Retailers could be leaving money on the table in health and wellness
The health and wellness trend in the North American food and beverage industry continues to surge and present new opportunities for retailers and manufacturers. But many product marketers might not be fully understanding and harnessing current market dynamics and consumer preferences to grow their bottom lines, according to a new food- and beverage-focused consumer survey from New York-based business advisory firm AlixPartners. At the same time, they 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.
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 and beverage purchases, reactions to current health trends, views on healthful snacking, and satisfaction with retailers and manufacturers when it comes to health and wellness offerings.
“While the health and 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 and wellness, due to less-than-optimal actions in areas including pricing, innovation and supply chain.”
The North American food and beverage industry at large stands to benefit in 2015 from improving macroeconomic conditions and other factors, the company said, including modest growth in U.S. median household income and lower gas prices. Most notable, however, is the health and wellness subsector’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 and wellness goal is to have a better quality of life (46 percent of respondents chose that goal), outranking longevity, appearance and other considerations. To achieve that goal, 59 percent of consumers surveyed cited “eating healthy” and 54 percent cited “exercising” as the two most important aspects.
Willing to pay a premium for desired attributes
While price remains the most important purchasing criterion for all food and beverage products, above health and wellness and other attributes, only 76 percent of consumers in the survey said price was “somewhat” or “extremely” important, versus 88 percent who said the same in the company's 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.
And AlixPartners found that consumers appear to be willing to pay a price premium for health and 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 percent price premium, versus a 6.2 percent premium as reported in the survey in 2013.
In addition, the company said a noticeable shift has occurred in which of those attributes are most important to consumers. For example, the attributes “all natural” and “organic” increased in importance to respondents; 21 percent of consumers cited “all-natural” in the most recent survey as most important (up from 10 percent who said that in the survey of a year ago), and 15 percent cited “organic” as most important (up from 5 percent in the year-ago survey). Additionally, consumers' self-reported willingness to pay more increased by the following percentages for these attributes: “organic” (an 11 percent premium, up from 9.3 percent in the 2013 survey) and “all natural” (a 9.9 percent premium, up from 5.7 percent in 2013).
Overall, for the 24 health and wellness attributes examined in the recent survey, consumers placed a greater importance on “positive” attributes and said they are willing to pay higher premiums for them versus those products where the selling point is something “bad” being removed (e.g., low fat, trans-fat free, reduced sugar, etc.), the company said.
“Consumers view health and 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 increasing complex supply chains to improve market share and profitability.”
Boomers and millennials are Key
The AlixPartners survey found that both baby boomer and millennials preferences within the health and wellness food and beverage space will have a significant impact, as both demographic groups show high levels of interest here. While companies are keen on reaching millennials, baby boomers also present a valuable opportunity. For instance, the study found that they spend a larger percentage of their food and beverage budget on health and wellness items, with 45 percent of those ages 65 and over reportedly spending at least 20 percent on health and wellness items, and 19 percent spending more than 40 percent on such items.
But the survey shows notable differences between baby boomer and millennial food and beverage preferences and purchasing drivers and habits. Overall, baby boomers 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.
And the survey found that “taste” is substantially more important to baby boomers than it is to millennials, with 44 percent and 29 percent, respectively, citing it as an important attribute. In contrast to the overall population surveyed, products with “bad” or “unhealthy” things taken out of them 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 percent versus 19 percent and 44 percent versus 29 percent, respectively).
Baby boomers also are more willing than millennials to pay greater premiums on such products, AlixPartners noted.
With health and wellness remaining a vibrant trend in the food and beverage space, retailers and food and beverage manufacturers must develop and employ a well-informed, focused and differentiated strategy if they want to “win” in this lucrative but complex market, AlixPartners said. 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 that meets higher customer expectations and mitigates increasing channel complexity.