Brands look to better manage their own destiny

As we’ve stated many times here at Emergent, the brand that gets closest to the customer wins. Yet a form of strategic separation now descending on the food marketing universe has made it more challenging for brands to manage how that consumer closeness is achieved. These same conditions help contribute to the collapse of traditional media marketing models (about scale and control) often deployed by legacy brands to build and maintain consumer relationships.

As a result, we believe what’s ahead for CPG food may well include a large helping of direct-to-consumer outreach efforts. E-commerce growth has already redefined the business landscape, giving consumers a comfort level with buying products from home.

Retail isn’t going away, online or off, but we think a measurable percentage of the business overall may indeed move to direct-to-consumer platforms.

Meantime escalating brand participation in the “walled garden” of rented audiences in major social channels, such as Facebook, YouTube, Instagram and Twitter, has also conveyed relationship control to these platform intermediaries. On any given day, the decisions made by these social media giants can be a good thing or bad as their policy changes impact what brands can and cannot do on their platforms.

• Brands, now forced to reckon with the shift of business to e-commerce, are finding the complexity of cross channel marketing and online engagement has already worked to snuff out the last embers of mass media’s flame. Disappearing with mass media’s grip is the brand’s ability to efficiently leapfrog various forms of retail or other digital gatekeepers to capture consumer brand equity and preference.

Algorithm alarm bell – now what?

Food and beverage companies working to implement their brand-building strategies in social channels find themselves challenged once again, as the behemoth community aggregators like Facebook, Instagram and YouTube adjust algorithms and feed policies making it harder to organically scale audience attention and reach.

In January, the tide turned (the second time since 2016) as Facebook announced yet another round of changes that favor posts from friends and family while diminishing organic post distribution from brands and publishers. Larger, mega-influencers – who must use Pages rather than personal Facebook accounts – will face a similar audience squeeze.

More regulated content policies put greater pressure on brands in social channels to up their shareable post quality game. We believe though, these restrictive conditions will add more value to building direct consumer relationships. This means, thoughtfully reconsidering how best to connect with consumers and deploy tools that sit outside the control of social channel policy moves, through owned channels like Blogs and email (e-newsletter).

Consequently, we believe the model for food and beverage brand building may change in the next three to five years. Pepsico currently projects their annual e-commerce sales to be north of a $1 billion across direct, retailer-owned and pure play (Amazon) e-commerce channels.

Of note, many of the new and emerging brands now grabbing the marketing spotlight in food, got their start in the direct-to-consumer space, where they built a loyal fan following before venturing into retail channel distribution.

• A classic example: in the personal care category, online brand Harry’s disrupted the legacy razor blade industry by answering consumer frustration over runaway price increases. They successfully constructed a direct-to-consumer subscription model that helped Harry’s deliver a more affordable, high-quality alternative. The new Harry’s brand story, alongside rival Dollar Shave Club, helped end Gillette’s dominance.

As consumer contentment with buying online continues to expand in adjacent businesses, Harry’s recently secured added equity investment to fund another bellwether expansion. This time into other personal care, household and baby products categories that may naturally fit into a subscription model.

Bottom line: selling directly allows the brand unfiltered and unfettered access to consumers. As such it enables a direct flow of conversation without the unexpected shifts that are occurring in third party social channels due to conflicting business interests and priorities.

Behavior changes occurring behind the curtain

We see the shift to e-commerce as an outcome of evolutionary progress – meaning anything that adds measurably to consumer convenience and satisfaction is going to get its day in the sun.

During the last decade consumers spent 12 percent less time shopping, according to Jared Koerten, senior food analyst with Euromonitor International. “Consumers are spending less time shopping (while) looking for efficiencies and ways to save time,” he said. The result is fewer conventional shopping trips while online ordering continues to accelerate.

E-commerce and the digital communications environment will continue to be a major focus of brand marketing strategies. Consumers see the value in reallocating their spare time from shopping trip to other passions and pursuits. Be that as it may, other changes are occurring in the digital universe that impact how closer consumer relationships are incubated.

Emergent’s guidance on optimizing social channel strategy:

1. Social algorithm changes enhance the valuable role of smaller (nano) influencers and the content they create, while amplifying the need to ensure that influencer relationships are truly founded on aligned interests and subject matter relevance.
2. Social channel policy changes that depress organic distribution and engagement will necessitate yet again, more pay-to-play activity to boost posts.
3. There will be diversification of outreach strategies to include more investment in direct paths of communication through Blogs and email.
4. Rise of User Generated Content as a key component of social media marketing strategy. This tactic helps sidestep the policy changes and hits the right notes on authenticity and value to brand community participants.
5. In case you’re wondering what form of content ranks highest in shares on social channels: Infographics.

Social channel policy changes and the dynamics of e-commerce may favor a new look for brand marketing that leans in on going direct. With it comes great responsibility in how these interactions are managed – so it doesn’t appear to be just a transactional proposition.

Help over hype – always.

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Emergent’s guidance on what comes next

The recent Amazon/Whole Foods acquisition has ignited a firestorm of analysis and assessment concerning the impacts and implications. Some of the conversation has reached far and wide – from the future of supermarkets to outcomes for large CPG food brands and foodservice businesses.

Here we help summarize how the food industry changes could manifest, as well as guidance on what comes next.

Implications of the Amazon/Whole Foods acquisition

Grocery leadership is rapidly becoming a two horse race between Walmart and Amazon, creating a new class of retail that blends online and physical store strategies. The ‘new last mile’ competition now moves to address the single biggest barrier to grocery e-commerce growth: fresh/perishable sales. Many consumers lack trust in online platforms to select and safely transport produce and proteins to their standards and freshness expectations.

Change in strategy for supermarket companies

The future of supermarket companies shifts more towards ‘specialty retailer’ strategies focused on improved, curated grocery and perimeter businesses. Higher quality, unique products, local sourcing, improved Deli menus, Grocerant businesses, and heavier investment to in-store experience become the retail differentiator. The goal here is to leverage a physical advantage of tactile, higher quality food and culinary experience. E-commerce will be mission critical – that said, not likely anyone will catch up now to Walmart and Amazon. Costco maybe.

Hard discount takes price leadership, elevates private brand strategy

Entry of Lidl, and Aldi growth investment will put pressure on pricing at all levels. Large cap CPG may take the brunt of this as their core categories continue to see challenges in the face of cultural shifts to preference for new, innovative and higher quality, artisanal brands and fresh versions of packaged items. This could force more M&A activity to satisfy Wall Street and engage balance sheet efforts to reduce operating costs.

Emergence of super-premium private brand investments

Retailers, increasingly on the hunt for innovation and better margin businesses, will up their game by putting more investment in their private brand programs – potentially surpassing legacy CPG brands on quality and uniqueness. Amazon will bring 365 to their Fresh platform. This, in turn, puts more pricing pressure on large CPG.

Implications to casual restaurant chain business

Roughly half of casual dining restaurant chain sales are sourced from family occasions – and families have hastened the declining use of casual dining outlets, moving instead toward at-home meals. Primary reasons for the move back home are health (e.g., quality ingredients), preparation control and cost. The Amazon-Whole Foods combination could make at home/healthy meals easier and less expensive in ways that compete with supermarkets and restaurants. It’s possible that Amazon could become a top-10 restaurant chain (near the $5 billion in system sales of Panera Bread). By creating faster market share gains in perimeter categories, Amazon and Whole Foods will quicken the ongoing center-store rationalization.

Battle is on for hearts and minds of Millennials

Sixty percent of Millennials are Amazon buyers (source: NPD Group). Twenty percent of American consumers bought at least one item from Whole Foods last year, however among Millennials, the number is substantially higher: 24 percent. This is extraordinary penetration for a supermarket chain with just 431 stores. The proposed deal gives Amazon control of those stores – nearly all of them are in neighborhoods that are more affluent and younger than America as a whole.

Emergent’s guidance on what’s next:

1. Unique and differentiated brands are now more vital than ever as competitive leverage for supermarkets. Brands that play to consumer sensibilities around higher quality ingredients, craftsmanship and visibility to creation stories, and mission (Higher Purpose) will be key to retail channel.

2. Deli marketing and merchandising programs become more critical to supermarket growth as center store rationalization picks up pace; a conundrum for food retail as this is traditionally where the profit often sits. Pricing pressures on large cap CPG will likely come from several fronts. More legacy brand declines could be on the way, amping the need for faster innovation.

3. A newly charged renaissance in home cooking will create more opportunities for brand growth as consumers look for ideas and inspiration to fuel their eat-at-home aspirations. Creative programming to leverage this condition is key. Emergent has developed a variety of content creation strategies to leverage this opportunity, which can be repurposed for retailer use on their own social channels.

4. Further erosion of the casual dining segment is likely to continue due to competition from supermarkets and Amazon/Walmart for prepared foods, kits and fresh food solutions for at-home meals. For multi-channel companies this condition might recommend greater investment now in retail channel development and brand marketing investments.

5. The emergence of new brands in center store and perimeter categories will create challenges for retailers. This is due to absence of scaled promotion budgets and higher product input costs contributing to higher prices on lower overall volume businesses. Retailers will need more sophisticated marketing and merchandising solutions to help nurture and grow these higher quality, boutique brands. The same holds true for CPG companies that invest and acquire these new, emerging brands that require a different formula to build scale. Emergent has designed a new Emerging Brand Marketers’ Playbook for this purpose.

6. Consumers are omni-channel shoppers. The move online will accelerate and reach a tipping point in the next two years. Fresh is the battleground. Brands need to be collaborative partners with food retail as e-commerce strategies gain traction and the need to address trust issues with fresh/perishable item shopping is key to growth. Emergent can help optimize omni-channel strategies.

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A Conversation with Founder and CEO Joe Heitzeberg

Do you know where your beef comes from? Do you know what breed it is and how the animal was raised? Do you know the backstory behind the family that owns the ranch? And can you get higher quality steaks and ground beef directly from those ranchers at a price that’s comparable to supermarkets?

Joe Heitzeberg is betting the farm (so to speak) that consumers are ripe for higher quality and more transparent beef products, by purchasing their proteins directly from the rancher through his website and then delivered to your door.

Joe’s company, Crowd Cow, is disintermediating the traditional way beef is purchased with an innovative business model – one that plays deeply to the consumer’s desire to know more about the foods they buy and eat.

We spoke at length about his new approach and how it can potentially change the face of beef sales in America.

What problem are you working to solve at Crowd Cow?

JH: “Crowd Cow is delivering variety and choices consumers don’t normally get at traditional retail. At the conventional supermarket meat counter, you’ll encounter a limited array of cuts and little to no information about breed, how the animals were raised, and what they were fed.

We’re all about transparency – single-origin beef, if you will. So, we answer the question about knowing where your food comes from and sharing the story of the rancher who raised and cared for the animal.”

How is this different than how beef is sold currently?

JH: “The industrial food supply was designed to move large quantities to the retail system as efficiently as possible. Meat packers are concerned about these efficiencies and about cost, more than they care about quality stories. There are four companies supplying nearly 80 percent of the beef sold in America. So, you aren’t going to know where your beef comes from. But consumers have changed and now they want to know everything about the food they eat.

Some companies, for example, are feeding their cows grass pellets so they can claim the cattle are grass fed. This is industrial farming. On the other hand, the small rancher knows their land, treats the animals well, and breeds for quality. We’re tapping into this and bringing it directly to the home kitchen.”

How is this different than visiting a ranch and buying from them?

JH: “Ranchers sell animals, not individual steaks. So, if you buy beef from the farm, most often you’re going to have to buy 550 pounds of meat, which won’t work for most people. And for the rancher, they need to sell all the cuts, or they’re going to go broke. When an animal is ready for harvesting, you need to move it. Selling to a meat packer in the commodity world turns you into a price taker. Working with us enables the rancher to sell all of the cuts at a better price, while the consumer can select the types and amounts they want.”

What enables you to do this?

JH: “The Internet has changed everything. From wherever you live, you can engage with Crowd Cow and watch video or read stories about the rancher and how they raise their cattle and how those animals are treated.

You can point and click on the types of cuts you want and purchase the quantity you’re interested in. We invite consumers to become “steakholders,” so to speak, and we sell portions of a cow until it’s completely gone. We don’t charge anyone until the entire animal is purchased.

We can do this at prices comparable to food retail because we cut out the middlemen. So, you’re getting a higher quality product with transparency about the source at an affordable price.”

What are the challenges to scaling your business?

JH: “Right now we are national and can ship anywhere. Our single biggest challenge is creating a nationwide network of farms that meet our standards for animal welfare and a commitment to quality in how the animals are fed and cared for.

We have ranches involved now on both sides of the nation, and all of our beef is domestic. But we also want to provide unique and special experiences so we’re going to Japan where the highest quality Wagyu beef is raised. There’s a natural marbling unique to that breed you can’t get anywhere else. And, we want to bring it to our customers.”

How do you address food safety concerns?

JH: “We use 100 percent USDA procedures throughout our process. Every single piece of beef we handle will have been touched by USDA inspector presence. And that presence is way higher than in a traditional plant where hundreds of animals are slaughtered every hour. Many of our inspectors are veterans. They’ve done the big plant assignment earlier in their career and prefer now to be working with real people who care about what they’re doing.”

Why do you think you’ll succeed?

JH: “Quality, convenience, choice and transparency. It’s just easy to go online and click to buy. Our goal is not to be a special-occasion option, but an everyday protein purchase. The economics are there for competitive price, better quality and the opportunity to explore the variety of producers and types. It’s not a niche thing.

We are de-commoditizing beef. Key to this and our growth is education. And the Internet enables a rich, multimedia experience with photos and video. You may not know what a Murray Grey breed is, but we can tell you that story. People love to explore.

There’s discovery involved in sampling beef from different ranches – how they raise the beef has an impact on flavor profiles and taste experiences. We provide explanations about the cuts, recipes and preparation guidance, so you have help from us too.”

In sum…

Joe thinks other adjacent businesses may be ripe for this model including seafood, bison, pork and turkey. For now, he’s a beef missionary: “This is fun and exciting because we’re the first to do this. And we’re introducing consumers to a variety of breeds and flavors that may be new to them.”

Collapsing the distance between producer and home kitchen is at work in his model as small becomes the new big; and unique and special overtakes standardized and consistent. To the extent consumers care about meaningful differences, disintermediation could occur in other categories where higher quality, skill, craftsmanship and story matter.

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The ultimate test for success in the merger of premium food retail and the world’s most savvy distribution juggernaut

“And they’re off!” could well be the call to action for last week’s industry-shaking announcement that Amazon has gone deep into the bricks and mortar food retail business with its historic acquisition of the upscale Whole Foods Market chain. This sets in motion the race for grocery supremacy and, in some cases, survival in food retail’s transformative future.

Omnichannel shopping is a well reported behavioral change among consumers who may look to multiple retail outlets, as well as online formats to meet their various food shopping needs. So, the acceleration of e-commerce in concert with shifts in food retail business models is no surprise.

What makes this marriage so interesting is the merger of Amazon and its algorithm mastery, distribution, and delivery prowess, with what may arguably be the largest chain of culinary-focused, fresh, and organic food stores.

High food tech meets high food touch

Said Joe Robinson of Catapult in his MediaPost column (June 19, 2017):

“Amazon personifies convenience and it will be able to bring that benefit to the items most consumers really don’t want to shop for—those that are chores. Through a subscription plan, click and collect or home delivery, Amazon can increase the number of items available through that model. As for experience, consumers are looking for an engaging experience within the grocery format—be it a cheese tasting, wine pairing or cooking class. Amazon has now bought into more than 400 locations where it can start to bring this experience to life.”

According to the U.S. Grocery Shopper Trends 2017 report, released by the Food Marketing Institute and Hartman Group, 43 percent of Millennials shop online for groceries at least occasionally, leaping ahead of 28 percent just a year ago. Apparently, consumers are getting (a lot) more comfortable using online platforms to get their food.

That said, food is inherently an emotionally-driven category. And increasingly, people see food not only as a symbolic purchase of what we want the world to believe about us, but also is directly correlated to our overwhelming desire for a higher quality life. So what happens when food passion collides with food retailing technology?

Therein lies the secret to this marriage’s success and, in many respects, the future of the entire food retail industry. How should you marry food cred and expertise to ordering and delivery tech? 

Trust looms large as a barrier to growth in e-commerce beyond the inherent attractions of convenience and price. People trust their own judgment when it comes to selecting perishables, especially produce and proteins.

Case in point: I have exacting standards on the meat I will buy – and come to the butcher counter with an eye towards my own quality perceptions. Said more simply, I care and make careful choices. Why? I take great pride in the foods I prepare and the outcomes of cooking, where ingredients will often make the difference between so-so and terrific.

Belief leads to trust. And how to cultivate belief? I want to know that the people involved with my food purchase care as much about the products and cooking as I do. What evidence is there in the form of relevant content that expresses passion for fresh ingredients, higher quality and creativity in the kitchen – which is then meaningful to me, and my lifestyle?

When it comes to CPG brands and retailers, we already know Millennials are especially concerned about honesty and openness around the issues of animal welfare, sustainability, ingredient sourcing commitments and social responsibility.

Combine this with the renaissance taking place right now in the kitchen, where fresh foods go to be reworked into something creative and exciting to eat. And right there you have the ingredients for building deeper meaning and relevance in how food brands and retailers go to market.

Building food credibility is job one 

As belief is created, trust is achieved. With trust, the barriers to having others squeeze your tomatoes will come down.

In short, people need to believe that the faceless e-commerce platform indeed has a face and can be humanized around the love of food and how it’s prepared and consumed.

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Re-making the food and beverage business landscape

The single most important and disruptive change in food culture, now winding its way through virtually every part of the industry, is the overwhelming desire for fresh foods.

Call it the quest for all-things real. Fresh is defined as unprocessed, simple ingredients and often refrigerated. Fresh also conveys to consumers higher perceived quality, better taste and healthier. And so the packaged food world finds itself facing a state of transition as fresh versions overtake and replace their processed cousins.

A.T. Kearney/Hartman Group study “Is Big Food in Trouble?” tracks growth of fresh trend as the dominant shift in consumer preference.

Why are meal kit solutions taking off so rapidly? Because they fit with fresh – offering real food ingredients already portioned and curated for menu creation. The meal kit is a form of convenience and taste adventure that connects to the consumer’s desire for experimentation. Thus, meal kits sit squarely on cultural relevance driving the fresher, higher-quality ingredients business.

Fresh fuels grocerants and more interesting prepared foods

The emerging fast casual restaurant sector is symptomatic of the fresh revolution and move beyond fast, cheap and common foods that have dominated the QSR category for decades. Fast casual’s emphasis on open production, customizable, made-to-order foods using fresh ingredients is relevant and in sync with consumers’ interests for higher-quality, healthier food experiences.

Grocerant strategies: all of this should instigate change at food retail to elevate Deli menus, think creatively about prepared foods sold for take-out, and improve in-store dining experiences.

Fresh food implications for retailers –

1. Investment in culinary-trained commissary staff and fine dining experienced chefs in leadership positions (Chief Culinary Officer).

2. Open kitchens and preparation spaces to show ingredients and allow for customizing menu items.

3. Reworking Deli menus to add more creative, global influences to prepared food options, beyond the comfort staples like meatloaf and rotisserie chicken.

4. Creating improved in-store signage and merchandising that will alert shoppers to fresh, in-season, locally sourced products.

5. Building content and storytelling around locally-sourced ingredients, farmer profiles, as well as tangible investments in local agriculture.

6. Cooking classes to inspire improvements in culinary skills and adoption of chef techniques for the home kitchen.

7. Better designs and environment for dine-in spaces inside food retail.

E-commerce traction and influence on fresh

There are those who simply love and enjoy food shopping – call it a sort of culinary catharsis – and want to visually experience the fresh options arrayed in front of them. Shopping at the store is, for some people, a type of food religion observed with regularity. For others, convenience must address the demands of busy lifestyle where online ordering is a valued (even required) option.

Mobile-based ordering platforms – in web and app form – are not peripheral but rather integral to the food retail eco-system. We believe e-commerce will be a factor in fresh product sales. Increasingly, consumers are getting used to the process as orders continue to meet and exceed their quality and freshness expectations.

Where the e-commerce play becomes a real exciting opportunity is when local sourcing can be woven together with digital ordering and delivery – such that time between farm and dinner table is shortened considerably.

As digital sophistication increases, another game changer would be the ability to solve and resolve last-minute ingredient or recipe needs (where rapid ordering and delivery is required).

Fresh and healthier

There is no other consideration more relevant, important and powerful than the groundswell towards healthier lifestyle. While healthy food was at one time attached to diet products, the meaning has changed considerably.

Foods made from simple and less-processed ingredients continue to gain traction, while better-for-you snacks are encroaching on more indulgent rivals.

Insight: we are moving from a production-fueled system to a demand-driven system, founded on the consumer’s interest in real foods and a parallel desire to know more about ingredients, sourcing, transparency, and sustainability.

For strategic planning purposes, food retail and food brands should look hard at the following consumer cues for guidance to what matters on the demand side:

• Fresh, real
• Health
• Higher quality
• Discovery and experimentation
• Kitchen creativity
• Indulgent reward

How brands and retailers respond now will have great bearing on their relevance and success later on.

Emergent’s strategic planning capabilities are designed around this agenda: marry insight to optimizing growth strategies and translating this work to more effective communication.

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