Snacking & Fracking
With consumers in control, CPG, retailers looking beyond "spindletops" for new growth pathways
LAS VEGAS -- "Big Data." It offers immeasurable returns for consumer product goods (CPG) manufacturers and retailers who discover the most efficient way to plumb its depths. And that really is the trick, explained the many presenters at the recent 2013 SymphonyIRI Summit in Las Vegas, which brought together 1,200 CPG and retail partners of the newly rebranded IRI to discuss an environment where brands must adjust their routes and expectations to reach today's consumers.
In his opening keynote, Andrew Appel, president and CEO of Chicago-based IRI, highlighted a few key characteristics of this new landscape:
- Smaller is better. Startups and small CPGs such as Chobani, Green Mountain Coffee and PopChips are seeing much greater growth rates than large CPGs, according to IRI. Consider that the average sales growth rate for small CPG manufacturers is 5% while for large manufacturers it is 1%.
- Faster is better. The more agile categories are proving to be the sales winners. For example, sales of disposable diapers have moved online at Amazon's Diapers.com site. Digital and social media are also having greater influence on consumer purchase decisions, with 73% of consumers saying they price-compare products via mobile technology.
- The consumer is in control. "The consumer is back in control of the purchase decision," said Appel, noting that this decision, which before had only two to three development stages, or touchpoints, now has dozens. "Each one is a point to be mined and influenced." Brand marketers have an unprecedented opportunity "to apply clarity to the chaos," the executive said. "Market research must evolve from a cost center to a growth engine."
As an example, consider the evolution of market research at Frito-Lay North America. General session speaker Ann Mukherjee, senior vice president and CMO at Frito-Lay North America, compared the discovery of new snack growth opportunities to drilling for oil. In the past, these opportunities were vast and easy to find--what Mukherjee compared to the discovery of gushers of oil, or "spindletops," back in the early wildcatting days. Today, the gushers have all been found, and new demand is tougher to locate. It requires snack manufacturers to apply new marketing techniques to find and extract these new demand pockets, similar to the use of hydraulic fracking and horizontal drilling, which have been able to reach pockets of energy that were previously unreachable.
Frito-Lay is seeing these pockets mainly "in the tails," or extremes of its brand lineup, with value and premium brands enjoying the greatest growth. For a large CPG such as Frito-Lay in such an environment, the question becomes what role its size has in driving growth. "This scale we developed--should we rethink what we are scaled to do?" asked Mukherjee. "How do you make scale flexible?" The trick lies in understanding what consumers want and leverage that scale to deliver it to them better than anyone else.
The process began by rethinking how it approached market analysis. "We looked at the category through the lens of subcategories" said Mukherjee, noting that consumers are instead honed in on the need and the snacking occasion--or where they are and whom they plan to snack with--in making their purchase decision.
Even though Frito-Lay has long used shopper segmentation, this was only "blunt instrumentation," she said. Consider, for example, one of Frito-Lay's competitors, Mexico-based Barcel USA and its Takis brand, a rolled, extruded salty snack available in flavors such as Salsa Brava and Fuego. While one may assume that Hispanic consumers are the main buyer of this snack, deeper research showed it was actually young men of no one dominant ethnicity.
This "young and hungry" demographic of 25-year-old and younger males is loyal to nothing, Mukherjee said, and motivated by constant hunger, which they satisfy at convenience stores, vending machines and quick-service restaurants (QSRs). A large share of their wallet goes to digital media such as iTunes. To better target this consumer, Frito-Lay created the innovative "Crash the Super Bowl" campaign where fans voted on which of five consumer-created commercials would run during the 2013 Super Bowl.
At the recent South by Southwest music festival, Frito-Lay created a 62-foot vending machine of music acts with a stage at its feet. Doritos fans could choose which band would perform by tweeting a particular hashtag for the event. Then there is the Doritos Locos Taco, a taco with a shell made from Doritos tortilla chips, which has become the No. 1 growth driver for the Doritos brand and Taco Bell.
"If we didn't start looking at the finest level, we wouldn't have discovered this opportunity," said Mukherjee, citing the intensive market and consume research conducted. CPGs must do this degree of homework as the shopping trip becomes ever more fragmented into different channels.