Pure branding: Are “simple,” “natural” CPG line extensions the way forward?
With increasing influence, consumer-driven demand for less artificial and cleaner, simpler food and beverage ingredients has driven a host of reformulations in the CPG marketplace, ranging from candy brands to breads and snacks.
Since 2003, The Hartman Group’s business analysts have counted dozens of line extensions of mainstream CPG brands that have attempted a “simple,” “natural” or otherwise less processed positioning. In 2015 alone, we saw an uptick in launches from major brands as well as several corporate announcements regarding systematic, enterprise-wide plans to deprocess their branded foods and beverages to varying degrees. We find many food industry stakeholders wondering if the simple/natural line extension actually produces a meaningful consumer response and can generate significant revenue.
Not all manufacturers are using the same approach when it comes to “simple” line extensions, because they are working in what is largely an unregulated sector. The FDA mainly regulates food and beverage category identities and food safety from the perspective of disease prevention and the protection of public health. Nevertheless, the FDA has just recently announced its intention to solicit comments on formation of a “natural” standard identity in response to consumer complaints and also to a flurry of litigation against CPG companies using the “natural” moniker on packaging or in new product launches. As if in response, the “simple” labeling trend is overtaking “natural” as large companies hope to move away from litigation provoked within a largely non-regulated sector.
To many, what CPG companies label as “simple” or “simply” is better understood as the natural foods sector. At The Hartman Group we call it the new premium marketplace because we know that the brands commanding the highest-priced premiums generally are younger, entrepreneurial brands whose default target market contains consumers who want minimally processed foods and beverages; a standard which the natural and organic sector has relentlessly pushed through the market in the past two decades. So, how big is this market? There are different ways to estimate it, but SPINS analysis puts this universe of food and beverage brands at $35 billion–$40 billion in size or roughly 7–8% of the US packaged food and beverage marketplace.
In the past nine years, the premium marketplace has grown at an impressive 11% $ CAGR vs. 2.5% for the total packaged food and beverage market. Its continued growth (even through the worst recession in 80 years) has given most in the industry confidence that it is a sector with a permanent foothold in American food culture.
Questions linger, however, over how much market share will be left to capture in a mature, no-/low-growth packaged food marketplace. Other questions include to what extent and over what time period could the foundation of premium brands — clean panel formulations — actually end up becoming the voluntary baseline standard for most surviving mainstream brands?
We have already witnessed several companies launch initiatives to inoculate their businesses against the trend toward fresh, less processed, simpler, and natural foods by announcing enterprise-wide plans to begin replacing artificial/synthetic and other sore-thumb ingredients. Quietly, other legacy brands have renovated their franchises to the new standard.
Our recent HartBeat Exec analysis, "Strategizing Simple in the Food and Beverage Marketplace" includes specific quantitative analysis of how many consumers are aligned to this burgeoning strategy and finds that if companies are willing to sell it at current base UPC pricing, “simple” line extension can reach a substantial audience: 30% of US adults claim they are willing/very willing to purchase simple/natural line extensions from mainstream brands. However, only 16% of those consumers actually showed a strong interest in four real-world examples of simple brand extensions when shown them.
Our analysis shows that while it’s still early in the game to analyze new simple line extensions information currently available provides a meaningful understanding of a) the extension’s longevity, b)their ability to scale and continue growing and c)their ability to influence the long-term trajectory of their parent brand. One of the findings reveals that, in terms of the longevity of simple extensions there was a 66% survival rate -- these were brands that are still selling and have been on the market for at least three years.
While we continue to hear a broad range of strategic objectives used to justify simple extension launches, a significant question remains: Is there actually a consumer audience out there willing to receive this fundamentally premium product marketing message from a mainstream brand?
We believe that instead of jumping immediately to the notion of compartmentalizing simple into a line extension strategy, marketers operating in branded commodities should first examine the long-term benefit of contemporizing via a brand-wide deprocessing of their UPC portfolios.
As CEO of The Hartman Group, Demeritt drives the vision, strategy, operations and results-oriented culture for the company's associates as the furthers its offerings of tactical thinking, consumer and market intelligence, cultural competency and innovative intellectual capital to a global marketplace.
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