79 Industry Insiders Got Together. On These 12 Questions About the Future of Food and Drink, Nobody Is Sure

Drawing on three days of forum talks and QDaily's continuing coverage of the food and beverage business, we've pulled out 12 observations the industry might learn something from.

What flavors do consumers actually like now? Passion fruit or okra — or throw in some turmeric?

Growth in first- and second-tier cities has stalled. How do we sell chocolate into third- and fourth-tier cities?

With the economy slowing, how does a food company still make money?

How is advertising on e-commerce different from what came before?

So people don't like sugar. Then how much sugar do we put in?

……

These, roughly, were the questions on the minds of the 1,300-odd professionals who gathered last week at the FBIF Food and Beverage Innovation Forum, and the subjects worked over in 65 talks by 79 speakers.

The forum, which covers product development, marketing and packaging innovation in food and drink, has now run four times. As Bella, FBIF's chairman, put it: "Chinese food companies used to love trade fairs — everyone went to find distributors. That has changed. Distributors alone won't get it done now."

The food and beverage industry has never worried about "how to grow" the way it does today. In all of 2016, you could count on one hand the big companies whose annual revenue grew more than 5%: Nestlé and Hershey each managed just 3.2%; Coca-Cola and PepsiCo fell 5% and 0.2%. Alcohol had no easier time of it — AB InBev's revenue inched up 0.2%, but its profit was nearly half what it had been in 2015.

A month ago, Coca-Cola announced it was scrapping the job of chief marketing officer. The post had existed for 24 years, and a new role will soon take its place: chief growth officer, responsible for marketing and for the company's strategic growth at once.

Business is harder than it was. In the past, if you did marketing for a century-old brand like Coca-Cola, your problems were far milder than today's. Ma Ruchao, president of Mondelēz China and another speaker at the forum, said the advantages of traditional channels are shrinking: "Marketing in third- and fourth-tier cities gets harder every year."

More and more, it is small companies that decide what people eat and drink. As for the big ones — the 707 mergers and acquisitions in food and beverage in 2016 tell you something. Ferrero paid US$115 million for the premium chocolate maker Fannie May; AB InBev bought a craft beer bar in Shanghai; PepsiCo and Coca-Cola bought, respectively, the probiotic drink KeVita and the soy drink AdeS; Kraft Heinz even tried to reach across industries and buy Unilever, and Unilever turned it down.

More of the trouble, though, sits in the product itself. As QDaily wrote in "15 Findings About Eating" at the end of last year, consumers are increasingly hostile to processed food. Americans seem to want to eat nothing; Chinese consumers never seem to get enough; and the products of the big food companies have lost their appeal across the board. That puts new demands on how the industry develops products, markets them, and even designs them.

Over three days, from April 19 to April 21, people in the business talked through the things that worry them. Combining those talks with QDaily's continuing coverage of the industry, here is what we took away.

"It isn't big companies crushing small ones today. It's fast companies crushing slow ones."

Fast means, first of all, spotting what consumers want before anyone else does.

Among the five best-selling sodas on Amazon in the US in 2014, alongside the old names — Coca-Cola, Pepsi, Dr Pepper — a new brand appeared for the first time: Zevia. Founded in 2007, it became the fastest-growing "natural" product because it was the first to print "no artificial sweeteners" on the can.

Greek yogurt, high in protein and low in fat, is another case of fast growth. Chobani went on sale in 2007 and took only five years to become the third-largest refrigerated yogurt brand in the US, with annual sales of US$745 million.

"We launch every six months, a dozen or twenty products at a time." Speaking at the forum on April 21, Zhou Jin, Chobani's former global head of research and development, used Drink Chobani to describe the company's speed. Drink Chobani is a high-protein drinkable yogurt; the team locked down the concept in a few weeks, and the finished drink "doesn't feel like it has 14 grams of protein in it, and doesn't taste like it has 40% less sugar than the comparable products on the shelf."

The big companies, meanwhile, have become the followers. Yili and Danone both launched something similar; Yili's Ambrosial yogurt is now the company's fastest-growing brand, with 2016 sales above 8 billion yuan.

Leading a trend is one thing; what happens once a category takes off is another, and there the big and small companies diverge. Both make NFC juice, but Lingdu Guofang will pick cucumber and okra, while Nongfu Spring will probably stay with the big sellers — apple, orange.

"When I was a kid, nobody had heard of a shake or a meal-replacement energy bar"

Three meals a day are a thing of the past.

"Snacks are now your main meal, and that is gradually changing how we think about snacks. Thirty percent of European consumers will have at least one meal-replacement shake or energy bar. None of this existed when I was a child."

In his talk on food consumption trends, Nathan Gray, senior editor at NutraIngredients, said convenience foods keep changing how people eat. "People eat fewer proper meals. They want to eat while they walk."

A 2013 United Nations report found at least 2 billion people worldwide eating protein bars made from insects. In 2015, the number of smoothie varieties sold globally rose 23% year on year, in contrast to falling juice sales in the US. According to Mintel, 15% of Americans buy a smoothie for breakfast.

More people are snacking, but that does not mean good times for the food giants. That factory-made snacks have "no nutrition" is now the largest problem the big companies have to solve.

Start with sugar: eat more snacks and you take in too much of it. Nestlé's recent news on that front is a formula that cuts sugar by 40% without changing the taste, which the company hopes will make its products more competitive.

Campbell Soup, the American canned-soup maker, is working on the opposite end of the problem: how to "put nutrition into snacks." The century-old brand now gets only 40% of its business from cans; blue-tin butter cookies are among its products too. Craig Stephen Slavtcheff, the company's vice president of research and development for global biscuits and snacks, told the FBIF audience that half of American consumers now eat four to six kinds of snacks a day, some as many as seven — which means a quarter of their calories come from snacking. The figures come from the US Department of Agriculture.

"Trace elements we need every day, like vitamin D, barely exist in these snacks. This is urgent. The big food companies have to change how snacks are made."

"Everybody accepts that it works. So why doesn't it sell?"

Food or drink, nearly every company said the same thing in its talk: consumers now want something from food beyond good taste.

As Campbell's Craig described it, people now ask a snack to "meet a nutritional need, and meet the need of that moment."

"Functional food" is not a new idea. Kellogg's set up a functional foods unit as far back as 1998 and launched Ensemble, a line said to lower cholesterol.

The functional foods of that era loved to advertise their health effects, leaving you with the impression you were eating a better-tasting supplement.

Danone's Activia said that "drinking Activia every day will settle your digestive system within two weeks"; Kellogg's Frosted Mini-Wheats said the cereal was "clinically shown to improve children's attentiveness by 20%." American regulators eventually declared both claims false advertising.

But the "function" the industry talks about now is not the function it talked about then.

The rise of superfoods is one sign. Google data shows searches for "turmeric" grew 300% between 2011 and 2016, making it one of the most closely watched functional ingredients of recent years. In articles of wildly varying reliability, turmeric is described as a spice that improves everything from depression to cancer.

Sophia Nadur, who spoke on April 20, brought along a number of drinks with turmeric in them. "A lot of people believe turmeric helps relieve stress, and plenty of products with it in them are on sale in Europe now."

Food companies no longer produce hard numbers to convince anyone. They put turmeric, kale or avocado into a product — ingredients that carry a "healthy" label — and let consumers conclude the thing is good for them.

Which raises the next problem: once you decide to use these mysterious ingredients, how do you keep the taste?

We heard two answers that arrive at the same place by different roads.

Sophia Nadur and Nathan Gray both argued that you cannot load a product with sugar just to make an ingredient palatable. "It has to be low-sugar first," Sophia said. Nathan pointed to Red Bull: for some products sold on their function, "the taste is a bit different, or frankly bad, and that itself can carry the message you want — that this stuff does something."

"Seventy percent of people in first-tier cities know what probiotics are. Only 23% have eaten any"

The other answer came from Dr. Jin Su, business director for nutrition and health in Asia-Pacific at DuPont, a probiotics supplier.

For now, the probiotic foods on the market are mostly probiotic yogurts. Jin Su wanted to tell the room that fermentation and added probiotics are a way to improve flavor and set a product apart, and that they could work in many more categories: fermented plant proteins, fruit and vegetable juices, tea drinks.

"Japan and Korea have a great many fermented products. In Japan, everybody accepts what soy does for you — so why doesn't soy sell well in Asian countries? We looked into it for years. Part of it is image, part of it is taste, and Japan has handled that well, taking out some of soy's unpleasant flavors."

Jin Su shared a piece of research in her talk: in first-tier cities, 70% of people know what probiotics are, but when asked "have you ever taken a probiotic supplement," only 23% said yes. In other words, a food company entering the probiotic market no longer has to educate anyone.

In a way this parallels the equating of superfoods with health. The numbers show that global retail sales of probiotic products reached US$41 billion in 2015; sales of products with probiotics added grew 8% over 2014 and are forecast to grow another 37% over the following five years.

Some companies with the probiotic label on the front have indeed found favor.

KeVita, a beverage company started in California in 2009, began with its probiotic sparkling water; sales climbed quickly after it launched kombucha, a fermented tea drink, reaching about US$60 million in 2015. Last November PepsiCo, a company not much given to acquisitions, paid US$200 million for it.

PepsiCo is clearly interested in probiotic drinks. Besides the acquisition, its Tropicana juice brand announced Tropicana Essentials Probiotics last year — juice with probiotics added.

Others are working on fermentation. Farmhouse Culture, an American startup founded in 2008, makes chips out of fermented vegetables and has raised US$6.5 million across two rounds, with General Mills among its investors.

"The world of bottled water has changed enormously"

When drinks companies talk about the current enthusiasm for "alternative waters," they tend to describe their customers this way:

"They want a natural drink with no additives. They're looking for something low in sugar and calories, and it should do something for them as well."

Aloe water aids digestion and weight loss; cactus water contains antioxidants and electrolytes; birch sap is a "blood cleanser."

Just last month DRINKmaple, a maple water company, raised US$5.36 million. Zenith, a market research firm covering food and drink, forecasts that the maple water market will be twice its present size by 2020.

Charlie Hoare, founder of the British birch sap brand Tapped, used his talk to survey the state of alternative waters and flagged two things the category should watch.

First, beyond the genuinely nutritious ones — aloe, maple, cactus, artichoke — plant-water lookalikes keep multiplying, and some of them muddy the water for everyone.

Take WTRMLN WTR, the watermelon water company Beyoncé invested in last year, whose product contains only watermelon juice and "a drop of organic lemon juice." It reads like a juice, but WTRMLN WTR sells itself mainly as natural, as a source of electrolytes, and as a substitute for sports drinks and soda.

The US has even produced banana water: Steuben Foods mixes banana juice with water — it is not pressed banana juice. To Charlie Hoare, a product like that damages what "alternative water" means to consumers.

Second, out of all these "X waters," only coconut water has reached real scale. Ten years ago nobody paid it any attention; last year the global coconut water market was worth US$2.2 billion.

Charlie said his peers should stop measuring their products against coconut water.

"There's no point taking share by attacking a category that's growing." Some alternative water brands compare their calorie counts with coconut water's — "and then what? Do we all go drink tap water next?"

"Looking only at young consumers is a double-edged sword"

The UN Population Division estimates that by 2050 the share of the world's population over 60 will rise from 12% in 2015 to 22% — an enormous opportunity for the food industry and, if handled badly, an enormous social problem.

Big companies are already spending on it. Last April Nestlé said it was developing foods that "fight disease," and put the size of that mostly older market at US$15 billion. In an interview with Bloomberg last February, chief executive Paul Bulcke said the company would "expand and acquire in skin care and health nutrition, and depend less on packaged food."

Narrow the view to China and the demographics deserve just as much attention. Yu Jian, general manager of Kantar Worldpanel China, told the forum: "If you look only at young consumers, China's population structure is a double-edged sword." On one side, after years of the one-child policy, the number of Chinese consumers aged 25 to 29 will fall over the next five years. On the other, in absolute terms those 300 million people, who spend freely, still outnumber the entire population of the United States.

Nathan Gray of NutraIngredients took the longer view. "Over the next 30 years the world has to add another 2 billion people, and resources will get tighter. Food prices will rise, and there will be supply-chain problems."

"We have to go to third- and fourth-tier cities"

Mondelēz, which owns Oreo, Chips Ahoy! and Halls, has been in China for 33 years. Now it wants to talk about getting into third- and fourth-tier cities.

Ma Ruchao, president of Mondelēz China, brought Nielsen figures on how multinational food companies are selling in China. Between 2012 and 2016, first-tier cities' share of total consumption fell, spending power in third- and fourth-tier cities and towns rose, and stores and supermarkets in lower-tier cities kept opening.

When most multinationals came to China in the 1990s, they started in first-tier cities, which means their sales teams and channel resources are concentrated there. For a distributor in a big city, every extra 100 kilometers adds 2% to costs. A company like Mondelēz also built its first- and second-tier distribution on Walmart and Carrefour, and in third- and fourth-tier cities those channels are of no use. "In Weihai, Shandong, one of the main retailers is Jiajiayue. There's no Carrefour and no Walmart, just one RT-Mart. In Weihai that local retailer basically runs the market."

Compared with 2000, Mondelēz's cost of sales in China has actually tripled, while the reach of its brands has fallen from 65% of households to 56%.

"In third- and fourth-tier cities they don't know our brands. It isn't that they won't eat an Oreo. They've never heard of it."

Local rivals are also holding Mondelēz back. Daliyuan, a biscuit brand from Fujian, holds less than 3% of what the industry calls the key city markets, but more than 7% in third- and fourth-tier cities.

Put a Carrefour shelf in Shanghai next to a supermarket shelf in a smaller city and the obvious difference is that the first carries whole rows of large-pack Oreos, while on the second, Daliyuan may be the default.

For Ma Ruchao, none of that is the hardest part. The hardest part is "what headquarters expects," because headquarters will not "give you more money."

Every solution he went on to describe was about spending less. First, push distribution deeper: in China, Mondelēz will add 300 to 400 distributors and build a layer of sub-distributors beneath them.

Second — and he spent the most time here — "upgrade the distributors," using training to make them more efficient and, in turn, more loyal to Mondelēz. To hold down sales-staff costs in lower-tier cities, Mondelēz works with e-commerce platforms such as Alibaba and reaches those markets through them. "In small shops you can also try vending machines, selling gum on a small scale."

Advertising has to get cheaper too. Buying national media like CCTV to reach third- and fourth-tier cities no longer pays; on a limited budget, mobile is the better buy.

"Stop paying for TV ads. If you must, test it online first"

On television versus digital, Mariano A. Bosaz, Coca-Cola's global senior digital director, sounds much like Ma Ruchao.

This year a 30-second Super Bowl spot climbed to US$5.5 million. After the game, Budweiser and Audi, both of which played close to the line on political themes, collected a great deal of criticism.

The most-shared Super Bowl ad ever also belongs to Audi, from 2011: a boy dressed as Darth Vader starting an Audi with the Force. It had been posted on YouTube well before the game, and the buzz was built by then.

"We already live in a digital world. Spending that kind of money on 30 seconds without knowing whether consumers will like it — that's a risk you don't need to take," Mariano said.

"There's a place where the Coke tastes especially good. Guess where?"

Advertising exists to convey information, but the average attention span now runs eight seconds. How do you say more in eight?

Two cases from the forum suggest an answer: either get people to look you up themselves, or tell the story somewhere people are more patient.

The first case also came from Mariano. Not long ago McDonald's ran this ad in the US:

"There's a place where the Coke tastes especially good. It's ___? Go Google it!"

The ad helpfully added that at "this place," a Coke of any size now costs US$1. The place you already guessed, of course, is McDonald's, Coca-Cola's partner.

Google "the place where the Coke tastes especially good" and you find the articles McDonald's had placed on Google's front page shortly before the ad ran, with headlines like "6 Reasons the Coke at McDonald's Tastes Better Than Anywhere Else."

The second case came from Tencent, in a talk by Luan Na, vice president of its online media group and general manager of its advertising sales division.

On March 7, the mobile game Honor of Kings released a limited-edition skin, "Zhao Yun — Heart of the Engine," for 888 in-game vouchers, about 88.8 yuan. It was in fact an advertisement for BMW's new X1.

More of the brand's story was tucked into the skin's description: "The perfect ride, which betrayed its own family of cars and took on a single duty — to protect the driver, and only the driver……"

By Luan Na's figures, the skin has so far sold 180 million yuan worth.

"Upgrading a product isn't about meeting a need. It's about creating a want"

When a traditional food stops growing, a company can try "upgrading" it.

"Upgrading" here does not mean changing the recipe. It means tying an existing food to a new occasion and reaching new buyers.

One example raised at the forum was Snickers. Snickers ads have used a feeble Tang Monk, a wilting Lin Daiyu and the heroine of a Korean drama, but they were always aimed at everyone. To reach younger buyers, in April 2016 Snickers hired TFBoys for a series of ads, The Exam-Prep Hunger Demon Slayer, which tied the bar to the gaokao. They ended up with more than 100 million views.

Another category that may break out of its box through "new occasions" is frozen treats. Luan Na noted that Yili's Zhenxi ice cream was worked into the web variety show Go Fridge in every possible way, with guests eating it as an everyday dessert — an attempt to escape the rule that ice cream only sells in summer.

In Taipei, beer brands built around the 24 solar terms have appeared, likewise trying to break the habit of thinking beer equals summer.

"Packaging used to be a cost to me. Now it's a way of talking to people"

"'If you treat packaging as a cost, you make it thinner, smaller and worse, because you're squeezing the cost out.'" Yu Jian was quoting a client of his from not long ago. "More brands now treat packaging as a way of talking to people. For me it has become an investment."

How do you get more information onto a package, or even make it do something — tell you "this drink is safe," or "time to take your pills"? The demand for food safety has indirectly pushed along the rise of smart packaging.

Ong Wongawa, chief designer at Motorola, described a packaging project he finished in 2014. The supplement Nutrilinx counts each tablet as it is poured out, and a paired phone app reminds you which vitamins you still need that day.

Benton N. Sauer, Asia vice president at LPK — the firm that designed the Pringles tube — told QDaily in an interview about Tmall's Little Black Box. This conceptual "virtual package" pushes a new product from one brand or another according to the user's preferences: a new L'Oréal lotion, perhaps, or new Adidas sneakers. For Tmall, what it calls a package has in fact become a marketing platform.

"Packaging is going to work like the fashion industry"

On the future of packaging, Chen Peiqi, a partner at the British design firm JKR, said: "Change is the only constant. What's coming is a world of living editions — like the fashion industry, packaging will change all the time."

Brands are changing their packaging faster and faster, largely to keep up with the pace of e-commerce.

AB InBev, for instance, put a limited Year of the Rooster gift box on Tmall over this year's Lunar New Year, hoping young people would buy it for their parents. "Good-looking" was the entire pitch.

Mengniu's Chunzhen yogurt did something similar last December with a special e-commerce edition, using sticker-style cartoon faces to catch young shoppers online.

Next to traditional distribution, big retail chains, closed channels and brand stores, selling online is more fashionable, more convenient and more entertaining. Packaging made for e-commerce therefore follows what online selling rewards: first, the more change the better, the faster the updates the better.

Second, in the words of Qiu Zhuoqi, a project manager at LPK: "Put the more distinctive designs online. Consumers find them more easily and decide to buy faster."

There are technical differences too. Changing the package for e-commerce can improve warehouse operations and the customer's experience, and so grow the online business. After Unilever switched to an e-commerce version of its pump head, returns and breakages fell sharply.

The same happened with Perrier: once the channel moved online, the glass bottle became a plastic one, cheaper and easier to ship.

Cover image: pexels, pixbay