The War On Big Food: 2018

The War On Big Food: 2018

Original article “The War On Big Food,” by Beth Kowitt ran on Fortune May 21st, 2015.


I can’t tell you how many times I’ve talked about this article in the last year.  I was thrilled when I first read it.  As a consultant in the 2000s, I had talked with many of my clients about these trends.  What was happening?  Should they react to these little startups?  Buy them?  Create their own products to compete?

By the time this article was written in 2015, the impact of the sea-change in the CPG industry was undeniable.  Author Beth Kowitt was able to weave together data, examples, and corporate reactions to create a picture of what had transpired and the magnitude of those changes.

It’s 2018.  Why am I talking about it again?

Previously…

Kowitt’s thesis is that “Big Food” CPG companies face an “existential crisis” as Americans stop shopping for their products, stop shopping the center aisles of grocery stores, and stop shopping grocery stores altogether in favor of Amazon.  A business model that held up for decades is now being challenged on every side.  She cites a study by Moskow which finds that the Top 25 food companies lost $18B of market share between 2009 and 2014.  Indeed, when Nestle sells its candy business, that’s a signal that something significant has changed in the world.

The tension for these companies is that although the growth may be at the high end in natural food products or the low end in private label, the margins are squarely in the middle – their old-line, low-growth product that is losing market share.

2018

And that brings us to today.  Already we are seeing a big shift in consumers’ restaurant habits.  The two largest sectors, and those with the most multi-unit branded locations, Quick-Serve Restaurants and Casual Dining, are seeing flat to declining transactions.  Big money is flowing into high-growth areas: on the high end Fast Casual/Polished Casual and on the low end a variety of ways to replicate the restaurant experience at home (e.g., ingredient boxes, meal prep services, restaurant delivery).

Why should consumer changes be restricted to Big Food in the grocery store?  Why not Big Food in restaurants, too?  The changes consumers are demanding to see in their food at home are the same changes they are starting to demand in restaurants.

The big difference between food-at-home and food-away-from-home is start-up costs.  Co-packing plants have made starting a packaged food company relatively easy.  85,000 people attended Natural Products ExpoWest, a convention dedicated to the finding, founding, and funding of innovative new healthy products.  But starting a restaurant has significant upfront fixed costs, leading to the declining number of independent restaurants and a challenging business environment for many new concepts.

The start-up cost differential is about to change.  A typical restaurant costs over $1 million to build, plus a significant lease commitment.  As consumers care less and less about the restaurant environment, preferring to eat wherever they happen to be and have the food come to them, spending that money makes less and less sense.  What if an aspiring chef could start a restaurant with little or no upfront investment?  Would we see an explosion of new restaurant concepts to rival specialty food?

At Kitchen United, we think the answer to that question is a qualified yes.  Yes, because certainly the consumer demand for choice and the culinary talent to create is there.   Yes, because Kitchen United will dramatically lower the startup costs for a potential new restaurant.  But qualified, because if Big Food CPG companies have taught us anything, it’s that they are resilient, they are listening, and they will respond by giving consumers what they want.  If Big Food CPG companies don’t make it themselves, they will buy it.  This strategy could easily port over into Big Food Restaurant companies.

As a consumer, I’m thrilled.  The explosion of choices at the supermarket over the last 10 years has enabled each of us to find the niche products that are best for our particular lifestyle.  The idea of having as many choices for mealtime that I currently have for products is awesome.


-Meredith Sandland | COO | @meresandland

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