Food Technology Magazine | Digital Exclusive
From left: Dale Buss (moderator), Food Technology; Jeff Grogg, JPG Resources; Sally Lyons Wyatt, Circana
Rampant inflation and persistent supply chain issues have wreaked havoc on consumers’ budgets and food companies’ bottom lines over the four years since the COVID-19 pandemic hit in 2020. That impact will be long-lasting, agreed three experts who keep close tabs on the food industry and who shared their thoughts in a panel discussion on the Business FIRST stage at IFT FIRST.
Here’s a look at some of what those experts—Jeff Grogg, founder and managing director at JPG Resources; Ken Harris, managing partner at Cadent Consulting Group; and Circana Global Executive Vice President, Consumer Goods and Foodservice Insights Sally Lyons Wyatt—had to say on the topic.
One major point the panelists made: Although inflation has slowed significantly, consumers aren’t happy about the fact that food prices are 30% higher than they were in 2019.
“No one’s forgetting what the price used to be,” said Lyons Wyatt. “And [consumers] go into the stores expecting to find the prices they used to pay.” Despite the fact that many food companies have responded with aggressive price promotions, consumers are frustrated, Lyons Wyatt said.
“Now they don’t feel like it’s a deal because you’re starting at that 30% or more higher,” Lyons Wyatt continued. … So there’s going to be a recalibration in the consumer’s mindset [about] what prices now are going to be and then what does that mean for the rest of my budget in order to make sure that I have food on the table.”
What’s more, panelists pointed out in the session titled “How Rising Food Prices Create Challenges—and Opportunities,” it’s not just the cost of food that’s taking a toll on household budgets. Frustration about grocery prices is compounded by the stress of increased prices for gasoline, housing, and entertainment.
The impact isn’t going to go away in the near term, noted Harris. “We went through a period during COVID where, for a manufacturer, making anything at all was difficult.” Confronted with broken supply chains and ingredient shortages, companies had little choice other than raising prices.
“The supply chains are not fixed,” Harris said. “Ingredient prices are still at an all-time high,” he continued, citing cocoa and sugar as examples. “The input costs are still very, very high. And so it's very difficult to bring down your prices when the input costs are remaining at a high level.”
Faced with economic pressures and the rise of private label, it’s critical not to let product innovation fall by the wayside, panelists stressed.
Grogg cited Kraft Heinz as an example of a company that’s kept its product innovation engine humming despite market conditions. “They’re innovating while others are not, which I think is always smart,” he said. … “Everyone else is battening down the hatches, and they’re [heading] Into the wind.”
Lyons Wyatt noted market opportunities at both entry-level price points, which appeal to cash-strapped consumers, and at premium price points for consumers who have the means and desire to treat themselves.
“Innovation drives growth, and we have to not let that go,” Lyons Wyatt said. “If big manufacturers do not innovate, they may in fact get squeezed out because retailers are putting their own brands on the shelf.”
To succeed, she advised food companies “to continually have an innovation pipeline” with a bifurcated focus—on products at either affordable or premium price points (or both).
“The better companies that are weathering the storm are the ones that are investing in innovation, working with revenue growth management, and working on different pricing and sizing,” said Harris, who includes both Kraft Heinz and Unilever on his list of companies that are getting it right.
Harris agreed with Lyons Wyatt that there are market opportunities for premium products in the current environment, despite consumer concerns about high prices—as long the product provides real value. Products that deliver on nutrient density are important to many consumers, he pointed out.
“There is a consumer cohort out there that is willing to pay for a nutrient-dense, better-for-you product,” Harris said. “They're willing to invest in things that are better for their families. But you have to understand that consumer really well in order to appeal to their sensibilities.”
Bringing the discussion to a close, session moderator Dale Buss, a Food Technology contributing editor, asked the panelists to share a prediction about a high-impact development that will shape the market in the next six to 18 months. Here’s what they had to say:
• Ken Harris: “Private equity is actually starting to get off the sidelines and get back into the game. Investment banking is starting to rebound in many categories other than food, but over the next six to 12 months, you're going to start to see activity pick up again.
“There are two reasons for that: Number one is because the companies that should be talking about merging or divesting are doing that right now, and that activity is picking up. But the second thing is that all of these brands that are challenger brands that are in the $60–$80 million range on the path to $500 million have matured to the point where they're making money, and now they’re a lot more attractive to either [an acquirer] to buy them or the private equity firms to take them to the next level.”
• Jeff Grogg: “It’s absolutely true that there’s a sea change coming in the industry in terms of investment because VCs (venture capital firms) are now on the clock. They can only sit on that money so long, most of them, and so they're under pressure to move. I think the dynamics are there. I agree there's got to be more divestitures and there’s got to be more acquisitions.
“We’re going to see some aggregation. So this aggregation that leads to different aggregation where there's going to be a little more focus on growth in some companies and maybe the smaller companies, if you're a healthy challenger brand, the wind will be in your sails. … All the brands who aren't well funded or excellent, they're failing, so there's got to be more space on shelves [for high-performing brands].”
• Sally Lyons Wyatt: “There’s a shakeup obviously with drugstores closing and dollar stores expanding and retailers aggregating. So where consumers are going to shop—that’s going to change.
“I think there is going to be a rebirth of holistic, well-being [among consumers] because we're all trying to find ways to not spend additional money. One way to do that is to stay well, and you want to stay well mentally, physically, emotionally, socially—all the way around. And there's so much going on and talk around one segment or the other throughout the last 20 years of our lives. I think there's going to be a rebirth of that. And I think that will also be a guiding light for consumers on what they want to eat and drink and where they're going to do it.”ft