Apr 052011

by Stephen Huie, MBA ‘12

Apr. 3, 2011

Just because the growth rate of American obesity has slowed down to reach 34% of the adult population from 30% ten years ago, there isn’t any reason to begin letting loose again.  Obesity may be plateauing for adults, but the number of obese children tripled to 17% over the same time period (CDC – 2010).

Food producers have been watching these “mega” trends in obesity and their counterpoint, health and wellness, for many years now.  Food companies recognize that their customers’ bodies are changing and that buyers are responding by modifying what they choose to buy and eat.

But, how do you design and market healthier food products to a mass audience, especially when you’ve been producing products high in sugars, sodium, and fats for so long?

I just heard three industry veterans share how they do just that at the 2011 U. Maryland Social Enterprise Symposium.  Sitting on the panel were:

  • Dale Clemiss, VP Beverages, Campbell Soup Company
  • Lupe Sierra, Senior Manager of Consumer Insights for Global Health and Wellness, Kraft Foods; and
  • Heather Stouffer, Founder/CEO, Mom Made Foods

Framing Food and Understanding the Consumer

All of the panelists described their company’s product choices in reference to how consumers perceive their lifestyles and their food.

Heather Stouffer, who founded Mom Made Foods to create convenient frozen organic meals for kids, shared the challenges of designing macaroni and cheese that did not use artificial food coloring.  Given that many parents grew up on yellow and orange mac and cheese, Stouffer knew that she had to make her version match what shoppers were expecting.

Stouffer designed a butternut squash and sweet potato puree mixture to recreate the bright orange that kids love and caretakers recognize.  She said it was a difficult process to adjust the viscosity of the mixture using vegetables, but that the mac and cheese came out as a perfect representation of what her firm was trying to achieve.

More than anything, Stouffer, emphasized the child’s perception, noting that “kids like cool colors.”

For Lupe Sierra of Kraft Foods, nothing is more important than understanding exactly what eaters and shoppers want.  Sierra described how average values have shifted to wanting a better sense of “balance” and eschewing excess.  These are the core principles that ultimately drive the lifestyles and purchasing decisions that promote health and wellness.

Kraft has responded by redesigning over 5,000 of its products.  Kraft has begun to increase the amount of whole grain in their Nabisco crackers and plans to double it by 2013.  Their Oscar Meyer Lunchables now include carrots and apple slices.  They’ve even added Vitamin C to Trident Gum.

Taste: The Real Bottom Line

Yet for all the creative ways to produce a healthier snack, Sierra insists that food sales are ultimately driven by one thing: taste.  You can’t sell something unless it tastes good.

This has been especially challenging for established companies such as Kraft and Campbell, both of which have been reducing the sodium and saturated fat levels of many of their products.  For example, Dale Clemiss of Campbell Soup shared that the vegetable drink V8 was originally introduced as a way for people to get a daily intake of vegetables.  In the past few years, Campbell has reduced their sodium content, but has had to make up the taste by redesigning the ingredients.

So if it’s not tasty, it won’t sell – and what good is a healthy product that sits on the shelf?

However, what is tasty is also rather relative.  In the same way that parents today grew up on yellow and orange mac and cheese, North Americans have grown up mostly on high sugar and high fat diets.  Our reference point – the anchor of experience by which we pass judgment – is already skewed toward the sweet and savory.  As Michael Pollan points out in The Omnivore’s Dilemma, if someone who had been living off of whole grains and fruit all their life had suddenly walked into a supermarket and ate processed food, most of it would seem disgustingly sweet!

So if taste drives consumer demand, and businesses continue to adjust their offerings based upon consumer demand, then will anything really ever change?  Will large and established food producers be stuck in a market position that isn’t clear enough to be labeled a “healthy product” rather than just a “healthier product” (just look at Kraft’s “Wheat Thins: Hint of Salt”)?   Have we already opened the Pandora’s Box of the super sweet and salty, making it hard to adjust downwards?

Profit from Disruptive Innovation in Food and Beverages

While food companies continue to struggle with balancing their sales with product R&D, they would do well to remember the role of disruptive innovations.  Writing in 1995, Joseph Bower and Clayton Christensen mapped out the trajectories of technological change.  They defined disruptive innovations as advancements that provide a different set of attributes than currently appreciated by the market.  At first, disruptive innovations undersell because few people find them desirable.

Yet, these poorly selling products evolve at such a fast rate that the new product can eventually invade established markets.  Bower and Christensen’s key insight is that the product doesn’t have to completely dominate the competition on all characteristics in order to dethrone the incumbent – the new product only has to get far enough to meet the market demand for existing attributes.  By that point, incumbents are often too late to make up the difference.

The corollary – and more relevant conclusion vis-à-vis this topic on food and health – is that the incumbents who miss disruptive innovations are often paying too much attention to what their customers want.  Perhaps many food companies are following the trends but missing the larger opportunities.

This doesn’t have to be the case.  Within the food and beverage industry, Honest Tea, which recently closed its sale to Coca Cola, has been extremely successful.

Seth Goldman, Founder of Honest Tea, was the keynote speaker at the Symposium and discussed how the idea of an organic cold tea developed to fill in a market gap between flavorless water and uber-sweetened soft drinks.  As it gained momentum, Honest Tea expanded its product line to multiple flavors and began distributing through channels outside of the local community niches in which it began.  Although their branding and promotions were undoubtedly effective in capturing the right set of buyers, they created an entirely new market for an underdeveloped product category.  They started below demand, but moved to meet the market demand.

We see a similar story in the recent Fast Company article profiling baby carrot creator Bolthouse Farms and its CEO Jeff Dunn, a former Coca Cola executive.

There’s much large companies and startups can do to improve the North American diet by designing to balance taste with health.  However, the real money will be made through internal entrepreneurship, spinning off new ventures to allow them adequate independence from the parent, taking risks, and breaking the parochial limits we have created around flavor and taste.

Stephen Huie is a First Year MBA at the Robert H. Smith School of Business at the University of Maryland.  You can also read about his experience on his Smith Blog.

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