reality is, of course, more complicated. Undeniably, large manufacturers are facing significant headwinds. The world has changed in many ways, and manufacturers who previously relied on scale in both their manufacturing and marketing for competitive advantage are seeing those advantages narrow or disappear. However, among all the turmoil, large manufacturers have not lost their ability to launch compelling products. 

Consider the latest New Product Pacesetter report from IRI, in which, yes, new brand Halo Top takes the top spot. After it, however? Nabisco, Dunkin’ Donuts, Nestle, Pepsi, Weight Watchers, Hershey, Sara Lee, Campbell, and Cracker Barrel. Not exactly a set of rag-tag upstarts. The reality is that, despite the headwinds (and headlines), 9 of the top 10 new products were launched by manufacturers that are at least 20 years old and generate more than $1.5 billion in revenue.  

So, large food manufacturers aren’t doomed to failure. What, then, distinguishes the successful from the unsuccessful in this new environment? In answering that question, it’s helpful to unpack what factors have changed in the F&B space, and what hasn’t by falling back on the old four P’s framework: Product, Promotion, Price, and Place. 

What has changed?

Product: Product requirements have undeniably changed. Consumer preferences have changed — witness the high price premium commanded by “natural” and other overtly health-conscious labels. The ability to produce differentiated products still exists — products are not all generic, brand-less repetitions of each other; but what constitutes a differentiated product has changed.

Promotion: Advertising, and promotion, in general, have fundamentally changed. Traditional mass-media approaches to promotion have lost their effectiveness, and in order to get consumers to respond, new approaches are needed. 

What hasn’t changed?

Price: Much has been made of the impact of private label and retailer consolidation on price. In spite of this, the reality remains that, when they have the right product, it is still possible to maintain premium over generic options. Consider Lifewtr — at time of writing, packs of Lifewtr were selling on Amazon at a roughly 84% markup over equivalent pack sizes of Propel, a comparable flavored-water product.

Place: When it comes to how and where consumers buy products, the world is undeniably changing. In the very near future, manufacturers will have to reckon with a changing distribution landscape, and likely increased threats from D2C competitors. However, in the here and now, less than 3% of grocery sales occur online, according to Nielsen, indicating that manufacturers’ current woes are not due to distribution struggles.

New expectations for product and promotions

Understanding the changes that have led to the new landscape helps explain why some products from large manufacturers have managed to be successful, and what manufacturers can do to emulate those successes. 

The lesson for manufacturers comes in two parts: 

It does begin with product; while it may sound obvious, developing a differentiated product is key. No amount of branding can save a product that doesn’t provide a differentiated benefit that resonates with consumers. There has been significant questioning of late around whether large manufacturers are still capable of creating products that resonate. The reality, however, is less bleak.

While many of the large manufacturers were caught flat-footed by recent changes in consumer tastes, the evidence shows that when faced with the challenge, they are more than capable of producing winners. Increased investment in new product development, with a focus on accelerating the pace of bringing new launches and line extensions to market, will help large manufacturers regain their footing.

Last is in promotion; having a differentiated product does little good if no one knows about it. In days gone by, informing consumers could be done relatively easily through mass media. Now, however, the expectation for relevant and engaging messaging has forced leading advertisers to rethink their approach to messaging, moving from mass media to mass personalization. Mass personalization creates relevant communication at a mass scale by combining the reach of traditional media buys with the targeting and personalization of 1:1 direct marketing tactics. By doing this, brands can more effectively capture consumer attention, and ultimately drive growth.

The landscape is undeniably changing, and significantly disrupting large manufacturers. Despite the challenges they face in this new environment, large manufacturers still have the capability to compete and win. In truth, the formula for winning is not all that different — make a product that people like, and let them know about it. Some of the tools and methods for doing so have changed, but any investor betting their money on the old guard being unable to adapt is likely to be disappointed.