How Meals and Beverage Manufacturers Deal with Selection, Change and Amazon

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How Food and Beverage Brands Handle Choice, Change and Amazon

October
16, 2020

12 min read

The opinions expressed by the entrepreneur's contributors are their own.

Look at the word "husky".

For some, the word conjures up a majestic, white, fluffy, blue-eyed dog. For me, it's a painful memory of the body type. I was a "hoarse" child. When I got tired of other kids' bumps, I decided to get healthy and started lifting weights. It turned out that I was a pretty competitive guy – and with the right diet and training, I eventually broke a state record in the deadlift. Over time, my personal and business pursuits merged. What could be better than turning a passion that emerges from a highly emotional experience into a business opportunity? I have used my personal experience and knowledge to create market share for sustainable food and beverage brands through e-commerce development and online marketing.

Related: 10 Under 20: Kid Food Entrepreneurs Struggle To Make A Difference

Fast forward to today. To understand marketing practices during and after Covid-19, my team and I interviewed leading marketing, brand and strategy managers from various food and beverage brands. During our interviews, we uncovered three recurring themes: a newfound focus on sales, changes in consumer behavior, and a certain regret about relying too much on Amazon.

Sales isn't the biggest challenge

Neil Kimberley, Chief Strategy Officer at Essentia Water, the number 1 mineral water seller in health food retailers and number 3 premium bottled water, shares his thoughts on sales – and it's not just about locations and logistics. In his previous role as the director of marketing at Snapple after it was acquired by Quaker, Kimberley said over-availability was a key challenge. “Merchandising discipline is critical to a brand's success. If you over-proliferate alternate flavors on the shelf, sub-speed items may take up the space and attention of your items at the highest speed, reducing the productivity of your shelf. For Snapple, it was crucial to find the right, optimized range of flavors to avoid overloading the choices for buyers. Case in point: Snapple has over 40 flavors. And that creates a choice overload for buyers.

Related: Do I Eat WTF While I Do WFH?

A landmark study authored by Columbia University professor of economics Sheena Lyengar conducted a study that found that customers buy more (30% versus 3%) when they have fewer choices. When it comes to purchasing decisions, however, a distinction is made between selection overload and information overload. For example, an ordinary Snapple buyer who has tried many flavors will have less cognitive burden scanning their options because they already know what they want. Kimberley said that Essentia remains true to its brand strength, avoiding line extensions and unnecessary product innovations that could affect shelf productivity.

While distribution is a major challenge for food and beverage brands, competition with established sample brands is more challenging. Their overwhelming shelf presence casts a huge shadow despite the challenge of proliferation. Emerging brands use their agility and agility to increase speed by leveraging customer insights while expanding their on-site efforts to keep their brands up to date.

Essentia competes with giants like Pepsi and Coca-Cola, who have a larger share of shelf space due to their expanded brand portfolio. Kimberley and the Essentia team decided to increase their brand awareness in-store by having local sales reps visit the stores to ensure the best possible terms and conditions. With the right people in the right place, Essentia was able to achieve a disproportionate share of retail compared to its larger competitors.

Related: 9 Bloody Brilliant Ways Businesses Navigate Meat Prices

As Chief Innovation and Brand Officer at King Juice / Calypso Lemonade, Matt Andersen told us that his biggest challenge is keeping up with demand. Andersen joined King Juice / Calypso Lemonade from The Hershey Company with a decade of marketing and management experience and was previously a consultant at Bain & Company. He says ACV is around 30% on King Juice / Calypso and has grown 10% over the past year. “We're seeing new distribution opportunities, but part of that is that we're the fastest moving brand in this category. Speed ​​leads to distribution. “He explained how they are speeding up at high rates and trying to create successful planogram exposure at current retailers. In contrast to Essentia Water, they plan to introduce product innovations. Because they are close to their consumers, they know there is a desire for low-calorie, low-sugar products. These findings helped inspire a new product launch, Calypso Light, which is available in five flavors. The product was a hit and was recently launched across the Kroger network, among others.

Consumer behavior is changing dramatically

"People don't spend time shopping online like they do when they shop in stores," said Pietro Guerrera, director of e-commerce and marketing at La Maison du Chocolat USA. “The experience is different. Especially for digital native consumers who want an easier way to buy. “Guerrera, who has extensive experience managing ecommerce platforms for premium brands like Eataly, stated that shopping online is less forgiving than buying in store. Online consumers want all the information and need to be just a click away. Their attention spans are often limited and their buying journey is usually stimulated (or bombarded) by multiple stores, so loyalty is often at stake. However, in a store, customers can browse and discover. Guerrera spoke favorably of Google Shopping (which recently eliminated commissions on sales). “Google Shopping works well because customers are ready to buy. It's about perfecting images, creating compelling descriptions, and having an effective pricing structure. The feed (from your website) is vital, and these technical details are important to maximizing your advertising spend. "

Some reports show that online traffic for food and beverage brands grew 29% from March to June 2020, and total US online sales reached $ 73.2 billion in June, an increase of 76.2 % compared to the previous year. Online has become an obvious focus for many food and beverage brands.

Neil Kimberley of Essentia Water explained how the move to online has had a negative impact on convenience store sales. This has increased the hassle of digitally connecting with customers as they are stuck at home and spending more time on their digital devices.

Tove "Danielle" Robinson, Marketing Coordinator and Account Manager at Dirty Hands, LLC, explained how Covid-19 has changed consumer behavior among premium brands. "For the emerging high-end brands that we market, Covid-19 has been both a pro and a contra." She explained how some of her brands, like the one in the snack category, are booming. Many reports published in the early months of Covid-19 showed a significant surge in snack purchases. Mondelez International reported increased snacking due to the loading of the pantry and buying behavior at Komfort. On the flip side, Robinson noted that other brands were out of stock due to ingredient sourcing challenges. As consumer behavior has changed, we have yet to determine whether buying behavior continues with convenience or whether lack of availability changes brand preferences. Research described by Richard Shotton in his book The Choice Factory shows that, on average, only 8% of customers willingly switch brands. On a major life event (e.g. marriage, home purchase, international crisis, etc.), 21% of customers are likely to switch brands. That number will continue to rise as brands struggle to keep up with demand.

What do these changes in behavior mean for specialty items and organic products? Joni Huffman, senior vice president of sales and marketing at Healthy Food Ingredients, LLC, said fear has led people to withdraw from spending on brands that are focused on healthy mission. When the stay-at-home mandates were issued, the research and development departments also closed and there was less product innovation, especially in specialty foods and drinks. She said: "New product launches will be pushed forward until 2021", and she explained that the requirements for the certification and testing of food by the federal government still have bottlenecks despite relaxed mandates. Some brands (Frito-Lay) not only delayed new product launches, but also reduced their SKUs to get their sought-after products to market faster. Although they are now populating more SKUs, some are still lagging behind.

Consumer behavior has obviously changed. You don't need a crystal ball for this prediction. And these “unprecedented times” also offer an opportunity for change. Stanford economist Paul Romer once said: "A crisis is a terrible thing to be wasted." Smart managers and executives are using this crisis as a kind of catalyst to drive digital transformation. Now it's not optional: it's a necessity.

The Amazon Effect

What discussion, spanning unprecedented times, changes in human behavior, and digital marketing, would be complete without mentioning Amazon? Sustainable food and beverage entrepreneur and marketing consultant Austin Allan summed it up well: "Amazon is a beast."

He has many years of experience working with the Amazon Marketplace after starting and successfully leaving perishable soup brand Tio Gazpacho. He describes Amazon as “a whole ecosystem or universe. You need to understand how it works and make sure you have the right partners. “He said the dangers of delisting due to inventory and quality issues are real. But he also said the compromise is an opportunity to bring your brand in front of millions.

Theo Chocolate's CMO and GM, Jason Harty, agreed, saying that Amazon is not devaluing their brand, but allowing them to expand their access to customers. He explained that their Amazon strategy was performing well as they curated different ranges based on customer preferences. In premium sales outlets they sell a Theo chocolate bar, on Amazon they sell a pack of 6, 10 or 12 of their bars. He said, “Customers are loading the pantry or looking for variety on Amazon. They tend to buy darker chocolate and are looking for a Sku range. "

Pietro Guerrera, Head of E-Commerce and Marketing at presso La Maison du Chocolat USA, offered a different perspective. "As a marketplace, Amazon is one of the first places customers shop online," he says. "We also need to protect our brand equity and our message." He explained that brands on Amazon are merging with competitors and diluting brand equity. In contrast to a shelf with a properly organized planogram, Amazon is more of a bargain basket. Brands are unorganized, listed in mismatched categories, sold by different vendors, and sometimes faked.

Guerrera offered an alternative. He is looking for vertical marketplaces that curate premium products and offer a unique experience. Marketplaces like GoldBelly, Food52 and Eataly are prime examples.

I think Guerrera might be into something. Some believe that Amazon will reduce brand diversity and product innovation. Franklin Isacson, founding partner of Coefficient Capital, a consumer goods venture capital firm, compares online shopping to spearfishing, while in-store shopping is more like net fishing. In an article in the Washington Post, he writes, “If you stand in the aisle with salty snacks from Kroger, there is likely a sampling station. You take a bag and read the nutrition panel, ”he says. “Typing Heinz Ketchup on Amazon, you won't discover Sir Kensington. People who buy groceries online tend to buy the brands they know … 75% of repeat online shoppers buy from their previous cart a. So if you're a new brand it's difficult. "

While this holds true for some transactions, others are about finding new alternatives where Amazon actually excels. For example, entering "ketchup" will return 149 results. On the first page are 10 of 48 different brands. And in the first row is Sir Kensington.

During the research I did with my team, another of our respondents said they saw significant sales increases on Amazon. But like many brands, Amazon makes up only a small fraction of their sales, and it's difficult to balance direct Amazon and e-commerce sales with the exclusive distribution network. Although many brands try to sell directly, distribution agreements prevent aggressive competition. And that cuts both ways. Dealings with retailers allow for brand, price, and other controls that are lacking in the Amazon ecosystem.

Amazon is complicated. For some brands, e-commerce itself is complicated. According to our off-the-record source, brands like Pepsi are good at executing online strategies because they have their own distribution system across the country. Other brands like Coca-Cola don't carve e-commerce out of their distribution agreements, so they have licensing issues. But even with the ability to sell direct, the cost of defending the brand name online quickly becomes expensive. Especially when compared to a shelf in a store. Our source said they are relatively agnostic relative to both channels. Both Amazon and in-store are expensive business methods. However, the old adage is true: you have to be where your customers are. And a lot of them are on Amazon these days.

Put everything together

Unsurprisingly, these three topics overlap like a Venn diagram. Changes brought about by Covid-19 have changed consumer behavior by increasing adoption and confidence in online purchases. This in turn changed traditional distribution as more customers were shopping online and many of those customers were shopping on Amazon, which reports that about 40% of all online sales are made through their platform. The key to take away? If you haven't already done so, make online sales and marketing a priority. Everyone we've spoken to has already.