The American organic food market skyrocketed from $8 billion in 2004 to $42 billion just ten years later.
If you were a child in the 1990s, chances are, you’ve had a Dino Buddy. Perusing the frozen aisles of your local Costco, you can still spot its signature vitamin-C orange box today: its crisped golden insides proffered by some friendly-looking stegosauruses.
My father invented the Dino Buddy, merging our fascination with both long-since-extinct animals and today’s most popular animal-based protein, the chicken. In addition to its quirky mascots, Dino Buddies were also known for their relatively clean ingredient profile at the time; 100% breast meat with no fillers, unless you count the imaginative play that invaded every meal. As a child I played guinea pig to his creations, later graduating to the manufacturing line as a teenager.
Food looked, felt, tasted different then. Its best-known brands were like another family member. Heinz was the crowd-pleasing uncle, smoothing over any ruffles caused by the not-so-beloved meat loaf. Kellogg’s was the cousin who you could talk about Star Trek with; the one you listened to instead of your mom about the importance of a healthy breakfast. Big Food contributed plenty to yesterday’s portrait of the nuclear family. Today, they’re better known for their role in rising statistics of obesity, heart disease, and diabetes.
It’s true that over the past decade, the people have put their foot down and spoken. They want healthier products, the trans fats nixed, the bloated ingredient list to undergo gastric bypass. This is reflected in where people shop, in addition to what they eat: Whole Foods, despite being founded in 1978, jumped from operating fewer than 200 stores in 2006 to the 440 locations today. With healthier stores came healthier food brands such as Annie’s and Wild Harvest, though Big Food still controlled the center aisles of the grocery store, which remained very profitable for both the brands and the grocery retailers they supplied.
Fast forward to the end of the 2000s. Grocery store profits are now orbiting away from the center of the store and into its perimeter: meats, dairy, juices, fruits, and prepared foods, everything fresh. The American organic food market skyrocketed from $8 billion in 2004 to $42 billion just ten years later. Though the wheels were already in motion, in the past 24 months, what was a slow descent into consumer indifference – alongside irrelevance, even hostility – has graduated to an outright free-fall.
How’d that happen?
Anyone can start a food company today.
The rise of the co-packing (or co-manufacturing) industry allows almost anyone to become an edibles entrepreneur. This shift began when grocery retailers created a series of brands to boost margins and improve the store experience: Loblaws’ President’s Choice, Safeway’s Basic Red, and Target’s Archer Farms. Trader Joe’s and Costco’s Kirkland Brand, in particular, have on their own created hundreds of new food companies that serve to manufacture for others rather than under their own brand. This meant industry neophytes could simply go to these co-manufacturers to produce almost anything. Especially for the burgeoning health food idealist, this was an advantage, aligning perfectly with millennial health consciousness. Big Food brands, which were an iconic part of life for the parents and grandparents of this generation, began to sink into cultural irrelevance as their product and flavor profiles stagnated. No longer able to bank on their statuses as family staples, brands like Maxwell House, Kraft Singles, and Kellogg’s Frosted Flakes began to give way to their hipper, often healthier, more premium and contemporary counterparts.
Labels are cleaning themselves up and diversifying.
The standards for cultural relevance are shifting from family values to serving today’s lone, health-conscious millennial wolf. As of 2015, we are experiencing the first decline in American caloric intake since peaking in 2003. Rising nutritional literacy has, in turn, made consumers more reluctant to keep reading. The shorter the ingredient list, the better the product is perceived in quality. As grocery store profits shifted towards the fresher perimeters, and variety became more important, even big box stores have jumped on the private organic label bandwagon, such as Walmart’s Wild Oats.
Food media now dominates the mainstream.
As permeation on the collective cultural consciousness goes, there’s no surer sign than reality television – more than any blog, magazine, podcast, or talk show. Having reached peak Chopped, the average consumer is now openly embracing experimentation. Food media inspires consumers to explore international flavors, showcased the potential of hacking and tinkering with preparation and presentation, and enlightened them to what is and isn’t healthy. When coupled with the rise in health consciousness, superfoods and healthier ingredients such as chia seeds are now enthused over, contextualized as appetizingly as possible by way of Instagram filters and cute hashtags. Those markets often start out small and skyrocket in popularity seemingly overnight. In such, they prove to be an impossible nut to crack for Big Food, who have never been on time for any trend, and whose brand of wholesomeness has always been more figurative than literal.
It’s the M&A equivalent of a face-lift: a painfully obvious pursuit of youth, and a fleeting stopgap at that.
Major players are consolidating, and fast.
If Big Food can’t beat the independents, join them by buying them out. Aligning with Campbell’s swift acquisitions of its healthier competitors (Bolthouse, Plum Organics, and Garden Fresh Gourmet), General Mills purchased Annie’s for a surprising $820 million despite sales of only $204 million in 2013. It’s the M&A equivalent of a face-lift: a painfully obvious pursuit of youth, and a fleeting stopgap at that. And as the rest of the body ages, for how long can this new face fare? How compatible can the parent organization be with the youthful independent?
Big Food can try and tinker with all sorts of other measures: buying early, or later; shoehorn purchased relevance into their tiring brand values, or absorb their younger competitors without fanfare. Even so, the realities of consolidation remain. Newly moneyed founders move on. Cultures clash in the boardroom. Corporate constraints prove to be irreconcilable.
Thanks to various fairy tale successes, capital is now easier than ever to acquire.
Ten years ago, any edible startup would’ve been laughed out of most Silicon Valley venture capital firms. However, low interest rates and high evaluation buyouts have resulted in increasingly large pools of capital searching for a home, funding the recent interest in food and beverage startups. Growing competition among the Thiels and Andreessens of the Valley also required more out-of-the-box thinking in order to set themselves apart. The answer? Nextgeneration food companies, further enabled by the rise of co-manufacturers.
Thanks to the progression of food technology, the definition of “organic” is now a spectrum that has on one end farm-to-table purity, and on the other, lab-grown products that defies nature as we’d known it for centuries. The eggless Just Mayo is only one part of an overarching “better-food” movement: propelled not by a food manufacturer but the big data company Hampton Creek, focusing on plant genetics. Products like Soylent tout themselves as the drinkable meal of our future. Another example includes Beyond Meat, a startup behind plantbased meat that employs soy as a primary ingredient. This timely marriage of technology and food has breathed new life into other types of media as well: Suddenly, publications such as Fast Company and Wired now have a more broadly appealing vertical to wax their speculation.
With the confluence of so many factors working against Big Food, options seem limited.
New organic revenue can’t replace lost revenue from their core products quickly enough. Companies are expensive to buy. Sure, multiples are lifted and share prices are increased – but due to major consolidation measures, and not increased profits or better innovation efforts. They can try their hardest to innovate, but it’s nearly impossible to do so without any cultural cachet.
In many ways, the demise of Big Food mirrors the existential plight of today’s baby boomers. Food culture has diverged too readily from traditional Big Food, painting any attempt at brand renovation or the creation of millennial-centric brands as alienating or futile. And even when they manage to get a younger, hipper brand in their corner and there’s little to do but leave them alone, it’s hard to incorporate their cultural and product development sensibilities. When Big Food buys an independent, how much of it does it integrate? And if it does, will they kill it?
The company behind Dino Buddies was sold to a private equity firm; a decision made by the belief that Big Food was changing. Ironically, the deal closed while my father was in ICU, as sick as the industry itself.
Eventually he recovered, and rediscovered food in a healthier context, experimenting with juices, vegetarian diets, and alternate proteins in a time when wheatgrass shots and raw cuisine were still a sitcom gag, even on cable television. Retirement and recovery drove him to try making pasta out of organic lentils and other pulses, an experiment brought to mass-manufactured life due to demand by large retailers looking for something new to reinvigorate the pasta aisle, and appeal to paleo sensibilities. At the age of 65, he’s accidentally started a new food company that is the complete antithesis of his original company.
Inspiring as his success is, it’s a story of reinvention – or reincarnation, if we’re to stick with the corporeal metaphor. The measures Big Food are resorting to in order to cope with this crisis are, in essence, only borrowed time. Since its inception 65 years ago, Big Food companies have been, to some extent, susceptible to the same forces that have plagued equally large sectors such as technology: Yahoo!, AltaVista, and Netscape were, too, dominating brands once upon a time. Although lacking in major growth, it was once assumed that Big Food will always survive because people need to eat. But people are no longer eating just whatever the hand feeds them. Kellogg’s launched the Special K campaign in 2003 to much fanfare. Now it’s a ghost because of cereal’s fall off the bandwagon in favor of protein-centric breakfast choices like Chobani. Even Soylent is more appealing than a colorless Froot Loop.
Perhaps it’s time for Big Food to shrug and resign itself to irrelevance. There is no comeback story without hitting rock bottom, no rebirth without death. Meanwhile, the young guns are taking notes: In 2016, Whole Foods plans to pilot 365, its more affordable chain targeting Trader Joe’s frequenters. If there’s one lesson millennials – and the new food companies – have learned from Big Food baby boomers, it’s that no one is exempt from the fickle tastes of today’s consumers. Least of all themselves.
Scott Friedmann is chief innovation officer, EVP at Idea Couture. He is based in Toronto, Canada.
Caroline Leung is the editor of MISC and a writer at Idea Couture. She is based in Toronto, Canada.