Historically large brand name products in the supermarket have commanded more demand and higher costs. Those days, however, may be numbered.
Analysts say that as more upstarts get into the game, major food conglomerates are reacting in ways that suggest their hold on the public is slipping. That means big established food brands are being forced to innovate in new and unusual ways — and must look outside their own company in order to boost growth.
For example, Campbell’s Soup (CPB)recently announced a $125 million venture capital (VC) fund that the company wants to invest in the “disruption” in food trends. At a recent analyst’s conference, Campbell president and CEO Denise Morrison pointed out that 400 food start-ups have absorbed more than $6 billion in funding, which raises the stakes for big consumer brands who want to remain relevant.
Observers cite several trends are at work. Consumer tastes are shifting in ways that are putting big brands on the defensive, they say.
“Consumers are becoming very distrusting of the food brands they grew up with, rejecting the artificial ingredients those foods contain,” Vani Hari, author and activist at FoodBabe.com, explained to CNBC recently. “They’re now opting for new start-ups that are putting organic, non-GMO [genetically modified] foods on the market.”
Hari said it’s easier for certain companies to buy or partner with start-ups, rather than re-engineering their products. However, although buying out smaller competitors is the time-honored way to boost market share and lure in new customers, that strategy may not always pan out if smaller companies don’t want to play along.
Last month, yogurt maker Chobani recently rejected PepsiCo’s (PEP)offer for a stake in the company. Chobani said its independence remained a key asset to the company and brand.
From Amy’s Soup to Justin’s Peanut Butter, increasingly health-conscious consumers are eyeing upstarts that may have little to do with branding, and more to do with trust. Health conscious companies, such as Jessica Alba’s The Honest Company, have been rewarded with consumer loyalty and stratospheric valuations. After only a few years in existence, The Honest Company is already valued at nearly $2 billion.
According to Hari, organic and non-GMO food is one of the food market’s segments that continues to increase in a straight line, and big brands are taking notice. Within the last year, companies such as Tyson Food (TSN), McDonald’s (MCD), General Mills (GIS), Panera Bread (PNRA) and Campbell’s, among others, “have announced major changes to the ingredients in their food,” she said.
Yet Darren Seifer, a food and beverage industry analyst for NPD Group, said it will take time for some legacy consumer brands to regain trust. “They’ve had a reputation for so long, for being a certain way, so it will take time for them to rebrand themselves,” he said.
“For marketers, it’s not that consumers are rejecting [their] brands, it just might take five to 10 years,” he added.
In the meantime, consumers are flocking to alternative brands that embody both health and trust, such as Aloha. The company is a wellness brand that creates and sells products — like green juice powder, plant-based protein, trail mix, and protein bars — that make eating healthy affordable.
“I’d repeatedly found that it was way too complicated to figure out what was or wasn’t healthy,” Constanin Bisanz, the founder and CEO of Aloha, told CNBC. “We’re exposed to too many false claims, conflicting health advice, and misleading advertising, and so many products get called ‘healthy,’ when on a true wellness level they’re actually bad for us.”
Bisanz says the idea for his business came as a result of trying to make a healthy lifestyle more accessible to everyone.
“I knew that there had to be a better and more trustworthy solution to leaving a long-lasting and positive impact on people’s bodies and minds,” he added.
Written by Uptin Saiidi of CNBC