Snacks: The Better For You Revolution
“Stressful modern living has increased demand for nutritious foods that are easy to prepare, as well as indulgent treats that provide relaxation and enjoyment. Mental health is on the agenda and is no longer taboo.”- Lu Ann Williams, Fi Europe 2019.
Snacks have been a fundamental part of human nutrition since ancient times. In their origins, food remains were consumed between meals, as well as fruits such as apples, grapes, figs, etc. The famous and traditional potato chips as we know them today date back to 1817, with its first recipe appearance in Dr. William Kitchiner’s Apicius Redivivus; or, the Cook’s Oracle. In 1861, pretzels began to be marketed. The first recognized snacks brand is attributed to Rueckheim brothers, when they introduced sweet popcorns Cracker Jack to the audience at Chicago’s World’s Fair in 1893. Around 1930 this type of snack became popular, beginning the development of great brands that persist to this day. In 1912 National Biscuit Company (Nabisco) introduced Oreo cookies to the American market, which would later be acquired by Kraft. In 1900 the Hershey’s chocolate bar was born. In 1932 the commercialization of Fritos began, and in 1945 Herman W. Lay agreed to distribute Fritos throughout the United States, merging both companies into Frito-Lay, and in 1948 they introduced the Cheetos brand. Today the company is a subsidiary of PepsiCo with a market share of more than 50% in the United States.
By 2019, the market size for salty snacks and bars in the United States was approximately of USD$34.5bn, with the most representative brands being Fritos, Doritos, Cheetos, Nature Valley and Kellog’s. The per capita consumption of salty snacks in the United States reaches 7.1kg per year, growing more than 15% in the last 10 years; in contrast, the consumption of chocolate-based snacks has fallen 14% in the same period. Savory snacks have presented less pressure from consumers compared to sugar categories. In addition, since the beginning of the 21st century households have gotten smaller, meaning a larger spendable income per family member, which translates into higher intake of meals substitutes and complements, such as snacks. The shift in consumers behavior is focused on consuming quicker format and on-the-go meals, versus the traditional “three-a-day” seat-down format, driven by an increasingly quick replacement of constant snacking.
In the 2000’s, new generations, more aware of having a more balanced and natural diet, mainly driven by millennials, began to demand healthy and environment-friendly snacks, creating the Better-For-You category. Likewise, this generational shift is motivated by preference for more conscious and responsible brands in the environmental and social aspect. In its 2015 Nielsen Global Corporate Sustainability Report, Nielsen found that 73% of global Millennials are willing to pay extra for sustainable offerings; and that 70% of them are prepared to make personal sacrifices to make an impact on issues they care about, such as paying more for a product offered by a conscious-driven brand. In addition to this, wealth has been increasingly concentrating in these generations, so the market opportunity for better-for-you brands has become more attractive in the last decade, with a similar or even greater growth potential for the next years.
In its 2019 “How America Eats: The State of the Snack Industry” research, IRI found how the demographic and consumption changes of the last 10 years show that the frequency of snack consumption has increased at all times of the day (morning, afternoon, night) by up to 80%, with its consumption representing 50% of the occasions of food consumption. On the other hand, 3 out of 4 people in the United States prefer better for you snacks, and within this category, salty snacks dominate with 35.8% of market penetration.
Given the previously mentioned, snacks today seek to impact consumers with different value propositions, for example:
- Allergen-free: Those products free of the 8 main allergen ingredients recognized by the FDA; dairy, eggs, wheat, soy, shellfish, fish, tree nuts (including coconut) and peanuts.
- Low in calories and calorie-free: Product that provides a minimum of calories based on the daily diet of people. Generally, the foods must contain less than 5 calories per typical serving amount to be zero-calorie and the serving size has to be of 30+ grams and have less than 40 calories per serving to be low-calorie.
- Gluten-free: Product that excludes gluten content. Gluten is a protein found in wheat, barley, rye and triticale.
- High in protein: Food products where at least 20% of the energy value comes from protein.
- Vegan: Products that do not have any animal origin.
- Organic: Products that are not treated with synthetic fertilizers and pesticides and derived from organically raised animals without hormones or drugs that promote their rapid growth.
- Non-GMO: Products that are not derived from genetically altered organisms. Includes animals that are not fed a diet containing genetically altered foods.
- Plant-based: Products consisting of ingredients derived from plants that include vegetables, fruits, grains, seeds, nuts and / or legumes.
Likewise, another value proposition of emerging better-for-you snacks brands is their sales and distribution channels, mostly leveraging the fact of them and their customers being digital-natives in order to penetrate the market through the use of social networks, digital marketing and general and specialized e-commerce sites and marketplaces; and by being more flexible and fast-minded to execute diverse go-to-market strategies. Most of the times, the distribution channel roadmap is as follows:
- E-commerce: It is the preferred channel for new brands to position their product, mainly targeted to Millennials and Gen Z’s.
- Natural: Organic product stores are the main distribution channel for better for you snacks. According to the New Hope Network, 36.2% of natural food sales are through specialty organic retailers, vs. 45% from conventional retailers. Some of the biggest names in this channel are Amazon’s Whole Foods, Sprouts, and Natural Grocers.
- Grocery: It is the preferred channel for traditional brands, and it is the most common way for a newly founded brands to rapidly reach multiple points of sale in multiple geographies. The most representative players in the market are Kroger and Wegman’s.
- Mass channel: Once snack brands prove to have relevant sales traction and brand recognition; this is the channel they will seek to compete head-to-head with the more traditional brands and truly gain market share to scale their operations. The most typical retailers in this channel are Walmart, Target and HEB.
- Club: The holy grail of snacks distribution, this is the adequate channel to reach sales massification. Once there, brands take advantage of economies of scale, increasing production and sales, trying to maximize profitability.
Additionally, better-for-you brands can try other ways to position their products, such as convenience stores, mom and pop shops, airports, entertainment venues, launching monthly subscription programs to increase loyalty, incentives through rewards, etc. Also, another typical way in which these brands show social and environment consciousness to their customers is through the use of sustainable packaging, such as recyclable, biodegradable and biobased flexible films, and by promoting and participating in socially responsible programs to help under-represented communities.
Snacks have always been a key part of human nutrition. Today we have different value propositions in salty, sweet, functional snacks, among others. They have gone from being considered “junk food” and having a poor nutritional perception, to becoming a fundamental part of the human diet. Every day the snacks become more technical, and they use not only new ingredients but new business models and strategies to get closer to the customer. The offer of new products is increasingly becoming large enough to satisfy the tastes and needs of each individual, and at the end of the day, the biggest beneficiary of the healthy snacks’ revolution will be the consumer.
“Brands that promote a mission are engaging with consumers. Disruption is coming from mission-led brands.”- Oliver Nieburg, Fi Europe 2019.
Hector Shibata. Director of Investments & Portfolio at ACV a global Corporate Venture Capital (CVC) fund and Adjunct Professor for Entrepreneurial Finance.
Gonzalo Soriano. VC Investor at ACV.
ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.
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