KANSAS CITY — More consumers, especially millennials, are saying they want “free-from” products, or foods and beverages free of such items as artificial flavors and colors, gluten, chemical preservatives, and bioengineered/G.M.O. ingredients.
Yet are they actually buying these products? One conventional category could provide insight. The Kraft Heinz Co., Pittsburgh, in December took artificial preservatives, flavors and dyes out of its Original Kraft Macaroni and Cheese Dinner. The “free-from” move came as the company, by far the category leader, seeks to recover from lost market share and a drop in sales in dry macaroni and cheese mixes over a recent 12-month period.
The “free-from” trend has affected more than just one category. The International Food Information Council Foundation’s 2016 Food and Health Survey asked people what they considered the top reason for avoiding or limiting packaged foods. The top answer, given by 32% of respondents, was because they contain artificial ingredients or preservatives.
The IFIC survey revealed 45% of respondents said they were trying to limit or avoid consuming artificial flavors and 43% said they were trying to limit or avoid consuming artificial colors. College graduates and women were more likely to say they were trying to limit or avoid both artificial flavors and colors.
Data from Information Resources, Inc., a Chicago-based market research firm, give insight on the dry macaroni and cheese mix category. Kraft Foods Group, Inc. registered U.S. retail sales of $895,969,024 in the category for the 52 weeks ended April 17, which was down 3% from the previous 52-week period. The company had a dollar market share of 76%, which was down 1.5 percentage points.
The overall category slipped 1% in sales to $1,180,200,576, but sales grew for Annie’s, an organic brand acquired by General Mills, Inc., in October 2014. Sales rose 13% to $101,400,256, and dollar market share increased a percentage point to 8.6%.
The reformulated Original Kraft Macaroni and Cheese Dinner went on sale in December. For color, Kraft Heinz replaced yellow 5 and yellow 6 with paprika, turmeric and annatto.
“The launch of our Kraft mac and cheese renovation has been well-received by consumers,” said George Zoghbi, chief operating officer of Kraft Heinz, in a May 4 conference call.
Kraft Heinz initially made the switch in its macaroni and cheese without promotion. The company said “the largest blind taste test in history came to a close” on March 7.
When converting to “free-from” products, companies must decide whether to promote the change.
“This is a sort of odd area,” said David R. Just, Ph.D., a professor in the Charles H. Dyson School of Applied Economics and Management at Cornell University. “It depends a lot on what (companies) are getting rid of. Many are finding success with prominently advertising G.M.O.-free after a reformulation. However, this is probably because consumers didn’t know it had G.M.O.s to begin with, and they don’t recognize that this required a significant reformulation. When the change is something that consumers are relatively ignorant of, it couldn’t hurt to mention it on the box or even promote it more prominently.”
Dr. Just has conducted field and laboratory experiments identifying factors in the environment that can lead both children and adults to make healthier food choices. If companies are taking out ingredients that consumers intuitively associate with taste, like artificial flavors and gluten, companies might need to be more cautious like Kraft Heinz was, he said.
“In any case, you may win more customers with the new formulation, but along the way one needs to consider what the core customer is expecting and how they believe it will affect their experience,” Dr. Just said. “If a consumer believes it will affect taste or performance, it matters very little whether their belief is accurate or not. They will not change the belief to fit reality very quickly.”
What millennials say and do
Millennials often are mentioned as wanting “free-from” products. When asked whether products with “free from” claims were worth paying more for, 49% of millennials (born from 1977 to 2007) said yes, according to Mintel data from 2015. Millennials ranked ahead of Generation X (1965-76) at 35%, baby boomers (1946-1964) at 27% and the swing generation (age 70 and over) at 23%.
Millennials may not always do what they say, however, according to a white paper from the Corn Refiners Association, Washington. The report found 46% of millennials said they would pay more for food and beverages with sweetener ingredients that are perceived as “better for you,” and 38% said it’s worth sacrificing taste for foods and beverages that are perceived as “better for you.”
Despite what they say, data show millennials purchase more than their share of products formulated with HFCS and sugar. Millennials make up 20% of market share in the country, according to the white paper. They buy 21.2% of the products formulated with sugar and 22% of the products formulated with HFCS.
Papa John’s, Louisville, Ky., in April announced it was taking HFCS out of its pizza ingredients, pizza toppings, dessert items and sauce selections. Earlier this year the pizza chain removed artificial flavors and synthetic colors.
“We’ve always strived for high quality ingredients in our pizzas and continue our aggressive push toward cleaner ingredients and menu offerings,” said Sean Muldoon, chief ingredient officer at Papa John’s, when the chain announced the HFCS removal.
Another free-from category continues to affect the grain-based foods industry. London-based Technavio in December predicted the gluten-free packaged food market to have a compound annual growth rate of about 6% from 2015-2019. New gluten-free food products, such as pasta, baked foods and snacks made with pulses, will contribute to the market growth. About 38% of the people in Generation Z and 32% of millennials said they were willing to pay a premium for gluten-free products, according to Technavio.
The supply of non-bioengineered/non-G.M.O. corn products and organic wheat should increase. Bunge Milling produced a run of Non-GMO Project verified milled corn products in April and is set to scale up production. Ardent Mills, Denver, in December unveiled a new organic initiative designed to help U.S. wheat growers double their organic acreage by 2019.
Looking at financials
Flowers Foods, Inc., Thomasville, Ga., has invested in organics, too. The company acquired Dave’s Killer Bread, a seller of organic products, in September 2015 and began a national roll-out in April of this year. U.S. retail sales of Dave’s Killer Bread reached $94,651,760 in the 52-week period ended April 17, a 32% increase from the previous 52-week period, according to I.R.I.
Flowers Foods reported sales of $1,204 million for the first quarter ended April 23, which marked a 5.1% increase from $1,146 million in the previous year’s first quarter. Flowers attributed the increase to the acquisitions of Dave’s Killer Bread and Alpine Valley Bread Co. Flowers completed the acquisition of Alpine Valley Bread, a U.S. producer of certified organic and natural bread, in October 2015.
Financial results continue to roll along for Panera Bread Co., St. Louis, which has a “no no list” that shows what artificial preservatives, sweeteners and flavors the company has removed or plans to remove from its menu items. All the chain’s sandwiches should be “clean” by the end of this year, the company said. In the year’s first quarter Panera Bread Co. had net income of $35,088,000, up 10% from the previous year’s first quarter, and total revenue of $685,153,000, up 6%. System-wide comparable net bakery-café sales increased 4.7%.
“Our ‘Food As It Should Be’ campaign communicates that at Panera our customers don’t have to choose between good and good for you,” said Drew Madsen, president of Panera, in an April 27 earnings call. “They can have both. During the first quarter, we ran new 30-second and 15-second TV ads that captured joyful food moments involving Panera’s Clean Pairings’ menu, that is crave-able combinations that are all under 500 calories. This is another proof point on Panera’s journey to offer a food menu that is completely clean.”