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Big Food Companies Are Innovating to Compete Against Healthier Upstarts

Every week seems to bring some new revelation of trouble for the manufacturers that once dominated the U.S. and global processed-food business: Kellogg, General Mills, Kraft, Campbell Soup, PepsiCo, ConAgra and the like. And it equally brings news of some upstart brand that is helping to reorder this massive business with some new innovation in products, packaging, marketing or all three: Annie’s, Amy’s, Plum Organics, Chobani, Lifeway cultured-yogurt drinks, and Vita Coco coconut water.

The reasons are clear. Here’s the biggest: As millennials form households, bear children and raise them, they’re turning heavily against many of the processed foods on which they and their parents were raised and searching out organic, all-natural, even “whole” foods, especially those with few and simple ingredients and “clean” labels. They’re also shunning many of the engineered “functional” foods and beverages that proliferated over the last decade—an area where Big Food could specialize—and favoring products where the nutrition and health benefits are innate.

“Millennials are searching out organic, all-natural foods, and favoring products where the nutrition and health benefits are innate.”

These sea changes are creating massive indigestion for the manufacturing block that has come to be known as Big Food. Some $18 billion in sales shifted from large consumer-packaged- goods companies to small ones from 2009 through 2014, according to a Boston Consulting Group/IRI study. That prompted a market-share slip over the same period to just 45.1% for the largest 25 food and beverage companies from 29.4%, according to Credit Suisse.

Even some of Big Food’s staunchest allies in retailing are beginning to turn against them. Target, for example, built out its grocery aisles over the last several years largely with the output of these traditional food processors and beverage companies, as the chain sought to compete with Walmart in the popular “supercenter” concept. But new Target CEO Brian Cornell recently told his vendors and investors that the chain now will tack heavily toward offering Target shoppers “more choices that support their wellness goals.”

Translation: Target is clearing more space for more organic, all-natural and “clean-label” foods and taking the real estate away from the likes of products such as ready-to-eat cereals and kids’ drinks containing high-fructose corn syrup, among others.

Big Food companies have not been caught completely flat-footed by these changes, however, and some are attempting to adjust. Many of the changes are a result of listening to consumers and overhauling some traditional products that used to be called comfort foods but now are seen as nutritional culprits. That’s why Kraft, for example, has reformulated its iconic macaroni and cheese by vowing to take out artificial preservatives and synthetic colors.

In large part, Big Food also has addressed this alarming shift by simply acquiring many of the disruptive better-for-you companies, attempting to tap into their sales growth and presence in expanding categories as well as borrowing some of their innovations and talent for the mother ship. Campbell has been doing this with Bolthouse Farms and Plum Organics, for instance.

But at the same time, Big Food manufacturers have to be careful not to throw out the proverbial baby with the bath water. Kraft products, for example, are still found in 98% of American households, the company said.

“One of the attractions of iconic brands is that they have remained unchanged,” Nick Fereday, an analyst at Rabobank International who covers food trends, told Advertising Age. “It’s not as if no one is buying these products.”

And so Big Food continues its evolution rather cautiously. But certainly there is no turning back to the era when Hostess Twinkies and WonderBread reigned on the American table.



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