Companies may be ‘leaving money on the table’ in health & wellness, says AlixPartners Food & Beverage Consumer survey
Pricing, innovation and supply-chain improvements needed to optimize profits.
(February 09, 2015) – The booming health & wellness trend in the food & beverage industry continues to surge and present new opportunities for companies in the sector. But, while opportunity abounds, many companies may not be fully understanding and harnessing current market dynamics and consumer preferences to grow their bottom lines. Simultaneously, companies face more complexity from a more selective and educated customer, higher expectations for distribution and in-stock positions, greater retail-channel diversity and increased competition. That’s according to a new food & beverage-focused consumer survey from AlixPartners, the global business-advisory firm.
The AlixPartners North American Health & Wellness Review surveyed more than 1,100 consumers and examined a number of areas including: the key drivers of consumers’ choice for food & beverage purchases (keeping health & wellness in mind); reactions to current health trends; views on healthy snacking; and satisfaction with retailers and manufacturers when it comes to health & wellness offerings.
“While the health & wellness trend has been strong for more than a decade, we believe consumers’ interest in this space is still in the early stages due in part to very favorable demographics,” said David Garfield, managing director at AlixPartners and co-leader of the firm’s Consumer Products Practice. “At the same time, however, manufacturers, suppliers and retailers are leaving money on the table in health & wellness, due to less-than-optimal actions in areas including pricing, innovation and supply chain.”
Industry Environment, Appetite for Health & Wellness
The North American food & beverage industry at large stands to benefit in 2015 from improving macroeconomic conditions and other factors, including modest growth in U.S. median household income as well as lower gas prices. Most notable, however, is the health & wellness sub-sector’s contribution to growth, which has been three to four times greater than other grocery items in the past decade (based on sales of natural and organic products), and is expected to see substantial near-term growth as economic conditions improve. According to the survey, consumers’ primary health & wellness goal is to have a better quality of life (46% of respondents chose that), over longevity, appearance and other considerations. To achieve that, 59% of consumers surveyed cited “eating healthy” and 54% cited “exercising” as the two most important aspects of their health & wellness regimen.
Consumers Willing to Pay Greater Premiums for Desired Attributes
As the food & beverage industry continues to recover from the longest downturn in food-at-home and beverage spending and its lowest post-downturn growth since 1945, the AlixPartners survey finds a window perhaps opening up on price as consumers are showing less price sensitivity in this recent survey vs. a similar one by AlixPartners a year ago. While price remains the most important purchasing criterion, above health & wellness and other attributes, for all food & beverage products, only 76% of consumers in the recent survey said price was “somewhat” or “extremely” important, versus 88% who said the same in the 2013 survey.
“This rapid change in consumer price sensitivity may create significant margin-expansion opportunities for retailers, such as in pricing, and producers, such as in formulations,” said Brian Major, managing director at AlixPartners and co-leader of the firm’s Consumer Products Practice.
Specific to health & wellness-focused food & beverage products, AlixPartners found in its latest survey that consumers appear to be willing to pay a price premium for health & wellness product attributes they view as important. Consumers surveyed reported their willingness to pay a premium for products with such attributes has increased to an 8.9% price premium, versus a 6.2% premium as reported in the survey in 2013.
In addition to a significant shift in overall willingness to pay a premium for products with desirable health & wellness attributes, there has also been a noticeable shift in which of those attributes are most important to consumers. For example, the attributes “all-natural” and “organic” increased in importance to respondents as compared to the 2013 survey; 21% of consumers cited “all-natural” in the most recent survey as most important (up from 10% who said that in the survey of a year ago) and 15% cited “organic” as most important (up from 5% in the year-ago survey). Additionally, consumers' self-reported willingness to pay more increased by the following amounts for these attributes: “organic” (an 11% premium, up from 9.3% in the 2013 survey) and “all-natural” (a 9.9% premium, up from 5.7%).
Overall, for the 24 health & wellness attributes examined in the recent survey, consumers placed a greater importance on “positive” attributes and are willing to pay higher premiums for them versus those products where the selling point is something “bad” being removed (i.e., low fat, trans-fat free, reduced sugar, etc.).
“Consumers view health & wellness as a way to improve their quality of lives, and appear to be willing to pay more for key product attributes that they value,” said Sundaram Chokkalingam, director at AlixPartners and a member of the firm’s Consumer Products Practice. Manufacturers, though, will likely need to shorten go-to-market timelines, meet ever-increasing customer expectations and efficiently manage costs in increasingly complex supply chains to improve market share and profitability.”
Boomers and Millennials Are Both Key
The AlixPartners study reveals that both Baby Boomers’ and Millennials’ preferences within the health & wellness food & beverage space will have a significant impact, as both demographic groups show high levels of interest in health & wellness. While companies are keen on reaching Millennials, Baby Boomers also present a valuable health & wellness opportunity, according to the study. For instance, the study finds that Baby Boomers spend a larger percentage of their food & beverage budget on health & wellness items, with 45% of those ages 65 and over reportedly spending at least 20% on health & wellness items and 19% spending more than 40% on such items.
With food and beverage makers and food retailers seeking growth among both the Baby Boomer and Millennial groups, the survey shows notable differences in these demographic groups’ food & beverage preferences and purchasing drivers and habits. Overall, Baby Boomers surveyed by AlixPartners reported plans to add more seafood, fiber and vitamins to their diet and reduce consumption of red meat, salt and processed food. On the other hand, Millennials reported plans to add more protein to their diets, count calories and reduce their consumption of fast food.
When it comes to preferred health & wellness attributes of food & beverage products, the survey found that “taste” is substantially more important to Baby Boomers than it is to Millennials, with 44% and 29% respectively citing it as an important attribute. In contrast to the overall population surveyed, products with “bad” or “unhealthy” things taken out of them – such as low carb, trans-fat free, sugar-free and non-GMO products – are among the most appealing to Baby Boomers. Millennials surveyed, however, placed substantially greater importance on “all-natural” and “organic” attributes than did Baby Boomers (28% versus 19% and 44% versus 29%, respectively).
In terms of the all-important factor of consumers’ willingness to pay a premium for grocery products with health & wellness attributes, overall, Baby Boomers are willing to pay greater premiums on such products than are Millennials. Notably, Baby Boomers appear more willing to pay more substantial premiums than Millennials are for health & wellness attributes that seem more important to Millennials than they are for Baby Boomers.
“As consumer tastes and desires become more fragmented and diverse, consumer products companies are presented with an even bigger opportunity to make inroads with Millennials and Baby Boomers through targeted health and wellness product offerings,” said Andrew Csicsila, director at AlixPartners and a member of the firm’s Consumer Products Practice. “However, consumer-products companies that are not structured to be flexible and responsive to these dynamic shifts, especially in their supply chains and operations, will miss opportunities to attract this group.”
Consumers Show Shifting Channel Preferences as Options Grow
With an overwhelming amount of so-called health & wellness products available in food & beverage, reaching consumers has become increasingly challenging. In addition to placing bets on the right health & wellness products to secure share-of-wallet from target consumers, the study findings imply that food & beverage companies will also need to pay greater attention to ensuring their products are in the right retail channels for today’s consumer.
According to the AlixPartners survey, when shopping for health & wellness food & beverage products, consumers favor mass merchandisers (cited by 42% of consumers) over traditional grocery stores (cited by 34% of consumers). This survey also finds that consumers are shopping for food & beverage products across a wide range of retail channels, including drug stores, dollar stores, Internet retailers and convenience stores, as well as traditional grocery stores and mass merchandisers. The survey additionally showed that only 21% of consumers are loyal to one grocery retailer for their health & wellness groceries, while 25% of consumers shop at one retailer for health & wellness and at another for traditional grocery items at least 61% of the time.
“Retailers are facing higher customer expectations, greater supply-chain complexity and increasing competition for the consumer’s health & wellness dollar,” said Richard Vitaro, director at AlixPartners and a member of the firm’s Retail & Consumer Products Practice. “Retailers need to differentiate their health & wellness offering on at least one key dimension, such as product quality, assortment, price or convenience, while being competitive on remaining attributes to be able to separate themselves from the competition while providing a competitive value proposition to competitors.”
With health & wellness remaining a vibrant trend in the food & beverage space – with no signs of slowing down – it is evident from AlixPartners’ research that food & beverage manufacturers and food retailers must develop and employ a well-informed, focused and differentiated strategy if they want to “win” in this lucrative but complex market. Core elements of such a strategy must include securing and applying the right consumer research and data analytics, rolling out better and differentiated product assortments that meet the varied preferences of today’s consumers, and developing a lean and efficient supply chain which meets higher customer expectations and mitigates increasing channel complexity.
About the Study
The AlixPartners North American Health & Wellness Review surveyed 1,107 consumers and examined the key drivers of consumer choice for food & beverage purchases with health and wellness in mind, reactions to current health trends, views on healthy snacking, and satisfaction with retailers and manufacturers when it comes to health and wellness offerings.
AlixPartners is a leading global business-advisory firm of results-oriented professionals who specialize in creating value and restoring performance. We thrive on our ability to make a difference in high-impact situations and deliver sustainable, bottom-line results. The firm's expertise covers a wide range of businesses and industries whether they are healthy, challenged or distressed. Since 1981, we have taken a unique, small-team, action-oriented approach to helping corporate boards and management, law firms, investment banks and investors respond to critical business issues. For more information, visit www.alixpartners.com.