• Organic foods (about $50 billion in US retail revenues, growing at 6% per year ), vegan/plant-based products ($5 billion, +10% per annum growth ) and gluten-free items ($3 billion, +6% ) all fit under the umbrella of “Healthy Foods”. In total, these products represent nearly $60 billion in consumer spending, are growing 3X to 4X faster than retail food and beverages as a whole, and account for almost 10% of all food industry retail sales. But many of these items cost twice as much as “regular items”, so in terms of volume a better estimate is likely in the 5% range of consumption.

  • Meanwhile, the health of consumers as a whole continues to deteriorate with ever-rising levels of obesity, heart disease, and diabetes. Between 2007/08 and 2015/16 obesity among adults rose from 33.7% to 39.6%.  Obesity rates are 30 percent lower (at 31% of adults) for the upper middle and upper class householdsObesity-related illnesses carry an estimated annual health care cost of $150 billion.

  • How can we explain this conundrum of ever-increasing sales of healthy foods being accompanied by rising obesity and poor health for the population as a whole? Our hypothesis at CST Consulting is driven by the higher costs of healthy foods: we believe low and middle income consumers cannot afford organics, gluten-free, or vegan items on a regular basis for home-cooked meals or when eating away from home.  For example, a gallon of organic milk averages $6/gallon versus $3.29/gallon for regular milk. The vegan Impossible Burger at $12/pound (which has great texture and flavor) is sold at a huge premium to regular burger averaging $3.72/pound.

  • We also believe a driver of obesity has been the rise in the number of quick service restaurants (“QSR”) with their relatively high calorie offerings. The number of QSR sites rose from 60K locations in 1980 to 340K sites in 2018, providing inexpensive and convenient meals to office workers and blue collar employees alike.  The largest QSR chain, McDonald’s, offers a Big Mac at 520 calories. Add a 12 ounce soda (140 calories) and medium french fries (350 calories) and you’re around 1,000 calories and 50% of total calories needed daily by an adult from lunch alone.

  • Annual consumption data from the Economic Research division of the USDA shows the massive jump in per capita consumption over a nearly 30 year period in corn-based sweeteners (+30 lbs, significant use in carbonated sodas); fats/oils (+28 lbs, used in french fries and fried chicken), and flour (+ 52 lbs, with consumption of potato flour used in french fries a principal driver). This fits with the expansion of QSR outlets and sales of their most popular high-calorie offerings.

As an industry, in addition to healthier ingredients (e.g. organic, natural, gluten-free etc.) we clearly need even higher rates of healthy food innovation targeted at reduced calories while providing improved satiation.  More affordable offerings which have the potential to fit on QSR menus should be a particularly significant opportunity.

  • The good news for food manufacturers is how frequently US consumers look for health claims when making a purchase decision. The principal shoppers in households say they almost always look (38%) or sometimes look (41%) for these claims . If the health-related claims on the packaging are endorsed by health focused organizations or government agencies (e.g. FDA) the claims are twice as likely to be trusted by consumers versus stand-alone company statements.
  • The certifications (as of 2017) that consumers were most familiar with was topped off by USDA Organic (64%) and included high marks for Fair Trade (53%) and Certified Vegan (44%) .
  • The claims made on the packaging, certification label, and ingredient list/nutrient lists on the package are the principal source of consumer information. Company websites, company reports, and mobile phone apps were far less referenced.
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