If you’re working in the FMCG or CPG industry today, then you know transparency is essential to growth. Brands that cannot claim sustainable sourcing practices or tell the story behind their ingredients are starting to lose market share to those that can. But what comes as a surprise to many is that these rules apply to large-scale players just as much as they do small. In fact, some of the highest-grossing mainstream brands in the food industry are seeing the effects of a growing demand for transparency -- whether positive or negative.
In an era where transparency is becoming a basic cost of entry, HowGood has found an ever-increasing risk for food manufacturers and private label brands who either lack insight into their own supply chains or are not successful in communicating their sustainability claims. But where there is risk, there is often also reward: brands and retailers that are walking the talk - and talking the walk - are quickly capturing the hearts and wallets of today’s consumers.
Three indicators of transparency: sustainability, processing claims, and ingredient disclosure.
Transparency can be difficult to measure, especially given the lack of a clear definition in the context of CPG. In a recent report, Nielsen found three primary drivers in the eyes of consumers: sustainability, processing claims, and ingredient disclosure.
Products that tout sustainable practices are undeniably on the rise: according to Nielsen, 64% of American households opt for sustainable products, up 4% in the last year alone. What’s more, 73% of millennials are willing to spend more on a product if it comes from a brand they consider sustainable, so we can only expect to see this sales trend grow in tandem with millennial purchasing power.
In fact, millennials aren’t the only young consumers rewriting the sustainability book. Gen Z’ers are not only looking for environmentally- and socially-responsible brands, they’re also willing to throw any brand to the curb that doesn’t live up to their standards. This generation is practically defined by their lack of loyalty. This gives major brands an immense vulnerability, as their status as an established go-to in the industry no longer makes them sticky.
One particularly illuminating example is seen in the coconut water market. As a proxy for a number of categories that are seeing disruptive brands gain market share, HowGood performed an analysis of our sustainability attributes against Nielsen’s sales performance data. What we saw told the same story as we are seeing in countless other markets: while the category as a whole was down 4%, the two brands that could claim both sustainable farming practices and clean ingredients - C20 and Harmless Harvest - were up 19% and 42%, respectively. It is clear that, in this market and many others like it, brands are at immediate risk without these critical attributes.
One of the top-performing claims in both the food and personal care industries is “simple processing.” Whether related to manufacturing practices or the quality of an ingredient list, brands whose products cannot claim this attribute are commonly seeing their customers shift their loyalty to find clean, free-from alternatives.
A shift to more minimally-processed products could yield significant sales increases. Across the grocery industry, HowGood analysis has found that products with our simple processing attribute (driven by ingredient lists that are all or largely organic and free from industrial ingredients), are outperforming the conventional market by an astounding 12%. One caveat to keep in mind, however, is that given the skepticism that is inherent to upcoming generations, independent certifications are particularly important in this arena as a means to prove on-label claims.
Amongst a landscape of fad diets and allergy-awareness, the free-from market is also capitalizing on consumers’ desire to know exactly what is in their foods. But this desire for disclosure is not exclusive to specialty shoppers.
Across the industry, we have observed a significant shift in sales away from brands that cannot or do not trace their supply chain back to individual farms. In fact, products with conventionally sourced ingredients are trailing by 10% behind those that source ingredients from small farms.
There are two issues here for brands: the first is a lack of in-depth knowledge into their own sourcing practices; the second is a decision to source from conventional suppliers. Each of these could spell a decrease in performance that is only due to grow in the coming years.
This trifecta of sustainably grown ingredients, minimal processing, and responsible sourcing from small farms is proving essential for growth in our current high-risk landscape.
The success stories: brands that are translating transparency into sales
While countless brands are losing market share as a result of changing consumer values, the demand for transparency does not have to portend a dip in your bottom line. Several brands are rewriting their stories to resonate in our new landscape, and the results are phenomenal.
Lesson One: You don’t have to have it all figured out from day one.
The Applegate Success Story
Applegate is taking transparency to new levels. As a meat manufacturer, their segment is under fire due to a prominent narrative that millennials are eating less meat. With this rising generation’s concern for global warming and responsible global citizenship, plant-based foods are taking over grocery store shelves
But Applegate is turning this marketplace risk into an opportunity for reward. By reinventing the responsible meat-eating narrative, they have launched a premium brand called The New Food Collective. Sourcing their pork exclusively from small farms practicing regenerative agriculture, they are de-anonymizing the meat supply chain and enabling a level of transparent storytelling that is nearly unprecedented on the mass market.
What makes Applegate’s story particularly interesting is that their sourcing is not the only thing they’re being transparent about. “This has been hard—harder than we thought it would be, honestly” they state on the website. “But that just makes us work harder.” In this honest admission, they make the essential transition from “products” to “people.” Through transparency into both their ingredients and their corporate strategy, they are known for two of the traits most desired by today’s conscientious consumer.
Lesson Two: Private brand sustainability will pay off in more ways than one.
The Ahold-Delhaize Success Story
One trend that has persisted since the 2008 recession is an inclination toward private brand products. Fueled by money-saving motives, shoppers have gravitated toward store brands and have generally not drifted away.
Ahold-Delhaize’s private brand, Nature’s Promise, is capitalizing on this increased attention and further leveraging it as a means to rewrite the company-wide sustainability story. The majority of Nature’s Promise products can proudly claim a number of HowGood’s top-performing attributes, ranging from animal welfare practices to direct sourcing from small farms to fair labor practices in the growing and processing of their ingredients.
These practices are translating to sales not only because consumers are looking for sustainable options (products that achieve the most HowGood attributes are outperforming the rest of the food industry by 18%). The Nature’s Promise brand is also working indirectly to rebrand Ahold Delhaize’s banners as sustainability industry leaders, bringing in new customers who would otherwise be forced to seek out natural food stores and local co-ops. That means increased sales of high-margin products and an increased customer base overall.
Where to start? Tools for identifying your brand’s areas of opportunity.
While it’s useful to know that sustainability and transparency are two primary factors driving sales, the question remains: how can I capitalize on this market demand? Where do I start?
HowGood has worked with hundreds of brands who know that “sustainability matters,” but lack the insight into the most strategic way to reformulate either their products or their messaging to attract today’s consumers. That is why we created the Formulation Impact Tool (FIT).
Drawing from HowGood’s database of 33,000 ingredients, FIT enables brands to quickly and accurately assess any formulation across a variety of sustainability impact metrics. Because the tool performs calculations on the ingredient level, it is easy to zero-in on a product’s problem ingredients and find more sustainable alternatives.
For example, a shift from the preservative sodium benzoate — which scores very low on metrics like processing, biodiversity, and labor risk — to an alternative like citric acid could move a product closer to a valuable sustainability claim. Citric acid is one of the best preservatives to use to avoid labor risk in your supply chain. Furthermore, even as an industrially fermented ingredient, it requires less processing than many others. This is one of thousands of insights available through FIT that can help demystify the process of minimizing risk.
The bottom line
Brands that do not embrace transparency are going to be facing an ever-more hostile environment. But the good news is, you don’t need to be a small brand to succeed, nor do you need to source 100% sustainable ingredients. It is not an all or nothing decision. By focusing on improving attributes that perform well in your segment, and being honest about your company’s action plan, you can become the brand stealing market share in our next category analysis.