The newly formed Kraft Heinz food giant's announcement to slash 2500 jobs is a harbinger of much worse headwinds facing all packaged food companies. As much as they would like to spin this as a positive cost-cutting move resulting from the synergy brought about by the merger, they and their competitive peers are heading into the perfect storm. In fact, all of the packaged food companies have been struggling for growth over the past couple years, and it is just going to get worse. Simply, but apocalyptically, they are in the wrong business, selling the wrong products to the wrong consumers.
Perfect Storm Front #1
Sticking to the metaphor of the perfect storm, when three storm fronts collide to create the perfect "annihilator," the first and most powerful of the three storms is the cultural shift in the U.S. that is being driven by the millennial generation. While their work, play and leisure lives are seamlessly integrated and they are constantly on the "go," their eating behavior has all but eliminated "sit down meals" at home. So convenience foods become a priority. But forget "fast foods" and everything microwavable. They are just not into eating fast; rather it's about eating well and efficiently. And more importantly, according to Brand Amplitude, a customer insights and brand strategy consulting firm known for its millennial marketing expertise, millennials "play close attention to what is in their food, and are especially interested in organic food. Thirty-percent of millennials say they regularly eat foods that are certified organic. This compares to just 15% for Boomers. Millennials express skepticism about chemicals, preservatives, and excess calories. They are unwilling to sacrifice health or quality for the sake of convenience."
So, this stage-one storm directly targets the half-a-century sweet spot of all the packaged food giants. And it will only get worse as the millennials take over from the Boomers as the number one consumer segment.
Perfect Storm Front #2
Storm front number two is the cultural shift to a societal focus on health and wellness, also a focus of the millennials. Following is an excerpt from an article in The Robin Report titled: Why Kale Will Save Retail,by Cindy Palusamy:
Healthy is the New Sexy
Scan the healthy Instagrams of some of the most followed fashion personalities and what do we find? Pictures post-yoga with a green juice and recipes galore for gluten-free and the perfect kale salad. A decade ago, eating meant dieting, something we had to do to fit into our jeans. Today, it's a celebration with mantras like "strong is the new skinny" that define the current mindset. The impact of healthy for the modern consumer includes looking and feeling better, increased productivity, and more mental agility. Delicious, healthy food is brain fuel. And with the advent of wearables that allow for tracking to remind us of our steps taken and calories consumed, we suddenly have a device to remind us of our indulgences and healthy choices.
Consumers are flocking to healthy options. Growth rates for "free-from" foods and healthy snacks are in mid- to high-double digits. Private investors are actively seeking the next fast casual, healthy concept. Juice bars are opening on every corner. Even Alain Ducasse has turned his three-star Michelin Paris restaurant into a temple to vegetarian and pescetarian fare.
Finally, the confluence of these trends alongside a strong media story line and global trendsetters embracing healthy (tennis star Novak Djokovic on gluten-free to Gwyneth Paltrow on healthy food) has only served to amplify the message to a broader audience."
Perfect Storm Front #3
The downsizing into retirement of the Boomer generation is storm front number three. While it's obvious that they will be spending more on travel, leisure, entertainment, health and wellness than on stuff, and will be eating out more often, the not so obvious is that they're mimicking the health and wellness habits of their kids, thus exacerbating the dilemma of the packaged food companies.
Build a New Ark
Unlike most of the recent disruption driven by technology across many industries, this perfect storm is the result of an emerging generation of young people who are actually architecting a new culture. So, this disruption cannot just be dealt with by embracing technology to facilitate the transformation of business models. This disruption requires a fundamental change in the products these companies produce, package and market, which also drives a total reinvention of their value chains, including the retail industry they sell through.
Indeed, to get through this perfect storm, these guys need "Noah" or at least a strategic game plan that takes them through the storm unscathed.
About the Author
Robin Lewis has over forty years of strategic operating and consulting experience in the retail and related consumer products industries. He has held executive positions at DuPont, VF Corporation, Women's Wear Daily (WWD), and Goldman Sachs, among others, and has consulted for dozens of retail, consumer products and other companies. In addition to his role as CEO and Editorial Director of The Robin Report, he is a professor at the Graduate School of Professional Studies at The Fashion Institute of Technology.