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Monday, February 27, 2012

Squeezing the coconuts

The “big three” dairy alternative beverages—soy milk, rice milk and almond milk—have become increasingly mainstream, such that “dairy alternatives” may eventually give way to a term such as plant milks, or even to a dairy-free descriptor that sheds reference to the king of the dairycase altogether.   Nonetheless, shelf-space competition and consumer substitutions will tend to keep these products in opposition, with battles won and lost based on relative advantages and disadvantages in price, flavor, food sourcing and processing, product nutrition and fortification, and food intolerances. 
But there’s also the role of novelty.  Generally speaking, consumers of plant milks are a more adventurous bunch than those who drink cow’s milk. Experian Simmons data show, for example, that 50% of whole milk fans like to try out new food products, compared with 60% of soy milk fans.  Similarly, 21% of whole milk fans describe themselves as quick to try out new nutritional products, compared with 34% of soy milk fans.  (Organic dairy milk consumers are an exception to this general pattern, falling in with the plant milks crowd.)
The need for the new among plant milk consumers has, in turn, helped almond milk steal thunder from soy milk.  According to a Packaged Facts survey conducted for our Dairy Alternative Beverages (January 2012) report, 40% of soy milk drinkers are drinking more of this product than they were five years ago, a stat worrisome to dairy milk producers.  At the same time, 62% of almond milk drinkers are downing more of this product than they were five years ago, a stat worrisome to soy milk producers.
But not to diversified producers such as Dean Foods, which is not only the leading U.S. processor and distributor of milk and related dairy products, but the owner of WhiteWave, Silk, and Horizon Organic, among other national dairy and dairy alternative brands.  Sales figures for WhiteWave refrigerated dairy alternatives, as tracked by SymphonyIRI, tell the story of ongoing churn in the plant milks market—and of successfully navigating these currents.  Soy milk still accounts for three-fourths of WhiteWave sales in this segment, but while sales are flat or down for the Silk soy milk product lines, they are booming for Silk Pure Almond (up 66% for the 52 weeks ending January 22, 2012), and surging for the debut year of Silk Pure Coconut, launched in March 2011. 
Simply being new or unexpected doesn’t equate to success in the plant milks market, of course, as is obvious from the modest sales of hazelnut milk or oat milk, which have been on the market for a number of years. A successful launch in the plant milks arena should have a unique and cleverly executed marketing message that emphasizes taste and a compelling nutritional story, while perhaps also rafting the white waters of novelty.  Here is where non-diversified dairy milk producers are at a disadvantage.  It’s not that milk producers can’t play the novelty card:  as observed in Freshness: Culinary Trend Mapping Report (February 2012), a joint publication of Packaged Facts and the San Francisco-based CCD Innovation, “regular milk remains a supremely fresh and popular product, now with all kinds of styles and forms bursting from the dairy case—organic milk, all levels of fat, new chuggable flavored milks, raw milk, goat milk, you name it.”   All of those new styles and forms, however, run the risk of eroding the primacy (in this country) and seeming inevitability of dairy milk—of downgrading dairy milk from king of the dairycase to merely first among equals.  The more that marketers create distinctive versions of dairy milk, the less original it becomes, even when those variations are beneficial; milk starts to shed the very naturalness and authenticity that is evoked (however fancifully) by product names such as soy milk or almond milk.  While plant milks can play the field, dairy milk can’t do new product cartwheels without giving up some high ground.

The venerable “Got Milk?” campaign from the California Milk Processor Board holds this high ground with a “real milk comes from real cows” slogan and a website that opens with retro milk bottle graphics and a “many imitations—still no equal” tossing down of the gauntlet.   WhiteWave, however, has no qualms about taking on what "Got Milk?" calls the real thing.   WhiteWave boasts that “Silk Pure Coconut  provides 50% more calcium than dairy milk—yet is completely lactose free,” and provides a nutritional table that shows 2% milk comparing unfavorably with Silk Pure Coconut in calories, calcium, cholesterol, and sugars.  With a stealing-a-page promise of “fresh, creamy taste,” Silk Pure Coconut recommends itself straight up, in your morning coffee, and for savory or dessert recipes, while Silk’s Facebook page shows plant milks being poured over breakfast cereal and paired up with chocolate chip cookies.   At least for its leading U.S. processor and distributor, milk is no sacred cow.

Sunday, February 19, 2012

Despite economic headwinds, restaurant sales start their reignitions

While the U.S. economic recovery remains fragile, the restaurant industry is finding ways to spell relief. The FoodserviceLandscape in the U.S., our outlook report for the restaurant industry, projects that sales will grow 4.2% to $487 million in 2012, on the heels of 6.1% market growth in 2011.

Nonetheless, operators must continue to experiment aggressively with menu pricing strategies and focus on courting minority racial/ethnic groups—and prepare for profit margin compression.  The onus of food commodity price increases is sizeable enough to threaten the restaurant recovery unless restaurant operators are prepared to bite the bullet on profit margins.  Continuing a trend that gathered momentum in 2011, many operators will need to maintain menu prices at the expense of higher margins or risk losing customers.

In addition, demographic-specific employment trends will continue to have disproportionate consequences and create distinct opportunity micro-climates by restaurant industry segment and geographic zone.
Although the housing market remains in a trough, consumer spending is rising modestly. Household debt ratios have declined, which bodes well for the discretionary income growth needed to increase guest traffic and perk up guest check averages.  Food and accommodations spending is outpacing other personal consumption expenditures.  Moreover, restaurant companies will increasingly leverage the technological and marketing power inherent in the smartphone. Location-based services such as Foursquare are a relatively new aspect of social media, but we expect quick uptake to continue among consumers and foodservice operators.

By segment, full-service restaurants posted the highest growth rate, at 8.1%.  Fine dining had a moderate rebound in 2011, though the hill back to 2007 spending levels remains very steep. Growth in the restaurant breakfast (5%) and snack (8%) customers has outpaced population growth since 2008, and the overall percentage of consumers using restaurants for these occasions has increased—although the reverse trend holds among Generation X.  All natural and organic are not only the most prevalent health-related claims on restaurant menus, but their menu presence grew during 2007-2011.   In 2011 menus, 15.7% of restaurants featured a natural claim and 13.5% featured an organic claim.  Not surprisingly, the tendency to market these claims on menus rises with restaurant price points.

Consumers age 65 or over are spending significantly more (13%) on limited-service restaurants than they did in 2007. Millennial generation consumers, at the other end of the age spectrum, are spending significantly more on limited-service restaurants as well as full-service restaurants.

By household income level, those with an income of $100K or more generate over one-third of spending on meals at restaurants, even though they comprise only 17% of all households.  The number of higher-income households and of lower-income households has grown since 2007, while the number of middle-income households declined. Because restaurant spending correlates to household income, the crimping of the middle class is obviously and inevitably a major hurdle for the industry, as for the national economy overall.  

Packaged Facts estimates that the number of restaurant visits grew by 3% during 2008 to 2011, based entirely on population growth, not usage increase.  Even then, restaurant operators across restaurant segments contend with the increased numbers of lower-spending guests and decreased numbers of higher-income guests, which has translated to higher volume but lower guest check averages.

And food commodity price increases could set the restaurant industry back, threatening the modest sales recovery seen in 2010 and 2011. Such price increases have the potential to erode the pricing gains restaurants have made relative to grocery prices, creating increased incentive for consumers to eat at home, and throw into disarray the delicate balancing act so many restaurant operators now walk in planning their menu strategies, which rely more now than ever on hitting the appropriate pricing and food margin mix.  Facing reduced consumer discretionary income and higher rates of unemployment, some of the industry’s major chains are pursuing sales growth by creating sister brands or new brands that are cut from fast casual cloth. Enticements include expansion opportunities, reduced capital investment, and new customer bases.

Most importantly, further employment gains are needed to spur overall restaurant industry growth. Consumers age 18-24, those without high school diplomas, and African-American consumers in particular remain saddled with unemployment rates much higher than the average.

Poaching is in the cards in the consumer payments industry

With household incomes declining even as healthcare costs and student debt are rising, the overall consumer payments pie is shrinking, prompting payment providers to base profit growth strategies on taking market share from their competitors.  And with that strategy comes a renewed focus on marketing to specific demographics.  Through target marketing, competitors in the consumer payments industry can optimize the potency of each product-differentiating feature, mastering new payment and communication channels, and building loyalty programs based on cost sharing with merchants to maintain or grow market share.

Some consumer payment basics.  Mail remains the most commonly used bill pay channel regardless of household income, but higher-income households are the heaviest uses of online and automatic bill pay.  Among consumer credit cards, VISA has its slimmest lead over MasterCard in the case of the highest income earners ($150K or more).  Channel preferences similarly vary by levels of educational attainment. Non-high school graduates are the heaviest users of in-person bill pay, while those with graduate degrees are the heaviest users of online payment.  But everything is not that simple:  as household education levels increase, use of mail and automatic bill payments both increase.  Hispanics are the most likely to pay their bills in person, while Asians are the most likely to pay their bills online.

At the same time, as reported in our study on Consumer Payments in the U.S.:Trends Driving the Credit, Debit, and Prepaid Card Industries, generational cohorts use payment products and channels differently.  And within generational cohorts, many behaviors and preferences vary by factors such as income and education levels.

The accumulation (or lack thereof) of life experiences gives each generation its own voice, a unique receptivity to marketing messages and preferences for technology and channels. These differences create significant challenges but also creative opportunities for marketers who target cohorts with the style and substance to which they respond.

Millennials, for example, may well be the first generation in America that is truly downwardly mobile. On average, younger workers are earning less than previous generations when they were the same age. They are also facing high rates of unemployment.  Add to that $1 trillion in outstanding student loans—a 900% increase over 1997.

Not surprisingly, then, only 37% Millennials have or use credit cards, compared with 62% of adults overall.  Relatively speaking, nonetheless, on which credit card are Millennials disproportionately likely to charge it?  American Express, which doubles its market share among the highest earners.   Youth too has its privileges.