Consumer perception of what food and beverage products are healthy is changing, according to a survey of 1,100 consumers conducted by the consultancy AlixPartners. The changes may send a ripple effect throughout the industry as companies attempt to adapt and profit from what may be an emerging market dynamic.
“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.”
Consumers surveyed said their primary health and wellness goal is to have a better quality of life, according to the survey. In fact, a better quality of life trumped longevity, appearance and other considerations. To achieve a better quality of life, 59% of respondents cited “eating healthy” and 54% cited “exercising” as the two most important aspects of their health and wellness regimen.
The survey also found that the consumer’s laser-like focus on price may be wavering. While price remains the most important purchasing criteria, above health and wellness as well as other attributes, only 76% of consumers in the recent survey said price was “somewhat” or “extremely” important versus 88% who said the same in the 2013 version of the 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 consumer products practice.
In addition to a shift in overall willingness to pay a premium for products with desirable attributes, there also has been a shift in which of those attributes are important to consumers, according to the survey. For example, the attributes “all-natural” and “organic” increased in importance to respondents as compared to the 2013 survey; 21% of consumers cited “all-natural” in the most recent survey as most important (up from 10% who said that in the survey of a year ago) and 15% cited “organic” as most important (up from 5% in the year-ago survey).
Boomers vs. millennials
Both the baby boomer and millennial demographics are expected to have an impact on the evolution of the health and wellness space. While some companies are focused on reaching millennials, baby boomers also present an opportunity, according to the study. For example, AlixPartners found that baby boomers spend a larger percentage of their food and beverage budget on health and wellness items, with 45% of those ages 65 and over reportedly spending at least 20% on health and wellness products and 19% spending more than 40% on such items.
But the survey also showed notable differences in the demographic groups’ food and beverage preferences and purchasing drivers and habits. Overall, baby boomers surveyed 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 said they planned to add more protein to their diets, count calories and reduce consumption of fast food.
When it came to health and wellness attributes, “taste” was identified as being substantially more important to baby boomers than it is to millennials, with 44% and 29%, respectively citing it as being important. In contrast to the overall population surveyed, products with “bad” or “unhealthy” things taken out of them — such as low carbohydrate, trans-fat free, sugar free and non-bioengineered products — are among the most appealing to baby boomers. Millennials surveyed placed greater importance on all-natural and organic attributes than did baby boomers (28% versus 19% and 44% versus 29%, respectively).
In terms of the consumer’s willingness to pay a premium for grocery products with health and wellness attributes, overall, baby boomers are willing to pay greater premiums on such products than millennials. In fact, baby boomers appear more willing to pay more substantial premiums than millennials are for health and wellness attributes that seem more important to millennials than they are for baby boomers.
“As consumer tastes and desires become more fragmented and diverse, consumer products companies are presented with an even bigger opportunity to make inroads with millennials and baby boomers through targeted health and wellness product offerings,” said Andrew Csicsila, director at AlixPartners and a member of the consumer products practice. “However, consumer-products companies that are not structured to be flexible and responsive to these dynamic shifts, especially in their supply chains and operations, will miss opportunities to attract this group.”
Let’s go shopping
In addition to placing bets on the right health and wellness products to secure share-of-wallet from target consumers, the study findings imply that food and beverage companies will also need to pay greater attention to ensuring their products are in the right retail channels for today’s consumer.
When shopping for health and wellness products, consumers favor mass merchandisers (cited by 42% of consumers) over traditional grocery stores (cited by 34% of consumers). The survey also found that consumers are shopping for food products across a wide range of retail channels, including drug stores, dollar stores, Internet retailers and convenience stores, as well as traditional grocery stores and mass merchandisers. Notably, only 21% of the consumers surveyed said they are loyal to one grocery retailer for their health and wellness groceries, while 25% of consumers shop at one retailer for health and wellness and at another for traditional grocery items at least 61% of the time.
“Retailers are facing higher customer expectations, greater supply-chain complexity and increasing competition for the consumer’s health & wellness dollar,” said Richard Vitaro, director at AlixPartners and a member of the firm’s retail and consumer products practice. “Retailers need to differentiate their health and wellness offering on at least one key dimension, such as product quality, assortment, price or convenience, while being competitive on remaining attributes to be able to separate themselves from the competition while providing a competitive value proposition to competitors.”