Introduction
With established industry players and the absence of significant growth opportunities, the food manufacturing industry is considered a relatively mature market. Companies within the industry strive to identify trends and innovations to gain a competitive advantage over their peers. Some of the key trends that we are following have the potential to significantly impact the entire food industry.
1. Cannabis
There have been waves of discussion between both consumers and food manufacturers to include cannabis in food and beverages. Cannabis is emerging in consumer’s daily necessities, including coffee, cocktails, cereal, ice cream, salads and even skincare products.
Key Highlights:
The newly formed Cannabis Beverage Producers Alliance, consisting of a group of alcohol and cannabis companies that are pushing for changes to proposed rules governing pot-infused beverages. The 10-member alliance are lobbying for the ability to produce pot-based drinks in the same facilities where non-cannabis beverages are produced. Under current Health Canada’s proposed rules for edibles, pot-infused drinks and food must be made in separate facilities.
In the US, the Trump Administration signed the 2018 Farm Bill in December 2018 allowing the legal cultivation of hemp and derivatives from hemp, as well as cannabinoid CBD to no longer be considered a Schedule 1 narcotic.
Carl’s Jr. became the first major fast food chain to introduce a cannabis-infused menu item, unveiling the CBD infused burger at a single location in Denver, CO on April 20, 2019. The CheeseBurger Delight burger contained 5 mg of cannabidiol infused sauce and was retailed at USD $4.20.
Recent partnerships between alcohol and marijuana companies include:
Other existing cannabis-F&B companies include:
A June 2018 Deloitte report indicated that more than 60% of cannabis customers in Canada will choose to consume edible products. Food manufacturing companies with interest within the cannabis space should adapt cannabis into their brands to spur new growth and customer additions.
2. Functional Foods
“Functional foods are whole foods along with fortified, enriched or enhanced foods that have a potentially beneficial effect on health when consumed as part of a varied diet on a regular basis at effective levels based on significant standards of evidence.”
Food industry experts believe that functional foods are one of the primary areas of significant growth, especially with the current emphasis on healthy eating and the increase in nutrition understanding. The benefits of functional food range from reducing cholesterol levels to aiding digestion and decreasing heart disease risks.
Consumers nowadays are increasingly concerned about what they eat, as well as the ever-increasing medical costs especially among the aging baby boomer population. Research findings by CBD Marketing on over 12.5 million social media posts by millennials also indicate that this generation have a strong preference for healthy and natural foods. For instance, probiotics which were once only associated with yogurt are finding their way into a variety of other foods, including protein bars, water, juice and cereal. According to Technavio, the USD $161 billion global functional F&B market is anticipated to grow at a compound annual growth rate of 8% through 2021. The forecasted growth is significant when compared to the overall Canadian food manufacturing expected growth of -1% in 2019. Consumers prefer functional food supplements that are specific to chronic health issues. The increase in demand is fueling more functional foods to manage chronic health conditions including cardiovascular disease, diabetes, obesity and others. Changing lifestyle, unhealthy food habits, and consumers opting for prevention rather than cure of diseases are driving demand for these health functional foods.
“People are interested in their health, and if they can pay the price for the option that has added fruits and vegetables, or added omega-3 or added probiotics, (they) are looking for those different packages that make it seem like they are getting benefits from those foods. ”
Industry players seeking to stay ahead of the curve are spending aggressively on R&D to produce innovative products that consumers are attracted to for the health benefits. For instance, scientists are seeking to extract beta glucan from mushroom to boost the human immune system, produce fiber rich inulin flour from chicory root and explore numerous beneficial nutrients from algae. Plant based options are also infiltrating traditional foods, such as pizza crust made with cauliflower and butternut squash, chickpea pasta and bread fortified with beets and carrots.
“(The future of functional foods is) going more in the direction right now of the chemistry and really understanding the composition of native or raw foods…. It’s a very exciting time to be in this field. ”
3. Plant-Based Meat
The pioneers of plant-based meat were primarily focused on the vegan and vegetarian niche markets to provide these consumers with an alternative to traditional meat products. As consumers continue to emphasize healthy living and pay more attention to their respective diets, plant-based meat producers started to expand their target market beyond the former niche. In fact, California based Beyond Meat’s current strategy is to place its plant-based meat products in the meat case at grocery stores, with the objective of persuading meat lovers to try it out. Burger King’s research also indicated that only 9% of people purchasing plant-based meat are vegetarians, with 90% being meat eaters seeking healthier options.
“People in companies are even rethinking this idea of what meat is. Essentially, it’s a combination of aminos, minerals, lipids and water. Instead of cycling plants through animals to transform them into meats, why not make meat directly from plants?”
Advantages of Plant-Based Burgers Production
The benefits of plant-based meat include:
Reduces saturated fat intake, which is beneficial for weight loss
Increases fiber and vitamin content
Reduces risk of diabetes, cancer and heart disease
Combats acidity in the human body
Absence of growth hormones or antibiotics unlike in livestock
Plant cultivation consumes less environmental resources compared to animals
On April 22, 2019, Beyond Meat announced it plans to offer 8.75 million shares priced at USD $19 to USD $21 each in its initial public offering (IPO). The plant-based meat producer seeks to raise USD $184 million on the top end of the IPO range and be valued at approximately USD $1.21 billion. Beyond Meat’s products are currently sold at Sobeys, Whole Foods, A&W and TGI Friday’s restaurants among others. It currently has launched products in Europe and Asia, with the intentions of further penetrating these markets.
In Canada, Maple Leaf Foods Inc. (TSX:MFI) announced plans to construct a USD $310 million plant-based protein food processing facility in Shelbyville, IN. The new facility will double the company's current production capacity and produce tempeh, franks, sausages and raw foods. The facility is expected to employ 460 personnel upon start-up and be the largest of its kind in North America.
As well, Canada’s new Food Guide emphasizes plant proteins over meat and is expected to have a major impact on consumers going forward. The new food guide will directly affect government regulated institutions with major purchasing power such as prisons, old-age homes and educational facilities. These institutions will have to abide by the new guide when providing meals to occupants.
“Meat lovers don’t love the fact that their meat comes from dead animals. They love it because of the sensory pleasures and the familiarity. If we can provide the things they value and make it from plants, not only will meat lovers be willing to buy it, but they will prefer to buy it.”
In April 2019, Protein Industries Canada (PIC) announced its first call for co-investment proposals with up to $40 million available in funding. PIC is an industry led, not-for-profit organization created to position Canada as a global source of high-quality plant protein and plant-based co-products. Projects will be accepted in all four priority areas: Create, Grow, Make and Sell. The investment made by PIC will match up to 50 per cent of industry investments on all eligible expenses for successful projects. The deadline to submit interest is June 28, with a second call for proposals to take place in September. PIC will be spending up to $153 million across the value chain over the next four years. Click here to find out more.
As a means of diversification, traditional meat producers and food manufacturers are considering acquiring plant-based food producers to launch their own alternative protein products or include plant protein in existing processed meat products. Recent related transactions include Nestle’s acquisition of CA based plant-based food manufacturer Sweet Earth, Maple Leaf Foods’ acquisition of MA based Lightlife Foods and WA based Field Roast Grain Meat, and Roquette’s acquisition of Texpall’s plant-based protein facility in the Netherlands. With existing market reach and established supply chain, these companies may be able to leverage economies of scale to gain market share faster than the upstart plant-based food producers with more financial constraints and less market penetration.
4. The Millennial Impact
According to Nielsen, millennials born between 1980 and 1995 make up over 27% of the nation’s population and are the largest demographic globally. Millennials have been and will continue to contribute towards several key trends within the food industry. According to a CBD Marketing study of over 12.5 million social media posts, technology savvy millennials tend to share their thoughts and buying habits freely and frequently on social media. Over 8.6 million social media posts analyzed were food related and an additional 2.2 million beverages related. With the vast amount of online information made available by millennials, brand marketers and retailers are spending aggressively to understand their preferences and attitudes and further develop their respective marketing strategies for continued success.
A few key millennial trends are highlighted below:
A. Snacking Habits
There is a strong preference for snacks and 5-6 meals a day over the traditional 3 meals a day. A study indicates millennials snack as often as 4 times a day. Snacks are consumed to relieve stress, provide emotional comfort and for one to indulge or as a reward. With the increase in snacking frequency, there is a growing demand for snacks coupled with substantial nutritional value, convenience and a variety of appealing textures and flavors.
Producers must be aware that millennials have a high tendency to read the label for nutrition value, ingredients and calorie counts prior to making a purchase. In fact, most millennials are also concerned about the origination of food and the process of manufacturing. They care about the environment and expect companies they deal with to be transparent, all key factors that will affect the purchasing decision.
B. Putting Their Money Where Their Mouth Is
Most millennials want fresh, healthy and natural food, and are willing to pay a premium for this. They seek food products that are organic, free of GMOs and are innovative compared to traditional offerings, even if these options cost relatively more. The increase in appreciation of the farm-to-table concept is evident in the increasing number of craft breweries and artisan bakeries emerging, where established international brands with lower price points are being shunned in favor of these premium options.
Millennials do not like cooking. Convenience is their priority and spending time meal prepping and cooking are lower priorities. They perceive eating out and trying new restaurants with their social circles as a unique experience and would justify paying for this expense with ease. At the grocery store, they tend to head towards the frozen foods and prepared foods aisles with convenience at the top of their minds.
Frozen foods producers are also emphasizing the quality of the ingredients used as well as introducing innovative flavors including different cuisines and fusion offerings to further entice consumers. They are aware that these changes justify their price increases from the consumer’s perspective, which ultimately increases profitability margins.
C. Sustainability
According to Nielsen, about 3 in 4 millennials are altering their purchasing habits with the environment in mind. Millennials have a greater willingness to pay more for products with sustainable ingredients, environmentally friendly, organic or socially responsible products. Sustainability practices can range from food production to packaging to logistics. Food companies have recognized this trend and have made adaptations to gain a competitive advantage and to increase bottom lines. For instance, Mars, PepsiCo, Coca-Cola, Unilever and Walmart all announced sustainability pledges with a focus on where products come from, the production and manufacturing processes and the overall impact on the environment. Mass plastic bottle users such as Danone, PepsiCo, Nestle and Coca-Cola have also invested in plastic bottle alternatives and are committed towards increasing the amount of recycled plastic used in their bottles. Other companies have been investing in various sustainability initiatives, such as biodegradable and compostable six-pack ring designs made from barley and wheat, boxed water, wood-based bottles, edible containers etc.
There has also been an increase in the usage of “ugly produce”. Raw produce that were deemed aesthetically unappealing previously would have been discarded as waste. Nowadays, companies such as Whole Foods and Walmart are intentionally sourcing imperfect produce from farms to prevent it going to waste. These are then processed from the original form before being sold in juice or sliced forms, which consumers would purchase without being concerned about the initial appearance.
Companies operating within the food industry recognize that sustainability efforts have come a long way in appealing to customers, especially millennials. They also recognize the effectiveness of promoting these sustainability efforts as part of their respective marketing campaigns.
Today’s Importance of Sustainability
Conclusion
Companies that can capitalize on these trends within the industry will be better positioned to grow revenue and profitability going forward. In our review of the trends identified above, the common denominators are:
We believe these differentiators are crucial to maintain a competitive edge within the food industry.
