Each month I write a feature for Media Post:CPG, an integrated publishing and content company whose mission is to provide a complete array of resources for media, marketing and advertising professionals. This article first appeared on Media Post: CPG in July 2016.
It’s fascinating to see dramatic transitions in so many major industries. Electric cars, driverless cars and Uber are transforming the auto industry. The entertainment and advertising industries are being transformed by mobile devices and streaming video. Amazon is transforming the retailing industry.
In each case, the dollar volume typically continues to be on the side of the old model, but the eye-popping growth rates on the new model reveal the inexorable cannibalization to come.
In CPG, we’ve been watching consumers leave the center store in greater and greater numbers for more than a decade to shop the perimeter, where they perceive fresher and healthier foods reside. The dollar volume is still with more indulgent foods, but the growth rates for better-for-you brands are many times those of traditional CPG.
Wall Street tends to love pure plays — those companies with a high degree of focus and dominant position within that focus. But pure plays often don’t have the scale to go it alone. That’s why a couple of recent mega-mergers and announcements affirm the CPG companies who really get it — embracing the revolution that is transforming their industries and creating hybrids that combine the dollar volume and scale of today with the better-for-you brands of tomorrow.
1. PinnacleFoods: Pinnacle still states on its web site that its purpose is reinvigorating iconic brands. With a portfolio of old-school brands like Duncan Hines, Log Cabin, Mrs Paul’s, Hungry Man and Wishbone, we all get the purpose. But late last year, Pinnacle took a distinct turn from reinvigorating iconic brands when it purchased Boulder Brands and its stable of high-growth health and wellness brands including Udi’s, Evol, Smart Balance, Earth Balance and Glutino. Adding these to its earlier acquisition of frozen meat substitute leader Gardein, and your mama’s H & W go-to, Birds Eye, Pinnacle demonstrated it had a vision for delivering for consumers and investors both today and in the future.
2. Danone S.A.: Recently, Danone announced its acquisition of White Wave Foods (sorry to see the Front Range’s leadership of the BFY food movement get gobbled up so quickly. I look forward to Denver & Boulder foodies continuing to innovate in the BFY food space!). Danone liked shifting its portfolio towards the better-for-you, better-for-the-planet, plant-based brands of White Wave. And they liked the scale they could bring in taking those brands global.
3. Frito-Lay: Snacks have garnered an ever-larger “share of stomach” in the United States, and, therefore, U.S. consumers are especially interested in better-for-you snacks. In reporting its second quarter results, Pepsico CEO, Indra Nooyi credited the Frito-Lay North America division as the largest contributor to Pepsico growth at U.S. retail. Nooyi said Frito-Lay, “is just getting started” in developing its premium snacks, including Stacy’s Pita Chips, Smartfood and Sun Chips Veggie Harvest.
The model exemplified by each of the above is to keep a foot firmly planted in both the today and tomorrow camps. They bring logistical and distribution scale to high-growth BFY brands and satisfy both the better angels of our nature and the more indulgent angels of our nature.
The struggle for management of these old school/new school portfolios is often where to place its marketing bets. Do you support today’s volume business or milk those cash cows to optimize the growth of your future business? Those that get it relentlessly embrace change and skew their bets toward the future.
And in choosing for change in the nature of their brand portfolios, I suspect these same companies will choose to place their advertising dollars more where the business is going (online video) than where the ad dollars are today (TV). And that they’ll be choosing to saddle up more and more with Amazon to deliver your groceries through a driverless, electric Uber vehicle when you’re home to accept them.