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Disruption in the food industry: Keep focused on the consumer

November 20, 2017 Article 3 min read
Kara Fahrenbach
Shifting demographics, new ways of using technology, and fierce competition are among many challenging — and motivating — disruptors in the food industry. How can you get ahead? Here are three areas to watch.

Chef in kitchen 

Shifting demographics, new ways of using technology, and fierce competition are among many challenging — and motivating — disruptors in the food industry. Whether you see disruptive change as challenge or as opportunity, success depends on one thing: a laser-like focus on the consumer.

So how do you anticipate consumer needs and position your business for the future? That's a key question that emerged from the 2017 Food & Beverage Forum, an annual event sponsored by BMO Harris, Nixon Peabody, and Plante Moran.

To answer it, smart companies, from startups to the largest consumer packaged goods firms, are thinking about the impact of three key disruptive forces.

Whether you see disruptive change as challenge or opportunity, success depends on one thing: a laser-like focus on the consumer.

1. Changing consumer landscape
Currently, about a quarter of Millennials, born between 1980 and the early 2000s, have children. Fast-forward a decade when that number will be closer to 80 percent. As members of this target demographic grow their families, companies need to capture both their food and beverage dollars and their loyalty with new products, new brands, and new communications strategies.

In addition, increasingly busy households are time-starved and hungry for convenience. Think: wine bottles with screw caps rather than corks and monthly subscription clubs that let consumers sample products at home. In fact, Blue Apron or “Grocerants” may be the new homemade —especially among Millennials, who tend to appreciate food quality and flavor but not necessarily cooking.

2. Demand for value fuels competition, M&A
With flavor and quality, consumers also want value, and it's heating up competition. Limited assortment chain Aldi attracted new U.S. customers during the Great Recession and has retained them, and then some, showing consistent growth. Competing grocer Lidl has big plans for the U.S. market, with 100-plus stores slated to open soon.

Culture, too, can differentiate competitors amid the noise. Millennials in particular are opting to spend their money on products from purposeful, mission-driven brands they identify with. Disruptor companies with strong cultures and niche products — think Amy's, Kind, or Ancient Harvest — are giving traditional brands a run for their money.

M&A activity is also heating up competition. Take Amazon's $13 billion purchase of Whole Foods. The acquisition gives the e-tailer a brick-and-mortar presence through several hundred locations and fresh data for its sophisticated algorithms to chew on to better understand and predict consumers' food-buying behavior.

Strategic buyers are eyeing disruptors to quickly gain an edge on innovation. For disruptor companies that may lack foundational processes, controls, and talent to sustain growth, private equity can help shape them into appealing targets.

3. Enabling direct connections with technology
Changing technology and how consumers use it also is driving disruption in the food and beverage industry in multiple ways. Consider widely varying examples such as the use of advanced analytics, delivery concepts like UberEATS, Walmart's acquisitions of and Parcel, and targeted advertising on websites and social media platforms, to name only a few.

Tech-savvy Millennials want direct, personalized communications, and social media can reach individualized audiences on small budgets, proving an effective way for innovators to gain credibility. Soon, the mass-market ads on network TV that targeted their parents' generation may be a thing of the past. Companies that don't embrace new ways to get their products, and their messages, to customers will be left behind.

It can be hard to get ahead in the midst of so much disruption, so consider how you can use the forces of change to your advantage. Hint: Look to your customers to help you identify a winning strategy.

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