It’s been well over a year since Fortune magazine issued its “Special Report: The war on big food.”
This feature outlined some of the major challenges sectors of the industry face. It provided sobering statistics like the following finding from Credit Suisse Analyst Robert Moskov: The top 25 US food and beverage companies have lost $18 billion in market share since 2009.
In his recent post for Food Tech Connect entitled “Products, Not Marketing, Are The Future Of Big Food,” Mike Lee suggests that if major food and beverage companies are to survive, they need to prioritize innovation over marketing. Inspired by an old Steve Jobs interview, he states that companies need to figure out how they can create great products for 21st century consumers.
Lee points out that CPG giants like P&G spend approximately four to five times more on advertising than on product development. On the whole, the CPG industry spends 1.58 percent of revenues on R&D as compared to technology and healthcare that, respectively, spend 13.38 percent and 11.15 percent of revenues on R&D. And much of the CPG investment has been focused on prolonging shelf life and finding combinations (salt, fat, sugar and flavor) that trigger pleasure centers in the brain.
We’ve watched Big Food vacillate between keeping the status quo and listening to health-minded consumers. In the grand scheme of things, PepsiCo’s short-lived launch of aspartame-free Diet Pepsi and Kraft’s move to curb the use of artificial coloring and flavor in its Mac & Cheese do not represent a significant shift in thinking. But the activity going on in the venture capital arms of some of the giants does.
John Kell’s Fortune article entitled “Giant Conglomerates Are Probably Funding Your Favorite Artisan Foodie Startups” states that venture capital investments are Big Food’s newest craving. General Mills, for example, is leading the pack. Its VC investment arm, 301 Inc., has invested in startups like kale chip producer Rhythm Super Foods and plant-based yogurt maker Kite Hill.
As Kell reports, General Mills’ thinking is to let startups stick to their entrepreneurial guns, while the corporation assists with marketing, packaging and retail distribution. Consider the following quote from his piece from John Haugen, vice president and general manager of 301 Inc.: “It’s really hard for companies to create new businesses. They take time. They take investment and nurturing.”
According to Haugen, General Mills doesn’t want startups to face the corporate red tape that can slow down innovation at big food manufacturers.
The VC investment trend represents the closest thing to meaningful change the industry has seen in some time. Artisan start-ups address consumer demands for healthful, responsibly raised and produced products. Major industry players bring funding and core areas of expertise—like marketing—to the table.
Lee is not without a very valid point, but the trend of enabling “green and clean” entrepreneurs to drive innovation—instead of tackling it in house—might be Big Food’s best bet at aligning with the demands of 21st century consumers.