Food and Beverage
By Bill Chidley
"The need for food and beverage brands to stay relevant with new products, new messages, and new occasions is perpetual. "
FROM MOORE'S LAW TO MORE'S LAW
The microchip industry has been propelled by the famous “Moore’s law” for decades. Moore's law is the observation that over the history of computing hardware, the number of transistors on integrated circuits doubles approximately every two years. In contrast, growth in the food and beverage sector operates under More’s law—more competition and more fragmentation, with a significant number of new entrants joining the fray every year. In this version of More’s Law, the need for food and beverage brands to stay relevant with new products, new messages, and new occasions is perpetual.
The food and beverage industry’s giants are placing bets on multiple initiatives and campaigns, in multiple markets at the same time, and seeking to determine winners from losers as well as discriminate between fads and trends. And More’s law takes the biggest toll on the incumbent brands as new players seek to steal market share from market leaders. In some cases, the biggest threats involved in selling food and beverages can be internal competition, as new menu items and products threaten to cannibalize sales from higher margin offers in the brand portfolio.
As a necessity of More’s Law we see the growth drivers in these sectors as a combination of invention, expansion, and acquisition that warrants looking at specific pressure points that will set the landscape for 2013.
"Overall, in 2013, traditional fast food brands will continue to struggle to find favor with younger adults and families as they find themselves caught between niche 'premium' indulgent burgers and burritos, and concepts based on healthier options."
As projected in Interbrand’s 2012 Best Global Brands report, the quick serve restaurant industry will see increasing erosion of their core business to premium burger concepts such as America’s Five Guy chain (reportedly expanding to the UK this year) as they are forced to focus on driving traffic for new occasions and new segments. McDonald’s recently posted its first monthly sales decline in nearly a decade, prompting new leadership and a new direction in 2013. McDonald’s and their franchisees are spending millions upgrading the restaurant experience in the US by 2015 to match the more premium experiences common in Europe and Asia, but the move seems to be more strategic—spurred by a desire to avoid falling behind, rather than an effort to build sales and brand loyalty.
Overall, in 2013, traditional fast food brands will continue to struggle to find favor with younger adults and families as they find themselves caught between niche “premium” indulgent burgers and burritos, and concepts based on healthier options.
As Western brands seek to find more growth in Asia and developing markets, the main challenge will be migrating from building distribution to developing more relevant products. Expect to see more regional autonomy in collecting market insights, analyzing that data and developing products and flavor variants to meet local tastes, as McDonald’s is doing in Australia. Indigenous brands are becoming more sophisticated marketers and are eager to out-maneuver the big brands while beverage companies like PepsiCo are acting more local with brands like India’s Mirinda orange soda adding innovative flavor extensions aimed at Indian tastes. Another growth challenge is China’s slowing economy, which is causing beverage brands to evaluate their price/value equations. Coke is finding success with a new 300ml package that allows the brand to stay at an attractive price and build sales and “economic relevance” with a bigger percentage of the Chinese population.
The energy drink phenomenon will continue to drive new products from familiar brands. Cola and coffee brands already known to contain caffeine will find that equity insufficient to tap into the energy category without amplifying their message through new brands and variants. Older consumers who are less familiar with or even skeptical of energy drink brands like 5-Hour Energy will likely see energy drinks from Starbucks and Coke to be legitimate choices. The question remains as to whether the energy category will create new occasions, migrate consumers up to more premium benefits, or decline quickly due to health concerns and media scrutiny.
"In the United States, alcoholic beverage marketers need to pay special attention to the Millennial segment’s attitudes and behaviors regarding alcoholic-beverage occasions and consumption to develop winning strategies that will resonate with this influential group."
Overall, the alcoholic drinks market is expected to grow worldwide, with cider, flavored drinks and beer leading sales. That said, beer and ale brands are expected to see some decline despite the craft movement—with the exception of lager, which is set to become even more dominant, everywhere. Because alcohol brands continue to face challenges from legislators and the healthcare community, low alcohol brands are expected to increase in popularity in 2013. In developing markets, distilled beer and spirits continue to see disproportionate growth, with young adults driving consumption in Brazil, India and China. While cider is particularly popular in the UK, non-specialty spirits are increasing in popularity globally, with interest in specialty spirits particularly big in the BRIC markets.
In the United States, unemployment has hampered beer sales and intensified related promotions, but growth is picking up amongst Millennials. The largest generation since the Baby Boomers, they’re frequent consumers of alcoholic beverages, more likely to try new things and are increasingly driving key trends in the sector. As more young people in this generation reach legal drinking age, the preferences of this group will continue to influence alcohol sector trends in the years ahead.
By strengthening their brands and seeking ways to drive preference, alcohol brands are likely to find growth opportunities around the world. In the United States, alcoholic beverage marketers need to pay special attention to the Millennial segment's attitudes and behaviors regarding alcoholic beverage occasions and consumption to develop winning strategies that will resonate with this influential group.
The food and beverage brand space will continue to be an exciting one to watch in 2013. We expect to see more innovation in products, digital marketing, and social media, as well as agile marketing in developing countries as these brands continue to grapple with thorny ethical issues, health concerns, and growth challenges that are unique to their sector.