How Big Food Companies Follow a Niche Need, Then Turn It Into a Trend | Who Decides What You Eat, Part 3

You can see the same pattern in one food trend after another in recent years: a small company hits on a consumer need, by design or by luck; the niche market grows; and once the big companies notice and step in, that need finally becomes a trend. Big companies can push a concept until everyone knows it, but the process is never smooth.

"Eating not for pleasure but for health is undoubtedly rooted in one basic American trait: the fear of getting sick. People are so eager to believe that some particular way of eating will give them a life that is both pleasurable and full of energy."

That passage ran in Fortune magazine in May 1936. It describes just as well the shifts in American eating today.

Green, organic, local, natural — America's middle class is chasing every label that stands for health. So the food giants have begun stripping out additives, cutting sugar, reworking recipes and switching to cage-free eggs to calm those worries, while small companies nobody had heard of suddenly take off simply because they happen to fit the new way people shop.

In the language of food companies, the products summed up as "better for you" usually mean higher profits — and most of the time they don't even cost much more to make.

And whenever a food becomes a hit, a crowd of interest groups has a hand in it: scientific, professional, commercial, political, even philanthropic.

You think you're choosing what to eat. You're not, really.

"If you'd asked me years ago, I would have said people were switching to diet soda. Now it turns out they think real sugar is the 'good for you' ingredient. Even if a product is high in salt, sugar and fat, they'll still eat it as long as it's non-GMO."

On an earnings call last April, PepsiCo CEO Indra Nooyi said: "We have never seen a consumer as difficult to understand as today's."

Nearly every big food company has run into the same trouble in recent years, and what makes it more galling is that, according to a report by the Boston Consulting Group (BCG) and the market research firm IRI, between 2009 and 2014 roughly $18 billion in sales in packaged consumer food categories moved from big companies to small ones.

In other words, while the big companies were still puzzling over what consumers wanted, new competitors had already arrived.

In 2014, among the five best-selling sodas on Amazon in the US, a new brand appeared for the first time alongside old names like Coca-Cola, Pepsi and Dr Pepper: Zevia. In the first half of 2014, US carbonated soft drink sales fell 7.5% year over year, but between February and May of that year Zevia's sales rose 67%.

The brand, launched in 2007, was named the fastest-growing "natural" product by the market research firm ACNielsen at the end of 2008. Its secret was stevia, the natural sweetener drawn from the stevia plant. As the first carbonated soft drink to use it, Zevia said so plainly on the can: NO ARTIFICIAL SWEETENERS.

In the golden age of American food processing, the press praised the chemicals and the processing methods rather than attacking them, because they brought a wider range of choices, longer storage and — more important — convenience. That suited the middle class that rose in the 1950s, especially as more women went out to work.

But consumers today want food that is more natural and less processed, and "natural" has become the most popular word in new food and drink. Consumers now "have the ability to go online and research a product's ingredients," Zevia CEO Paddy Spence has said; the old practice of revealing nothing about a formula no longer works. Zevia's sales in 2015 were seven times what they were in 2010.

Zevia is not an isolated case. Annie's, a cereal brand with no artificial flavors, colors or preservatives, grew its sales by an average of 17% a year between 2009 and 2013. More and more small brands are succeeding because simpler ingredients make consumers feel they are eating something "natural."

The big companies were never going to sit and watch.

Amid the backlash against sugar, Indra Nooyi announced two months ago that PepsiCo would cut more sugar from its drinks: by 2025, at least two-thirds of the company's 12-ounce drinks (the size of a can) will hold no more than 100 calories. She also paid $200 million for the probiotic drink company KeVita, most of whose products use stevia — a steep price for a small brand with only $60 million in revenue.

Coca-Cola launched Coca-Cola Life in 2013, sweetened with stevia and sugar, and put it in a green bottle meant to suggest "natural." The response was decent: a year after launch, IRI data showed Coca-Cola Life had reached £28.9 million in sales (about 248 million yuan), or 2.43% of Coca-Cola's products. Most new products don't sell more than £5 million in their first year, said Tim Eales, IRI's director of industry insight.

It isn't only cola. Barely a month goes by now without American media reporting that some big food company has pulled artificial colors, artificial additives, artificial sweeteners, preservatives or gluten out of a formula.

Consumers are willing to pay for it, too.

General Mills, whose cereal business had been slumping for years, took gluten out of Cheerios and artificial colors out of Trix in 2015; when it reported fourth-quarter results in late June this year, its cereal sales had risen 3%. McDonald's third-quarter report in October showed that after its US restaurants removed preservatives from Chicken McNuggets, sales rose nearly 10%.

You can see the same pattern in one food trend after another in recent years: a small company hits on a consumer need, by design or by luck; the niche market grows; and once the big companies notice and step in, that need finally becomes a trend. Big companies can push a concept until everyone knows it, which is why they usually become the force behind a food trend only after catching up with a niche need that is already rising.

Greek yogurt is another fine example. Chobani, a Greek yogurt brand that went on sale in 2007, succeeded fast: in five years it became the third-biggest non-frozen yogurt brand in the US, with annual retail sales of $745 million. The top two were both big companies we know well: General Mills' Yoplait and Danone's Dannon.

Compared with ordinary yogurt, Greek yogurt is thicker, higher in protein and either low-fat or fat-free. It is still high in sugar, but it satisfies the American craving for protein. A report by the market research firm NPD shows that American consumers have been paying more and more attention to protein since at least 2004, and next to expensive meat, Greek yogurt — cheap and easy to eat — became an excellent choice for protein lovers.

You can probably guess what came next. In under two years Danone launched three separate Greek yogurt brands — Oikos, Light & Fit Greek and Activia — and Yoplait reworked its own Greek yogurt formula to offer a 100-calorie version. By around May 2015, Chobani's market share had fallen by nearly 10%.

At the same time, once the big companies joined in, Greek yogurt became mainstream. A report by the market research firm Technavio shows that Greek yogurt made up only 1% of the yogurt market in 2007; last year it passed 50%.

All of this is what happens when big companies give consumers what they ask for — and behind the asking lies an anxiety about food set off by a fear about health. "Healthy" is now the most powerful marketing label there is.

But the big companies don't get to do as they please either. The US Food and Drug Administration (FDA) said this September that it would rewrite the definition of the word "healthy" on food packaging. It had found that many consumers check food labels when they shop, especially the first time they buy a product, but that many of them never read the ingredients and the nutrition figures closely — they see "healthy" and buy.

And this July the US government finally decided to require every food maker to state whether a product contains GMO ingredients, in words, a symbol, a toll-free number or a QR code. Most of the big companies that rule the food industry opposed the decision. About 75-80% of food in the US contains GMO ingredients, and they were afraid it would frighten consumers off; changing the labels would also cost them a good deal.

Another decision the big companies fought hard was the FDA's requirement to add an "added sugar" line to food labels, which we examined in detail in another article. Now that many consumers avoid sugar at all costs, spelling out how much has been added all but guarantees a drop in sales.

In their tug-of-war with government agencies, the big companies often enlist charities or research institutes to argue their case.

A study published in October by scholars at the Boston University School of Medicine found that in the years 2011 to 2015 alone, 96 national health organizations in the US took money from Coca-Cola, PepsiCo or both, among them the American Diabetes Association, the National Institutes of Health and the American Red Cross. Funding does not necessarily mean the findings are wrong, but it does make you wonder how impartial they are.

What caused the bigger stir was that this September the public suddenly discovered that sugar may be worse than they thought. In 1967 a sugar industry group paid three Harvard scientists the equivalent of $50,000 today to publish a paper that blackened saturated fat and played down the link between sugar and heart health. For years afterwards the public wrongly believed saturated fat was the main culprit behind heart disease.

This sort of thing happens all the time. According to an Associated Press report in June, research paid for by a trade group representing Hershey, Skittles and Butterfinger (a Nestlé brand) found that children who ate candy weighed less than children who didn't. Research funded by the lobbying groups of Coca-Cola and PepsiCo, meanwhile, concluded that for losing weight, diet soda beats water.

Through all this arguing, the big companies also spend more on lobbying. Recently, to turn residents of the San Francisco Bay Area against a soda tax, beverage companies and retailers put at least $40 million into a campaign. That money was wasted, but the tactic had worked well until then: between 2009 and 2014 more than 40 American cities proposed a soda tax, and not until November 2014 did Berkeley become the first to pass one.

And February 2016 figures from the Environmental Working Group (EWG), a US environmental and health advocacy organization, showed that in 2015 food companies, trade bodies and other organizations spent $101 million lobbying against GMO labeling legislation.

Sometimes, though, no amount of money keeps the big companies clear of the various "isms" that attach themselves to eating — vegetarianism, for instance, which we took apart in the previous piece in this series. To handle those, they have to give up some of their interests, at least in the short term, in exchange for consumers' goodwill, or support. Research shows that more and more consumers pass moral judgment on a company when they decide what to buy.

In 2014 the anti-GMO group GMO Inside demanded that General Mills strip every GMO-related ingredient out of the Honey Nut flavor of its Cheerios cereal, citing environmental damage, big companies' control of farming and food safety. GMO Inside urged consumers to sign petitions online, to contact General Mills on social media or to write in by email. It also owned shares in General Mills, and put the same demand to the shareholders' meeting.

General Mills did in the end remove every GMO-related ingredient from Honey Nut Cheerios, but it did not present the move as a response to pressure from anti-GMO groups. On its official blog it simply explained that General Mills believed "consumers will welcome this."

Mars ran into something similar. In February 2015, Hershey and Nestlé said they would remove artificial additives from their products to varying degrees, and consumers began hoping that Mars, which makes M&M's and Dove, would promise the same. Mars answered that it was studying natural additives, but that artificial colors were safe too.

American consumers didn't buy it. They started a petition on change.org asking Mars to drop artificial colors and collected more than 200,000 signatures. The petitioners also pointed out that 80% of Mars's products in Europe already used natural colors, against only 26% in the US.

In the end the consumers won. In February 2016, Mars promised to remove artificial colors from every product it makes for people to eat within five years. Mars CEO Grant F. Reid said: "Our consumers are the boss, and we hear them. If it's the right thing for them, then it's the right thing for Mars."

It is hard to say who finally wins, the big food companies or the consumers. The irony is that many worries that look like a reaction to industrialized food are dispelled in the end by industrialized packaging and marketing.

One thing the big companies may need to watch, though: it is not only food processing that consumers distrust. They distrust big companies more and more as well. A report by the market research firm Mintel last October showed that two-fifths of American millennials say they don't trust big food manufacturers, against only 18% of non-millennials. Even a small company can lose plenty of consumers' trust once a big company buys it.

"Natural" — more precisely, food labeled "natural" — was already being chased by America's middle class in the late 1970s. According to the book Fear of Food: A History of Why We Worry About What We Eat, a 1977 study of food advertisements in women's magazines found that more than a quarter of the products were sold as "natural," even though only 2% could be called healthy food by any standard.

So is this a return to the past, or a new trend? What seems certain is that under the urge to eat for health, "what to eat" — or "what not to eat" — will keep swinging back and forth like a clock's pendulum, round and round.

Cover image: Pixabay, Pixabay, Pexels