Plant-based products growing more popular with US consumers

23 May 2018 Consulting.us

With US consumers increasingly concerned with health and wellness, as well as environmental sustainability and animal welfare, the market for plant-based food substitutes and alternatives is growing. A recent report estimates that the market grew 8% to $5 billion in 2016, and can expect even greater growth if concerns over taste, nutrition, over-processing, and labeling are addressed.

Plant-based products: it’s what’s for dinner, apparently. US consumers, driven by concerns over health, food safety, sustainability, and animal welfare are increasingly choosing plant-based food products – tofu, almond milk, vegan cheese, veggie patties, etc. Though the products are increasingly popular, the sector is still in its infancy – and issues with taste, over-processing, nutritional value, and labeling are likely holding back higher growth.

In a recent study from L.E.K Consulting titled ‘Plant-Based Products – Not Just for Vegans Anymore,’ the management consultancy examines why more consumers are eating plant-based food products, and what manufacturers can do to drive greater growth in the sector.

Though the market remains difficult to accurately size, LEK reports that plant-based products presently account for about 1-2% of most categories, such as meat, cheese and yogurt. An outlier, however, is the milk category, where plant-based substitutes like soy, almond, and rice milk make up approximately 9% of sales. LEK estimates that market for plant-based substitutes and alternatives was $5 billion last year – an increase of about 8% from 2016.

Consumer Trends

The report points to a number of consumer trends fueling the growth in demand for plant-based substitutes and alternatives. Concerns over health and wellness top the list, with more consumers gaining a greater appreciation for plant food sources – which often boast more fiber, healthy fats, and vitamins than animal sources. Additionally, medical studies linking the consumption of processed meats to colon cancer, as well as the linking of meat consumption to the development of chronic degenerative diseases, has likewise caused many US consumers to reconsider the amount and types of meat products they eat.

Growing concerns over food safety, with the prevalence of hormones and antibiotics in meat and dairy products, has also prompted consumers to supplement their diets with a larger proportion of plant-based options. Animal welfare, long a key reason for switching to plant-based substitutes, also continues to be important, as more people respond to the often hellish conditions in which animals are raised.

Some consumers are also becoming more concerned about the environmental sustainability of the food they eat – with, for example, beef production being a particularly land, water, and energy intensive enterprise, while also releasing a large amount of methane into the atmosphere. Gen X-ers and millennials are particularly interested in the environmental sustainability of their food choices – including the carbon footprint of food transportation (and locally sourced trends etc.). It is, however, important to note that some plant-based products can be incredibly environmentally taxing: almond milk, for example, uses water-intensive almonds, each of which take 1.1 gallons of water to grow.

Further, more than half of Americans have adopted restrictive diets that focus on increased plant-based consumption. While some of the restrictive diets are driven by food intolerance or allergies, others, like ‘paleo’ or ‘flexitarian’ diets, are lifestyle choices aimed at healthier living.

Evolving landscape driven by ‘Big Food’ mergers and acquisitions

In 2017, there was a strong trend of ‘Big Food’ consumer packaged goods companies diversifying their portfolio in order to meet the growing demand of customers for plant-based products. Having emerged from the negative fallout of a listeria outbreak in a Toronto plant in 2008 which killed 22 people, deli meat manufacturers were then hit by the widely circulated report that processed meats (bacon, hot dogs, cold cuts etc.) are carcinogenic, and eating 50 grams a day increases the risk of colorectal cancer by 18%. As such, the firm has released cold-cuts made with all-natural ingredients like lemon juice rather than traditional preservatives like nitrites, while also purchasing meat and cheese alternative product manufacturers Field Roast Grain Meat Co and Lightlife Foods.

Rather than trying to fight the tide, firms are diversifying as consumer preferences shift to ‘more-natural’ and plant-based products. In addition to the shifting strategy of Maple Leaf Foods, other high-profile food companies have looked to open up their portfolio to plant-based alternatives. 2017 saw acquisitions including yogurt maker Danone’s purchase of milk alternative manufacturer WhiteWave, as well as Nestle USA’s purchase of meat alternatives maker Sweet Earth.

Product adoption of select plant-based products

According to LEK’s report, how quickly the plant-based products market grows will depend on how effectively and quickly companies can improve product taste, nutrition, and create acceptable product labeling. Perhaps the biggest hurdle to wider adoption of plant-based alternatives – particularly in the category of meat and cheese substitutes – is that they have generally terrible taste and texture.

As can be seen in the graph, higher adoption basically correlates to how delicious the product is: plant-based dips, tofu, protein powder, artificial sweeteners, and milk alternatives are generally quite tasty and thus at the higher end of adoption. Unsurprisingly, vegan meat and vegan cheese are at the lowest end of adoption. Firms are, however, trying to make them tastier – incorporating soy leghemoglobin, for example – which contains iron-rich molecules found in red meat.

Another hurdle is that many plant-based products lack the nutritional content of their animal-based counterparts. Milk alternatives contain much less calcium and protein than milk, while meat alternatives lack the essential and nonessential amino acids that meat has. This can be mitigated by more effective vitamin enrichment of products.

Additionally, certain plant-based products – like vegan meat and cheese – are heavily processed, leading health-conscious consumers to ask “what’s the point?” A host of chemicals, oils, and fats are pumped into cheese substitutes in order to (ineffectively) replicate the taste of the animal-based products. Finding ways to reduce processing will help make the products more palatable to consumers.

Lastly, plant-based products need to figure out effective labeling strategies as incumbent dairy and meat industries block them from using labels like ‘butter’ or ‘milk.’ As such, manufacturers will have to come up with effective marketing and classification terms that will resonate with consumers, while not inciting the ire (and lawsuits) of animal-based food industries.

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US grocery sector in store for further hard discounter expansion

01 April 2019 Consulting.us

Hard discounters offer customers bulk food at low prices in an unassuming shopping environment. German firms Aldi and Lidl have considerable clout in Europe, and in recent years have globally expanded their store footprints. Aldi is well-positioned in the US, garnering high-level support from consumers, while Lidl, which entered in 2017, has quickly built a strong reputation. As the rollout of the discounters continues, local brands face stiff competition.

Competition among supermarkets has heated up in recent years as consumers increasingly sought out discounters and moved away from hyperstores. German discounters Aldi and Lidl in particular have asserted their dominance across global markets with the former opening of hundreds of new stores and the latter entering the US market in 2017.

New analysis by Bain & Company analyzes how far the rise of discounters has affected grocers in the US market. The report, titled "How US Grocers Are Standing Up to Europe’s Hard Discounters," is based on a survey of 17,400 consumers, among other data sources.

Hard discounters NPS

To better understand the impact of hard discounters Aldi and Lidl on the US market, the firm’s recent survey of consumers asked respondents about their grocery shopping habits using the Net Promoter Score function. The Net Promoter Score measures how likely it is that a consumer will recommend a product, service, or brand to friends and family. 

In terms of the regular grocery shopping trip, hard discounters have managed to top the market at 43 points, with supermarkets around seven points behind. Mass merchants have the lowest score in the category at around 20 points. For big stock-ups, hard discounters, with their large bulk offering and appeal, score 60 points – well above that of warehouse clubs (45) and supermarkets (38). The analysis shows that even for quick trips for a couple of items, hard discounters top the score at around 10, compared to six for supermarkets and negative scores for warehouse clubs and mass merchants. The only category in which the hard discounter segment performs relatively poorly is buying prepared foods for today – at 25 compared to 50 for warehouse clubs and 35 for supermarkets.

Aldi customer advocacy

Aldi, which has been in the US market since 1976, has resonated strongly with consumers, coming in the top three for NPS for consumer advocacy. The company has managed to increase its position on last year by nine points, arriving at 55 – 15 points behind the leader. Aldi was noted in particular for its delivery of “best everyday low prices” and “best value for the money.” Lidl, a relative newcomer to the market, has a middle-of-the-road score.

Consumer advocacy is crucial to success within grocery

The success of discounters generating high consumer advocacy scores, according to the Bain, mean they are likely to show strong performance in the future, The firm notes that promoters purchase more than twice as frequently as detractors, with 70% of promoters shopping two times a month or more compared to detractors at 32%. The firm also found that the average monthly amount spent among promoters is almost three times as high as detractors, at $111 against $39. Promoters additionally tend to be more loyal to their chosen company, netting 28% of the total wallet compared to 11% for detractors.

“Lidl and Aldi are just beginning to flex their competitive muscles,” Mikey Vu, a partner with Bain & Company’s Retail Practice and a coauthor of the report, said. “What we’re seeing is that US grocers can effectively stand up to these hard discounters, but that they need to remain vigilant and innovate in strategic areas to keep their edge.”