This is the first in a series of articles that TFA will be releasing over the next few months, analyzing trends from our Member Survey.
Though fermentation brands overwhelmingly reported substantial sales gains during the Covid-19 pandemic, they’re not breaking out the champagne. Now, nearing fall 2021, many are starting to see sales flatten. This trend is consistent with sales for the food industry at large, which started to plateau in March 2021.
Most fermenters reported struggles meeting demand — packaging shortages (38%), costly and time-consuming Covid-19 sanitation protocols (30%), distribution delays (29%) and ingredient and labor shortages (both 28%). Then there’s the challenge of keeping a fermented product in stock with constantly changing sales demands.
Jared Schwartz, a TFA Advisory Board member, is founder of fermented sauce producer Poor Devil Pepper Co. and director of operations and quality for Farm Ferments (a facility in Hudson, N.Y., that is home to Hawthorne Valley Farm). He says forecasting has been especially difficult for a refrigerated fermented food with a processing cycle more delicate than that of its shelf-stable counterpart.
“While these spikes in sales are incredible, they also depleted our on-hand WIP [Work-In-Progress],” Schwartz says. He would project barrels of fermenting vegetables to provide adequate inventory for a certain length of time, but peak pandemic demand depleted stock. Finding new ingredients is difficult because everything is sourced locally. “With fermentation, there is of course a much longer lead time on a finished product as the process can’t be rushed. So these challenges left us extending our production season and looking to source from the spot market, which is generally out of our norm. We generally source 95% of our ingredients from New York State and base our projections around the trajectory aforementioned.”
Sales Flatten After Record Year
While predicting sales has been difficult — especially as many states are again increasing Covid-19 restrictions because of the Delta variant — some brand leaders were prepared for a decrease in sales in 2021.
Kheedim Oh, founder of Mama O’s Kimchi (and also on TFA’s Advisory Board), said sales doubled in 2020. But, this summer, they fell dramatically from that peak. “July was terrible,” Oh says, but they “anticipate a boost in the fall since summer months are typically slower.”
Revenue almost tripled in 2020 for hard kombucha brand Dr. Hops, but sales have since started to flatten. The company had secured new distribution before the pandemic, then redesigned their product line this year. “We would have likely done much more… if we had been able to do all the field sales and marketing we had planned,” says Joshua Rood, co-founder and CEO of Dr. Hops Real Hard Kombucha,
Hawthorne Valley is seeing a similar downturn. Sales from March to April spiked about 50%, with overall year-over-year growth at 46%. But “things have definitely plateaued for now,” Schwartz says.
Supply Chain Nightmares
Small packaging supplies — like the tiny plastic caps for glass kombucha bottles — caused huge production issues. Hannah Crum, president of Kombucha Brewers International, says this was the biggest challenge for brewers. “It’s had a massive impact,” she says.
Twenty-four percent of survey respondents said they anticipate production constraints will continue to be a challenge throughout 2021.
And though sales remain strong for Bubbies pickles according to John Gray, owner of Bubbies (and TFA Advisory Board member), “glass shortages have affected the entire industry. Sales are strong, but shortages persist,” as he describes the pandemic’s double-edged sword facing many fermented brands.
Production and distribution issues hit frozen pizza brand Alex’s Awesome Sourdough, too — packaging costs went up 10%, and freight expense nearly doubled. But these didn’t slow the company’s growth. They expanded massively in 2020, from 100 to 1,500 stores. An overall uptick in frozen food sales helped them as well, especially as competing pizza brands went out of stock.
“Sales are strong as pizza is a seasonal category and the end of summer and early fall are the beginning of peak season,” says Alex Corsini, founder of Alex’s Awesome Sourdough (and another TFA Advisory Board member). “We anticipate sales being even stronger if Covid protocols remain strict and restaurants continue operating at a limited capacity. Restaurants definitely take a piece of our pie (pun intended).”
Tequila sales last year were 60 million gallons, 800% higher than two decades ago. This agave-based spirit has become so popular that distillers are “selling it at the price of gold.” What caused the boom? Celebrity endorsements.
From George Clooney to Arnold Schwarzenegger, LeBron James to Nick Jonas and Dwayne “The Rock” Johnson to Kendall Jenner, celebrities have made billions off their tequila brands.
A Los Angeles Times article highlights the pros (a booming local economy in Mexico, tequila being introduced to more people) and the cons (environmental concerns, agave plants harvested too young, diverse crop fields and forests turned into monocultures of agave, foreigners taking over a traditional drink) of this growth. The article continues:
“Pre-Hispanic Indigenous groups in Mexico had been fermenting agave into a viscous alcoholic drink known as pulque for centuries when Spanish conquistadors arrived in the 16th century and first distilled tequila. It has since evolved into an $10.8-billion-a-year industry.”
Read more (Los Angeles Times)
In America, where 40% of the population identifies as nonwhite, why do grocery stores still have an ethnic aisle? The outdated aisle initially began after World War II as a way for soldiers to buy the food they ate while in Italy, Germany or Japan. But the European foods, like pasta sauces and sauerkraut, eventually became integrated with the rest of the store, while foods from BIPOC countries stayed put.
Heads of ethnic food brands and grocery chains have been pushing for a change, but it’s been a hard sell. Doing away with the aisle is a layered problem — and still not the most popular approach with food professionals.
“Several food purveyors of colors see the aisle as a necessary evil — a way to introduce their products to shoppers who may be unfamiliar with, say, Indian food — though a barrier to bigger success,” reads an article in The New York Times.
Some ethnic brands come to store buyers with little capital to get their products on the shelf, so the only spot for them is on the ethnic aisle. They will never break out unless they’re acquired by a larger company. Larger corporations, like Pepsi or Nestlé, can afford to pay stores to put their products on shelves with prime product placement. And large ethnic brands (like Goya beans and Maruchan ramen) are placed on both ethnic aisles and their respective traditional product section because they’re considered broadly recognized.
But many products with international flavors made by nonwhite brands are not placed on the ethnic shelf. The Times shares the story of Toyin Kolawole, who runs the African ingredients brand Iya Foods. Kolawole tried to get her cassava flour into the flour aisle with a Midwestern retailer with no success. But when cassava flour began trending as a substitute for traditional flour, bigger companies launched their own cassava brands — which were put in the flour aisle.
On the flip side, other food professionals note that consumers turn to the ethic aisle in search of international flavors. Customers like the convenience. There is a fear that unique ingredients (like tamarind or pomegranate molasses) without a clear spot in a grocery store would get lost in a conventional aisle. And, even worse for some brands, integration in an American grocery store means being “divorced from its cultural background.”
Read more (The New York Times)
The Fermentation Association recently surveyed our community to better understand who has engaged with us, how their businesses are doing and to gauge the impact of the pandemic. We want to share the very interesting results.
A few qualifying comments first, however. This survey should not be interpreted as producing a profile of the fermented industry — it reached only those with whom we have connected since TFA was launched in 2017. This group is heavily weighted to Food and Beverage Producers and those in the Science, Health and Research fields. And, even as we note surprisingly high response rates below, the quantities of responses to certain questions were small and would not meet standard analytical thresholds of statistical significance. So please treat the comments and conclusions that follow as directional rather than definitive.
We received 450 full or partial responses — nearly twice the number we had expected and what we would have considered “good.” Not surprisingly, the bulk of these were from Food and Beverage Producers — just under half — with a strong representation of the Science, Health and Research community, a little less than one-fifth. The balance of the respondents were classified as Supplier or Service Provider (9%); Chef/Writer/Educator (8%); Retailer/Distributor/Broker (3%); Food Service/Hospitality (3%); or fell into a miscellaneous Other category (12%).
We will be presenting further analyses and follow-up discussions in the coming weeks. This article focuses on the two largest segments: first, Food & Beverage Producers; then, Science, Health, and Research.
FOOD & BEVERAGE PRODUCERS
- We found that over 80% of our Producers are small businesses with 25 or fewer employees, and 65% had 2020 sales of less than $500,000. That said, over 11% of the companies represented are toward the other end of the spectrum, with 100 or more on staff, and 13% with revenue of over $10 million.
- We reach a lot of Owners/Founders/Senior Executives, over 70% of respondents. The next most well-represented functional areas are Operations and Product Development.
- These businesses are spread across the developmental timeline — a little over 40% are selling at the local level, or earlier in their growth cycle (selling at farmers market or still in testing/pre-launch mode). Yet 45% are selling regionally, nationally or internationally.
- Retail is still the largest (45%) channel of sale for these producers, but Direct-to-Consumer (DTC) is just slightly behind at 40%, with the remaining 15% through Food Service/Hospitality.
- Sauerkraut/Kimchi, Pickles, Condiments/Sauces and Kombucha were the most frequently-listed product categories, each mentioned by more than 20% of the producers. Kefir, Vinegar/Shrubs, Wine and Miso also were mentioned often. Of the 25 product categories listed, we had respondents involved in every one — except poor, slimy, and unrepresented natto.
- Nearly half of producers selling at retail and/or DTC had sales gains in 2020 and another third maintained their revenues. Not surprisingly, nearly 40% of producers selling into food service saw sales take a hit — only 15% reported gains.
- The Covid-19 pandemic caused a host of issues for producers, though their prevalence seemed to vary depending on the size of the company. Among larger producers, over 90% had issues meeting demand, with the primary problems being shortages of raw materials, packaging and staff, as well as distribution delays. Fewer of the small producers reported issues, but their problems fell into the same categories. Financial difficulties were cited more often among small producers.
- Nearly 30% of producers took advantage of the government’s Payroll Protection Plan.
- This year appears to continue or build on the sales levels achieved in 2020 for most producers. Nearly 40% report first quarter 2021 sales at the same level as last year, and nearly 50% reported further increases. And producers are optimistic about continuing these trends, with a mere 5% anticipating sales declines.
- Most (nearly two-thirds) of responding producers did not participate in tradeshows and conferences, and therefore felt no business impact from show cancellations in 2020.
- The producers that did participate in events favored the Natural Products Expos, Fancy Food Shows and IFT Show. While some felt that they lost short-terms sales and their future growth was hurt by the shows being cancelled, nearly 30% noted that they saved money and time by not attending. Some of those savings were reinvested in increased marketing, DTC sales and virtual events.
- Interestingly, half of the producers plan to continue their involvement as events resume at the same level as before the pandemic, and fully one-third plan to increase activity.
- Looking ahead, producers see numerous challenges on the horizon, led by a need for expanded distribution. They expect many of the recent shortages to continue to challenge, compounded by production, facility and financial constraints. While Covid protocols and food safety concerns persist, they are joined by the need for product development, e-commerce skills, and consumer marketing
- The clearly-articulated top priority for producers is a better-educated consumer. When asked what would foster increased consumption of fermented foods and beverages, the top item for nearly 70% is consumer education as to the nature and benefits of fermentation. The next highest priorities all support this same goal — more research into health impact (+40%), greater familiarity with flavors of fermentation (+40%) and more exposure at retail (+30%).
SCIENCE, HEALTH & RESEARCH
- The bulk — nearly 75% — of these respondents work in an academic environment, with very small clusters in government and medical/health organizations. It’s a well-educated group, with over half holding doctorates, plus another quarter with Master’s degrees. Roles are split quite evenly into thirds — professors, science/technical support and students/postdocs.
- Over 60% of these respondents are looking into connections between fermentation and health; roughly half are specifically focused on gut health and the human microbiome. Overall, three-quarters are currently researching fermentation and fermented products. Their activities, though, span the full spectrum of product categories. All the key categories among our producers — Sauerkraut/Kimchi, Pickles, Condiments/Sauces, Kombucha and Kefir — were well-represented in research. But they were joined by meaningful work across the board — Yogurt, Beer, Cheese, Alternative Proteins, Koji, Wine, Sourdough, Tempeh, Tea — even Natto!
- Slightly more than a third of this group is involved with fermented alternative proteins – an important, emerging category.
- Funding for research showed more declines (30% of respondents) than gains (under 15%) over the last year. But half of our sample expects funding to increase in the coming 12-18 month.
- Our Science, Health & Research respondents were split in how they viewed the interest in fermentation research — 60% felt the focus was increasing, but the topic was not yet a top priority. Yet a third saw fermentation as a hot topic, with more emphasis and activity than ever.
- Respondents in this group shared the views of producers that the key activities that would drive increased consumption of fermented products are:
- Consumer education about fermentation
- More research into health benefits
- Greater consumer familiarity with fermented flavors
Natural winemaking is moving mainstream, as more viticulturists preach the importance of soil health and shun traditional herbicides. “Where does natural wine finish and conventional wine start? These days, it’s hard to tell,” reads an article in Vinepair. Though the vast majority of global wine production still relies on conventional methods, the virtues of natural winemaking are helping change the industry.
“While it used to be rare for wines to be fermented with wild yeast — allowing the microbes present on the grapes to carry out fermentation — this is now much more common. And conventional producers have been prompted to question their use of additives such as sulfur dioxide. In fact, many aspects of winemaking that were championed by natural wine folk have now become much more common, even replacing some of the triumphs of more heavy-handed methods. As more producers trend away from making big, international-style reds with dark color, sweet fruit, high alcohol, and obvious new oak character, extracting less color and tannin for lighter-style reds is gaining popularity.”
Read more (Vinepair)
Investments in alternative protein hit their highest level in 2020: $3.1 billion, double the amount invested from 2010-2019. Over $1 billion of that was in fermentation-powered protein alternatives.
It’s a time of huge growth for the industry — the alternative protein market is projected to reach $290 billion by 2035 — but it represents only a tiny segment of the larger meat and dairy industries.
Approximately 350 million metric tons of meat are produced globally every year. For reference, that’s about 1 million Volkswagen Beetles of meat a day. Meat consumption is expected to increase to 500 million metric tons by 2050 — but alternative proteins are expected to account for just 1 million.
“The world has a very large demand for meat and that meat demand is expected to go up,” says Zak Weston, foodservice and supply chain manager for the Good Food Institute (GFI). Weston shared details on fermented alternative proteins during the GFI presentation The State of the Industry: Fermentation for Alternative Proteins. “We think the solution lies in creating alternatives that are competitive with animal-based meat and dairy.”
Why is Alternative Protein Growing?
Animal meat is environmentally inefficient. It requires significant resources, from the amount of agricultural land needed to raise animals, to the fertilizers, pesticides and hormones used for feed, to the carbon emissions from the animals.
Globally, 83% of agricultural land is used to produce animal-based meat, dairy or eggs. Two-thirds of the global supply of protein comes from traditional animal protein.
The caloric conversion ratios — the calories it takes to grow an animal versus the calories that the animal provides when consumed — is extremely unbalanced. It takes 8 calories in to get 1 calorie out of a chicken, 11 calories to get 1 calorie out of a pig and 34 calories to get 1 calorie out of a cow. Alternative protein sources, on the other hand, have an average of a 1:1 calorie conversion. It takes years to grow animals but only hours to grow microbes.
“This is the underlying weakness in the animal protein system that leads to a lot of the negative externalities that we focus on and really need to be solved as part of our protein system,” Weston says. “We have to ameliorate these effects, we have to find ways to mitigate these risks and avoid some of these negative externalities associated with the way in which we currently produce industrialized animal proteins.”
What are Fermented Alternative Proteins?
Alternative proteins are either plant-based and fermented using microbes or cultivated directly from animal cells. Fermented proteins are made using one of three production types: traditional fermentation, biomass fermentation or precision fermentation.
“Fermentation is something familiar to most of us, it’s been used for thousands and thousands of years across a wide variety of cultures for a wide variety of foods,” Weston says, citing foods like cheese, bread, beer, wine and kimchi. “That indeed is one of the benefits for this technology, it’s relatively familiar and well known to a lot of different consumers globally.”
- Traditional fermentation refers to the ancient practice of using microbes in food. To make protein alternatives, this process uses “live microorganisms to modulate and process plant-derived ingredients.” Examples are fermenting soybeans for tempeh or Miyoko’s Creamery using lactic acid bacteria to make cheese.
- Biomass fermentation involves growing naturally occurring, protein-dense, fast-growing organisms. Microorganisms like algae or fungi are often used. For example, Nature’s Fynd and Quorn …mycelium-based steak.
- Precision fermentation uses microbial hosts as “cell factories” to produce specific ingredients. It is a type of biology that allows DNA sequences from a mammal to create alternative proteins. Examples are the heme protein in an Impossible Foods’ burger or the whey protein in Perfect Day’s vegan dairy products.
Despite fermentation’s roots in ancient food processing traditions, using it to create alternative proteins is a relatively new activity. About 80% of the new companies in the fermented alternative protein space have formed since 2015. New startups have focused on precision fermentation (45%) and biomass fermentation (41%). Traditional fermentation accounts for a smaller piece of the category (14%). There were more than 260 investors in the category in 2020 alone.
“It’s really coming onto the radar for a lot of folks in the food and beverage industry and within the alternative protein industry in a very big way, particularly over the past couple of years,” Weston says. “This is an area that the industry is paying attention too. They’re starting to modify working some of its products that have traditionally maybe been focused on dairy animal-based dairy substrates to work with plant protein substrates.”
Can Alternative Protein Help the Food System?
Fermentation has been so appealing, he adds, because “it’s a mature technology that’s been proven at different scales. It’s maybe different microbes or different processes, but there’s a proof of concept that gives us a reason to think that that there’s a lot of hope for this to be a viable technology that makes economic sense.”
GFI predicts more companies will experiment with a hybrid approach to fermented alternative proteins, using different production methods.
Though plant-based is still the more popular alternative protein source, plant-based meat has some barriers that fermentation resolves. Plant-based meat products can be dry, lacking the juiciness of meat; the flavor can be bean-like and leave an unpleasant aftertaste; and the texture can be off, either too compact or too mushy.
Fermented alternative proteins, though, have been more successful at mimicking a meat-like texture and imparting a robust flavor profile. Weston says taste, price, accessibility and convenience all drive consumer behavior — and fermented alternative proteins deliver in these regards.
And, compared to animal meat, alternative proteins are customizable and easily controlled from start to finish. Though the category is still in its early days, Weston sees improvements coming quickly in nutritional profiles, sensory attributes, shelf life, food safety and price points coming quickly.
“What excites us about the category is that we’ve seen a very strong consumer response, in spite of the fact that this is a very novel category for a lot of consumers,” Weston says. “We are fundamentally reassembling meat and dairy products from the ground up.”
The Covid-19 pandemic powered strong food and beverage sales last year. But natural and organic brands grew even faster than conventional ones, with sales growing 12.7% to $259 billion.
“Natural products throughout the last year have really been outpacing all product growth. Natural and clean products are now about $1 out of every $10 spent, which is really significant,” says Kathryn Peters, executive vice president of SPINS, a retail data provider. Peters presented sales trends at the virtual Natural Products Expo West.
Data from SPINS and Nutrition Business Journal documents that there was a “dramatic shift” in consumer behavior during the pandemic, as more people cooked at home and bought healthier foods.
“2020 was a record year for the U.S. natural and organic product industry,” says Carlotta Mast, senior vice president and market leader for New Hope Network, producers of the Natural Products Expos. “The industry has so much to celebrate, despite the very challenging time we’ve been through the past 14 months.”
Natural and organic sales are expected to pass the $300 billion mark by 2023.
Food as Medicine
Functional food and beverage sales grew 9.4% to $78 billion in 2020, a surprisingly high figure since grab-n-go offerings — the category in which many functional products are tracked — were reduced significantly during the pandemic.
“And yet that strong growth, nearly 10% experienced in that category, demonstrates that people continue to embrace the food as medicine trend,” Mast says.
Products that claim to offer immune-boosting, functional ingredients are selling well. Consumers are “shifting from reactive to preventative and from cold and flu season to year-round protection.” Ingredients and supplements like elderberry, vitamins C and D, antioxidants, collagen and cider vinegar are increasing in sales.
Sales of animal welfare-positioned products grew 17% in 2020, and sales of grass-fed and free-range products increased more than 13%. Other key wellness attributes that appeared to drive significant dollar growth included paleo (up 32%), plant-based (21%) and grain-free (18%).
“Consumers are expecting more from the products they buy,” Peters said. “Whether it’s because of a limited budget or health and wellness considerations to build a stronger body, people are seeking nutritional benefits.”
Consumers are seeking to buy from brands with a purpose. These are products that, for example, want to save the environment, create a sustainable food system, champion a social justice cause or support a minority group.
Nick McCoy, co-founder and managing director at Whipstitch Capital, a food-focused investment bank, calls these brands “better for people and the planet” and says they are “doing good while making money at the same time.” The amount of ESG (Environmental Social Governance) investment funds has increased tenfold over the past two years.
Brands that are mission- and community-minded are experiencing the strongest sales growth.
“This demonstrates that our industry is home to brands that do a lot more than just sell a product — they’re a force for better, better health and better outcomes for humans, animals and the environment,” Mast says. “Our industry shoppers expect more than a transaction from the brands they do business with.”
In a SPINS survey, consumers said they want to support brands that are LGBTQ owned (19%), BIPOC owned (28%) and/or woman owned (18%).
Vegetarian and vegan products are also increasing in sales. Plant-based and meat alternatives grew 21% last year, at a rate of two-times their mainstream counterparts.
“In many cases, plant-based is bringing more nutrient density than the original animal-based analog,” Peters says . “Plant-based support is growing beyond just health benefits to earth-based benefits like lower greenhouse gas emissions, water conservation and biodiversity.”
Not surprisingly, e-commerce sales fast-tracked during the pandemic, accounting for 58% of natural and organic sales last year. E-commerce also became the main channel where new brands were launched. Though sales in brick-and-mortar stores are not predicted to return to pre-pandemic levels, physical retail locations are still expected to account for 30% of all natural and organic products sales in 2023.
Speakers at the event advised brands to take an omnichannel approach, tackling marketing through brick-and-mortar stores as well as e-commerce channels. Sashee Chandran, founder and CEO of Tea Drops (a producer of organic tea pressed and preserved in different shapes), spoke at the conference about her experience following this marketing approach.
“Even though things are opening up, consumers still want that flexibility to be able to shop online but also in store,” she says.
From pickling foraged plants to experimenting with koji to vacuum-sealing tempeh, more chefs are experimenting with fermentation. Insights “for menu developers seeking unique concepts and ingredients” were shared during a session at the Research Chefs Association’s RCA+ virtual conference.
Sandor Katz, noted author and educator, discussed how research kitchens can increase their fermentation activities, from creating interesting flavors to expanding food preservation.
“[Fermentation] can elevate the plainest of foods into flavor sensations,” Katz said. “Its uses in culinary traditions around the world are incredibly diverse, and yet visionary chefs are experimenting with exciting new applications of fermentation.”
Read more (Food Business News)
Behind every fermented food or beverage is intriguing science that creates a pleasantly tangy taste. Customers want to know all about that chemical process, right?
No. Stop geeking out and appeal to the foodie instead.
“This is about the joy of eating, and so when you over-science me and you over-gut me, I forget the joy of eating. Remind yourself that your most important message is how pleasant, how tasty, how engaging, that’s the pleasure of eating, and then you can tell me how you make that pleasure,” says Sasha Strauss, managing director at Innovation Protocol (a marketing consulting & design agency). Strauss shared his brand strategy tips in the TFA webinar Building a Fermented Brand. He stressed fermented brands need to avoid getting stuck in the “scientific nuance of how you make your products. I’m not saying delete the science, just don’t make it the marquee.”
Alex Corsini, founder of frozen pizza company Alex’s Awesome Sourdough (and TFA Advisory Board member) agrees. Corsini, who moderated the webinar, says he began his brand with a heavy emphasis on the science of fermenting sourdough.
“Our customer didn’t really respond to that. And that’s something I see in fermentation all too often, is people aren’t selling the actual benefit. They want to understand the benefit, so that’s what you lead with,” Corsini advises.
If you’re selling kombucha, for example, share that it’s a feel-good product that will make you feel better than a soda, Corsini says. Don’t make your selling pitch the SCOBY’s technical specifications.
Teach, Don’t Sell
“I don’t understand fermentation. I don’t understand the health benefits. I don’t understand its cultural origins. I don’t understand what section to buy it in. I don’t understand what to eat it with or who to serve it too. Your first duty as a brand is to help me make sense of this, help me understand it,” Strauss says. “It’s not your job to be the sexiest, raciest, the most innovative, it’s your job to help me understand. And where understanding sits in the consumer’s mind is where buying behaviors originate. So the first and most important duty of your brand is to simply help me not feel alone, help me not feel confused, help me not feel overwhelmed.”
By educating the consumer, by inspiring them to learn about fermentation, “they will be indelibly connected to you,” Strauss continues. “They will prefer you. They won’t wonder if your price is a penny cheaper, they’ll prefer you because you’re who they learned from. We buy who we learn from.”
There’s not enough room on a label to detail all the health benefits or the scientific details of a product. But this information can go on a brand’s website, social media page or table-top display at a trade show or farmer’s market.
“I hope that your audience doesn’t hear from you just once,” Strauss says. They should find a video of your product on Instagram, find recipes on your website and see an ad in the local paper. Brands need to create multiple opportunities to engage, “don’t try to cram all of your value in a single channel.”
A New Economy
The COVID-19 pandemic has permanently changed the economy. Consumer lifestyles have changed, too, and these new behaviors create opportunities, especially for fermented products that are healthy and flavorful.
“Historically, if you were trying to build a consumer packaged goods brand, it was really about your resume, your long list of accomplishments , your heritage in farming, your understanding of the chemistry and that was what marked the person, the business, the brand,” Strauss says. “But actually now, it’s really about how you resonate, how I connect with you, how you inspire me, and that doesn’t require a long history, that requires a contemporary participation.”
“In a world where the audience is starting and ending their search digitally, each of the things that you share, post, write about, blog about, video dialogue about, those things are little breadcrumbs that will never go away,” Sasha says. “They’re little trails that lead to your brand, lead to your resources, lead to your understanding and this is powerful.”
Consumers rejected traditional brand loyalties this past year. They’re increasingly open to new brands, curious about new cultural flavors and want healthy food. Critically, Strauss points out, they want to purchase from socially responsible brands. “In a post-covid era, we want a brant to also do good,” he says.
Producers must make conscious choices about the farmers they use — how are they improving soil health? What is the environmental impact of their distribution line?
“Understand you have to make an impact, somehow do good for the world while building business,” Strauss says.
Don’t expect people immediately to dump their sourdough starters and crowd restaurants when the Covid-19 pandemic is over. In a U.S. consumer trends survey, 42% of people said they plan to cook more at home post-pandemic. This news is great for Consumer Packaged Goods (CPG) brands.
From record sales to supply shortages to new safety regulations, the retail grocery business was changed dramatically by the pandemic in 2020. But CPG companies experienced phenomenal growth: sales rose over 10% — more growth in one year than in the four-year period from 2016 to 2019. Though pandemic stockpiling (fingers crossed) likely will not recur in 2021 , CPG sales show no signs of slowing down. A mere 7% of Americans said they’d cook less after the pandemic than before. Consumers are buying CPGs more than ever. And they’re not staying loyal to their favorite brands — over 50% of respondents said that they are willing to try different products, and 66% of them stuck with those new brands.
Fermented CPG brands are in a great spot to take advantage of these trends. Healthy foods gained significant share in the food market in 2020. The pandemic propelled fermented food and beverage into the spotlight. More Americans began experimenting with healthier eating during the pandemic, and now they’ve adopted it as a habit.
What does this mean for the future of CPG brands? Here are four ways they must adapt to the “new normal”:
- Sales via Multiple Channels
Consumers won’t be shopping for your products only in brick-and-mortar stores. More consumers than ever are buying through ecommerce. Digital grocery sales were a niche category before the pandemic — now, CPG food and beverage sales are estimated to top $100 billion in 2021.
Food and beverage sales became the largest CPG online segment in 2020.
Direct-to-consumer (DTC) sales also shifted into high gear. Consumers turned to DTC during the pandemic to get their favorite products straight from the manufacturer. Good examples are kombucha producers selling bottles directly from the brewery and a sauerkraut maker shipping to consumers from their kitchen. An analysis by Retail Dive found direct-to-consumer businesses during the pandemic fared better than did traditional brick-and-mortar retailers.
But this doesn’t mean CPG brands should abandon selling in grocery stores.
According to Deloitte’s 2021 Consumer Product Industry Outlook, four out of five companies say “resetting their go-to-market strategy is critical to meeting their objectives; however, only half rated the current maturity of their related capabilities as high.” A majority of CPG companies surveyed say a bigger online and omnichannel presence will be a means of reaching consumers in 2021.
- Conscious Consumption
Consumers want to buy from brands that care about social and environmental issues. Societal inequality and environmental impact are big concerns to many consumers, and they are spending their dollars on ethical brands willing to put their money where their mouth is.
Deloitte found nine in 10 consumers say the pandemic is “an opportunity for large companies to hit ‘reset’ and focus on doing right by their workers, consumers, communities and the environment.” The CPG companies surveyed agree — three in four say establishing such initiatives in 2021 are a “strategy to place purpose alongside profit, express corporate values, and address heightened consumer attention to sustainability, social justice, equality, and environmental consciousness.”
Authenticity is key for proper brand activism. CPG companies need to be transparent with their consumers, integrating their social and environmental purposes into all parts of their business and organization. A brand that acts inconsistently will quickly lose trust with a consumer.
- Preference for Small Producers
CPG sales during the pandemic showed an interesting dichotomy: large companies had the highest dollar growth, but small companies – taken as a whole – gained meaningful share of market. A report by business consulting firm McKinsey & Company found market share of small companies during the pandemic increased from 18.2% in 2019 to 19.2% in 2020, while midsize businesses were flat and large companies fell from 51.2% to 50.5%.
More consumers did switch to new brands during the pandemic, but their primary reason was availability. This area is one where large brands have an advantage, as their greater resources should help them keep products on grocery store shelves.
- Supply Chain Improvements
Whether implementing new safety rules, finding sources with available products or switching packaging materials, every CPG brand had to adjust their supply chain in 2020. They are acting quickly to fix weaknesses exposed by the pandemic, and nine in 10 say they’re making significant progress.
CPG companies used to be praised for holding minimal inventories, but 2020 tested their resilience. Deloitte’s report explains: “Resilience is how companies keep their supply chains from breaking and restore them quickly when they do. It is also how they can gain the nimbleness and scalability to power new go-to-market approaches and innovative business models.”
Barb Renner, Deloitte’s vice chairman and U.S. leader of consumer products, says one of the biggest problems identified in their survey was an over-reliance on a small number of vendors. Most companies didn’t have backup plans. “If they were getting their product from a handful of vendors and one of those vendors had to close down, did they try to find an alternative source?” she asked.
CPG executives indicated supply chain resilience is important or very important for the company in 2021, with nine in 10 saying they are investing in improvements. Beyond creating reliable supply chains that can support their production, CPG companies need to be able to respond to demand and shift supply to new locations.