Crafting our products for the future
One of the reasons I love being in the food industry is that my work life often seamlessly crosses into my home life- when I read things that interest me about food trends and consumer buying patterns, I can immediately examine my own behaviour and those around me to see if those theories fit.
This is exactly what I did when I read a Financial Times article by Gary Silverman: “Craft versus Kraft”.
The article tracks the fall in favour of well-known brands in the United States owned by Kraft, such as Campbell’s soups.
As a result of declining sales for some of their traditional product lines, the CEO admitted the company has “lost touch with consumers”. A round of redundancies later and they are desperately trying to get back into the game.
What is so fascinating about the changing fortunes of companies such as Kraft and Kellogg’s is that they have led US food categories for years in brand development and producing what consumers want. So what are consumers buying instead?
In the words of Harvard agribusiness director Mary Shelman, we are now seeing “consumer bifurcation” occurring.
A fancy way of saying buying patterns have split into two types of behaviour: premium buying and value buying.
What is particularly interesting is that the split can occur within a single consumer. To use me as an example, when I do my shopping there are some things I am willing to pay extra for, like high-quality sheep milk cheese or premium cherry tomatoes, but I will always look to buy the cheapest raw chicken or milk products.
According to the Financial Times article, there is an explosion at both ends of the market with private-label brands booming under the umbrella of retail outlets such as Aldi (our equivalents are ‘Pams’ in New World and ‘Signature’ in Countdown) and craft-type labels booming at the other end.
The craft labels operate on a scarcity model – luxurious and expensive – or on a something-different model – boutique or ethnic.
So should companies like Kraft fight fire with fire and become more ‘craft-like’?
That is exactly what they are doing; they recently launched a line of premium ready-to-eat organic soups sold in lovely green and white cartons. However, the problem for Kraft is that their best margins lie with the traditional Campbell’s Soup products because they are full of cheap ingredients like sugar and salt.
When the sales of these products started dropping, the manufacturers, instead of investing more in advertising and better ingredients, opted to keep share prices high and cut costs to maintain profit margins.
If demand continues to erode, that will cease to be a sustainable model. Have they left their run too late? Are we seeing the demise of big food brands as own-brands and boutique brands take over?
My take on all of this is that being in the middle these days is a difficult place to be - I understand this well as a middle child!
Those in the middle are suffering everywhere. Last financial year saw United Kingdom supermarket giant Tesco post a record £6.4B loss, to which many commentators are putting down to their position in the middle-below M&S and Waitrose, and undercut by discount stores Aldi and Lidl.
There are salutary lessons in all of this. Firstly, in the case of Kraft and Tesco, you are never too big to crash.
I suspect a certain amount of hubris was evident in senior management teams of both companies and until that is ‘removed’, their challenges will continue.
Secondly, and most importantly, New Zealand food products need to represent ‘craft’ not ‘Kraft’.
Our exceptional quality and production systems need to be matched in market with exceptional story-telling to connect with our consumers. I have said it before, and I will say it again … and again, our products belong at the top-end of the market. We need to invest to get them there.