CAGNY 2024: FSV take-aways
As every year, the Five Seasons Ventures’ team tracked down the presentations at the Consumer Analyst Group of New York (CAGNY), to get a front-row seat on Big Food’s stance towards trends, challenges, and strategies for the year ahead.
A snapshot of our takeaways from CAGNY 2024:
1. The Weight of Weight Loss Trends — Big Food’s binary response to GLP-1
2. Omnichannel, Omni occasion — Capturing more value from the same Consumer
3. Resilient categories — The ‘can control’ answer to industry headwinds?
4. Doubling down on the winners –Bets on Big Brands & Bolt-ons
The Weight of Weight Loss Trends — Big Food’s binary response to GLP-1
There was no way for Big Food CEOs to get around the potential weight of GLP-1 on their business. With nearly 7% of consumers in the US alone expected to be users of appetite-suppressing drugs WeGovy and Ozempic by 2035, the question that arises is how GLP-1 will impact future sales of food and beverage products.
Some corporates are taking the opportunity to accelerate growth of their healthy offerings, by pushing ‘low and no sugar’ SKUs, lowering use of salt and fat and launching products fortified with ingredients such as protein and fiber, like PepsiCo with their ‘positive choices’ portfolio. This may push up competition in marketing claims regarding healthy options for challengers Brands. A quick win without having to change current products is portion control, which naturally limits the number of calories per pack (read: you get smaller packaging for probably the same price, isn’t that a win-win?).
However, some companies like Hershey’s and Mondelēz are convinced that consumers will continue to seek indulgence regarding of the ingredient list and calories, which is substantiated by high growth numbers for some of their brands like Reese’s or Oreo’s. Their strategy: if there is an indulgent moment, we capture it and maximize the moment. So, we see strategies moving either left or right, which leads us to think that all products in the middle (nor healthy nor indulgent) might become jeopardized.
Omnichannel, Omni occasion — Capturing more value from the same Consumer
The ceiling for price increases to consumers seems to have been reached for many companies, and since volumes are difficult to grow in established markets, capturing more value from the same consumer has now become key priority. As a result, corporates are trying to capitalize on incremental occasions for their core brands. WK Kellogg’s, for example, is increasing basket size by launching snack bites for its cereal offering to assure that 25% of cereal consumption takes place outside of breakfast. Another area to incrementally gain meal occasions is Snacking, as JM Smucker points out that 50% of the US population snacks at least 3 times a day.
Distribution and availability are two core drivers for this strategy. As Mondelēz highlights in its ‘everywhere at any time strategy’, “We are implementing tactics at all levels, driving growth in new channels, and building new and existing partnerships that best serve our consumers.” This means not only doubling down on the depth of POS in a market, but also increasing sales per POS (through multiple placings or more facings) and tapping into a diversified mix of sales channels like travel retail or convenience stores.
Resilient categories — The ‘can control’ answer to industry headwinds?
From the Covid-19 pandemic to the strong inflationary environment in 2022–2023; the past few years have been full of challenges for most food corporates. It is therefore not a surprise that strategies shift towards categories with low price elasticity and possibility to fetch premium prices (as a cushion for gross margins), which means all eyes are on segments like snacking, pet food, coffee, energy drinks, functional foods, and (premium) alcohol.
Companies like Diageo focusing on ready-to-drink units of their premium Brands, or JM Smucker’s doubling down pet treats, confirms that consumption moments driven by emotion, search for functionality or crave for convenience are core for building a more resilient product portfolio, to combat current and potential future headwinds in the industry.
Doubling down on the winners — Big Bets on Big Brands
Finally, a common strategy for most corporates is focus on size and scalability of Brands. Rather than having a wide and complex variety of smaller Brands, the trend is towards doubling down on the winners, by increasing (marketing) spent to capture incremental market share, which may lead to higher marketing costs for challenger Brands. Conagra points out that 80% of their revenue comes from brands that are #1 or #2 in their respective sectors, showing the importance of fostering category winners. Expanding SKUs across new formats and channels for incremental revenue opportunities, also leverages this ‘platform strategy’, such as PepsiCo’s expansion of ‘Mountain Dew’ into hard seltzer.
As a natural consequence, M&A strategies that were shared (very few this year, unfortunately) focus on growing a company’s leadership in core categories at scale, combined with high growth and high margins, as well as the ability to create distribution synergies.
So called ‘bolt-on’ acquisitions should fill a clear cap in portfolio strategy, with a large TAM and fast growth potential. After all, in an environment of high interest rates, we can expect companies to follow a disciplined approach to M&A, with attention for business fundamentals. However, because of the continuous pressure for topline growth, we expect M&A appetite to remain significant.
