Food companies may need to go on a diet

by Keith Nunes
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KANSAS CITY — There was a time when dieting was associated with health; it was associated with eating right in order to maintain a healthy weight and help a person feel good about how they look. That is the case no longer, because dieting also became associated with failure as consumers jumped from one quick-fix solution to another.

The trend away from dieting is having a profound effect on some food and beverage companies. Entire businesses and brands with significant scale have been built around the concept, and many are now struggling to adapt to the changing dynamics of the marketplace.

The diet category has long been a profitable mainstay for such companies as the Coca-Cola Co. and the Dr Pepper Snapple Group. Yet both have noted in recent weeks how a decline in demand for diet carbonated soft drinks has taken a toll on the companies’ most recent earnings.

Unilever’s divestment of its Slim-Fast business is a telling example of the trend, and the Kellogg Co.’s Special K business has been affected as well. John Bryant, chairman and chief executive officer, told financial analysts on July 31 a repositioning of the Special K brand is under way as the company attempts to adapt.

“Special K continues to be impacted by the evolving consumer trends affecting weight management brands in general,” he said. “As a result, we’re actively repositioning the brand and emphasizing the presence of positive nutrition, like protein, fiber, grains, and other relevant nutritional benefits. We also have plans for renovation and innovation, as well as new communication plans to further drive this repositioning of the food.”

The day before Mr. Bryant made his comments, Tony Vernon, president and c.e.o. of the Kraft Foods Group, said that during periods of rapid change smaller companies have an advantage because they may adapt more quickly. The diet category is a good example. While larger companies were thinking about reinvigorating their diet and weight management assets, smaller, more nimble companies moved on to catering to those consumers who were demanding products perceived as natural, fresh and healthy, and featuring the benefit of protein, fiber, whole grains, etc.

Mr. Vernon rightly noted that as the pace of change slows scale will become an advantage again, but it is worth asking what that slower pace of change may look like. Many of the challenges facing C.P.G. marketers come from consumers whose perception of value and health are evolving rapidly, who are influenced more quickly by the Internet and social media, and who have shown a willingness to expand their purchasing patterns beyond traditional supermarkets into the dollar, hard discounter, supercenter, and convenience channels. And on top of it all, the same digital technologies that are acting as consumer influencers are also upending the effectiveness of marketing and promotions programs food and beverage companies have come to rely upon.

Mr. Vernon rightly noted Kraft executives are going to have to “unlearn what we believed to work in the past and re-learn what will make a difference today.”

The question is — Can they do it faster and more efficiently within the structure of a business focused on capitalizing on scale than their smaller, less encumbered counterparts?

It is not a coincidence that such chief executive officers as Denise Morrison of the Campbell Soup Co. and David Wenner of B&G Foods have recently been talking about what they perceive to be the “new normal” within the food and beverage marketplace. Normal is a relative term that may be defined by a number of variables, but what is clear is the industry’s largest companies are struggling to adapt and meet the expectations of consumers as well as the investment community.
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