Capital Investment Advisors

What Do Americans Want To Eat?

The diet advice that you should do your shopping only on the outer aisles of grocery stores has apparently caught on. And so have “local” sourcing and “farm to table” styles of cooking. What do these new trends mean? Well, for traditional food companies – manufacturers of things like cereal, soups, and snacks – it means the grocery game is changing.

Think about good ol’ mac and cheese. Not the fancy kind, but the boxed stuff you whip up by boiling noodles, adding that yellow powder packet and mixing in milk. Kids love it; kids-at-heart love it. For decades, Kraft Heinz Co. dominated the mac and cheese world. But then organic competitor Annie’s came along and changed things.

Back in 2014, upstart Annie’s was in just 20% of U.S. grocery stores when General Mills Inc. saw the potential and bought the brand. Now it’s in 80% of stores and sales of Annie’s boxed mac and cheese have doubled.

But Annie’s and Kraft Heinz are facing increased competition from both improved store brands and trendier, “boutique” brands of mac and cheese. (Chickpea flour mac, anyone?) And then there’s the inarguable rise of e-commerce and Amazon’s Prime Pantry. Using this service, folks can order Whole Foods’ 365 brand mac and cheese for 99 cents a box, or $1.69 for the organic version. Compare that to $1.59 for plain old Kraft and $2.19 for Annie’s.

Our new modes of choosing and shopping for food has trimmed the waistlines of both consumers and food company sales. Those companies, most of them ubiquitous household brands just like Kraft, are at a loss as to how to gain some margins back.

Sales at Kraft Heinz have gone down in six of the last nine quarters. Shares of some food manufacturing companies are down by a third or more over the past year as strategies to boost sales fail, and consumers embrace fresh food and new brands.

In an effort to replicate its Annie’s success, General Mills is putting out $8 billion for premium Blue Buffalo Pet Products, which makes high pet food.

The food industry is not alone in facing the problem of changing tastes and shopping habits. Decentralization of how we shop and what we buy is a trend across retailing. Emergent brands and upstart stores (mostly online) are growing quickly and taking some of the shine away from larger legacy companies.

I don’t believe the big-name brands will go completely under; they won’t get nibbled to death by the flock of fast-growing small food purveyors. Instead, it seems more likely that the smaller companies will get swallowed up by the industry giants, as did Annie’s. After all, when smaller companies come along that fit well into the larger manufacturer’s capabilities and strengths, working together can be a good deal for all, including consumers.

Now, what’s for dinner?

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