Healthy Snacking – US Consumer Trends & Outlook – 9
April 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Ari Labell (AL)
SVP, Customer & Channel Strategy at The Hain Celestial Group Inc
Agenda:
1. Shift in consumer behaviour and price elasticity
2. Innovation in health and wellness snacking
3. Premium ingredient selection and clean labelling trends
4. Better-for-you vs nutritional snacking competitive landscape
Contents
Q: Could you provide an overview of the healthy snacking industry? What is healthy snacking and who are
some of the top players in the market?
Q: Could you elaborate on some of the pre-coronavirus trends relevant to healthy nutritional snacking and
how they affect salty snacking as well? I guess they’re all one and the same at some point.
Q: Which demographic is leading the charge in the consumption of better-for-you products? Is it perhaps
millennials consuming more and the older generations not?
Q: How does affordability play into the strategic thinking around marketing better-for-you products to
consumers?
Q: Are there any specific ingredients you expect to play a major role in the shift towards healthy snacking
products? Could you comment on the clean labelling phenomenon? Is it all about fewer ingredients?
Q: How important is consumers’ perception of taste for better-for-you products? Is there a feedback loop
where a lot of products are healthy but don’t necessarily taste that good? How willing are consumers to
sacrifice taste for health?
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Q: How would you define healthy snacking? There are lots of different definitions of how different
manufacturers use the term. Everyone has a different formula. Everyone has a different product.
Q: Is the ambiguity around the definition of a healthy snack an advantage or a disadvantage for
manufacturers?
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Q: What are some recent or prominent innovations in this segment? What do you think manufacturers have
done right?
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Q: Where have most of the coronavirus-related changes taken place within the healthy snacking or better-
for-you snacking between e-commerce, mass channel and convenience?
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Q: How has marketing and digital marketing changed and how has that lowered the barriers to entry within
the healthy snacking category? Is it easier for smaller players to get some recognition?
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Q: Could you elaborate on manufacturers’ abilities or capabilities to keep up with demand in the category
and some of the supply chain restraints being experienced? There has been a coronavirus-related shift in
demand for at-home indulgence and healthy snacking and a breakaway from convenience. You mentioned
the DSD [direct store delivery] model is a key factor in being able to keep your shelves stocked.
Q: Could you provide an overview of the healthy snacking and better-for-you snacking competitive
landscape? You mentioned a few of the big players, but who’s really leading the charge in better-for-you
offerings?
Q: How would you assess some of the competitive advantages within this industry, excluding distribution
and go-to-market? Just focus purely on what the consumer wants. Would Hain have a leg up given its very
extensive portfolio of better-for-you snacks?
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Q: How willing do you think consumers are to switch brands in healthy snacking vs other categories during
coronavirus? A lot of people flocked to the brands that they knew. How does that dynamic play out within
this segment? How important is brand loyalty within healthy snacking?
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Healthy Snacking – US Consumer Trends & Outlook
Transcription begins at 00:00:01 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview entitled Healthy Snacking – US Consumer Trends &
Outlook. I am Nyree Hinton, and I will be facilitating today’s Interview with Mr Ari Labell, Senior VP of
Customer and Channel Strategy at Hain Celestial Group Inc.
Ari, before we get started with today’s Interview, please state I agree or I disagree to the following statement:
You understand the definition of material non-public information and agree not to disclose any such
information or any other information which is confidential during this Interview.
AL: I agree.
NH: Could you provide an introduction to your background?
AL: Sure. Yes, so I’ve been in the CPG industry most of my career, over 25 years. With the exception of two
years where I left to spend a couple of years leading a sales team in the eyewear industry, I’ve spent my entire
career in CPG. A big chunk of that was with Unilever and then the last almost four years now at Hain Celestial.
My experience has been almost entirely on the commercial side of the business, in sales and marketing, and
have held numerous different roles across those disciplines in everything from retail sales, literally opening
boxes and putting the selling units on the shelf, to leading sales teams and category management and insights
and much more strategic roles like what I do now and then also in various marketing roles as well. Very early
days of digital marketing and a lot of other marketing roles as well, so I have a pretty broad purview of the
various functional aspects of the business.
Then, in terms of my experience across channels, has been pretty much all the channels. I haven’t spent that
much time in food service, but other than that, all the retail channels I’ve touched and spent… actually touch is
probably not too specific enough. I have a lot of breadth of experience in all the retail channels, and then in
terms of categories, really I haven’t spent as much time in beverage, but other than beverage, I’ve spent pretty
much a time across a lot of the really big, relevant categories across the grocery store. Then, fresh would be
another area that I haven’t spent as much time in.
[00:03:09]
Q: Could you provide an overview of the healthy snacking industry? What is healthy snacking and who are
some of the top players in the market?
AL: Sure, so just generally speaking, whether it’s healthy or not, snacking has been on the rise now for many
years. Even going back 6-7 years ago, maybe even eight years ago when I was on the ice cream business and we
were talking, usually we were talking about snacking and how snacking has grown. The way that consumers
eat and eat in smaller portions and those kinds of things, that’s not a new behaviour. Snacking, in general, is
something that has been growing now for years in terms of trends. As it relates to healthy or better-for-you
snacking, again similarly that trend is following just the general trend of consumers eating better-for-you
foods. Even now that’s moving into non-food categories like personal care or better-for-you where people are
now not just focused on what they’re putting into their body but they’re also focused on what they’re putting
onto their body, or maybe a better way to say it is what they aren’t putting in or onto their bodies. That general
trend seems to be following in most categories. In terms of healthy snacking specifically, my experience has
been mostly in the salty snacks arena of better-for-you snacking, and so, obviously, the dominant player in
snacks is Frito-Lay and their portfolio of better-for-you, the Simply line of most of their big brands have a
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Simply sub-line.
That, in and of itself, is a massive business for them driven mainly by they have good products but they also
have an incredible distribution network in their own DSD, direct store delivery, network, which allows them to
get distribution in a very broad, fast way. They certainly would be a key player there. Campbell’s would be
another one because of their Pepperidge business but more so because of the Snyder’s-Lance business which
they’ve now owned for a few years. They also have some pretty dominant brands in Kettle and then even Late
July has grown dramatically over the last several years. Then Utz is another one. They’re another one that
most of you probably have been following and they’ve been growing pretty rapidly, mostly through acquisition.
They also have a pretty robust DSD network that they can utilise. I don’t think I said that about Snyder’s, but
Snyder’s does as well, have DSD. Then you have a lot of really, really small players that are growing like crazy
in these more niche areas of better-for-you snacking. From The Ground Up and companies along those lines
that have a more niche, typically, it’s around an ingredient or a focus area that their portfolio might follow.
[00:07:14]
Q: Could you elaborate on some of the pre-coronavirus trends relevant to healthy nutritional snacking and
how they affect salty snacking as well? I guess they’re all one and the same at some point.
AL: Yes, so it’s really interesting what happened in pre- and then post-COVID. I don’t know if we can say
officially yet post-COVID, but you know what I mean. Natural snacks in salty snacks based on the
consumption data, these are IRI, most of what I’ll reference are IRI facts or spins, but the better-for-you salty
snacks segment was growing roughly four times as fast as conventional snacks up until COVID. Now,
conventional snacks were also growing, so a lot of food categories for years, the total category was up slightly,
but the conventional part of the category was down and natural or better-for-you was way up, and so that was
booing the overall category. Snacks was a bit different in the sense that all of snacks was growing, both
conventional and better-for-you, but better-for-you was growing at a significantly faster rate than
conventional. COVID happened and that changed.
Again, total business is growing. Total snacks are still growing at a similar rate. Yes, it’s on a similar rate but
conventional snacks are now growing faster than better-for-you snacks. Mainly that is driven by availability
because of the massive surge driven by food at home and the inability for a lot of the better-for-you, that are
typically smaller companies, for their supply chains to react to the surge that we saw through COVID and
because Frito has a DSD network, they were able to react and keep stores in stock in a much better way than a
lot of the other companies in better-for-you. Again, a lot of the companies in better-for-you are small players
that don’t have the adaptability or the flexibility within their supply chain. Generally speaking, again, both
segments are still growing very rapidly. There’s also a general benefit to better-for-you products, not just
snacks, but overall because of the pandemic because, obviously, this is a health crisis, and any time that there
is a health crisis, it makes people think more about themselves and their wellbeing, and so any type of better-
for-you category will likely have a long-lasting impact in a positive way.
[00:10:41]
Q: Which demographic is leading the charge in the consumption of better-for-you products? Is it perhaps
millennials consuming more and the older generations not?
AL: Yes, got it. It’s fairly broad-based. I think you’re seeing millennials drive it more than most, but that’s
because, for the most part, they have the most buying power or one of the largest buying power groups now
from a generational standpoint. They’ve grown up with when the whole better-for-you food thing started in the
early 2000s, they grew up through that, so I would say it’s more so millennials than any other, but it’s pretty
broad-based going from older generations to much younger generations. There really isn’t a massive
difference between the generational cohorts in terms of who’s driving it. It’s really an overall drive towards
better-for-you and that goes back to my point a few minutes ago about this phenomenon of growth in most
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categories with conventional being down and better-for-you being up. It goes across pretty much all the
categories within food and even in non-food as well.
[00:13:11]
Q: How does affordability play into the strategic thinking around marketing better-for-you products to
consumers?
AL: Yes, it’s a good question and, affordability-wise, there isn’t a massive gap between better-for-you snacks
and conventional snacks. There is some, but you’re talking about a bag of better-for-you chips is a roughly 12-
ounce bag is somewhere in the USD 2.00 range, maybe USD 3.00 range and conventional is going to be in the
USD 1.50-2 range, something like that. While on a percentage basis it might seem significant, it’s not that
dramatic, the up-charge, until you get into organic, and that’s where you see the typical organic up-charge, for
lack of a better term, used to be somewhere in that 20-30% range, but that’s come down as organic ingredients
have moderated in terms of price, excluding the recent uptick in commodities and all that. My point is that it’s
not dramatically more expensive. There have also been some fairly smart decisions among some of the better-
for-you manufacturers in terms of bag size and bowl-fill so if you think about the amount, the actual… salty
snacks, in particular, is an interesting one because how many times have you opened up a bag of chips and
gone, “Wait, that’s all that’s in here.” It’s because of the slack fill of the air within the bag, and there are some
ways you can make it look like there’s more in the bag than maybe that you might think.
Obviously, you have to do that within certain guidelines and whatnot, but it also depends on the amount of air
that you have in the product, which you then, when you put it in a bowl… and that’s like popcorn. One of the
reasons popcorn is so popular is when you fill up a bowl or you can easily fill up a bowl with a fairly small bag
of popcorn. Anyway, all that to say that I think a lot of the better-for-you manufacturers have done a good job
of thinking about bag size, bowl-fill and the impact that has on price and the relative price point, or the
absolute price point, I should say, compared to conventional so that there isn’t a massive gap in terms of
absolute retail price. You didn’t ask this, but I think another interesting thing is better-for-you snacks, one of
the reasons that better-for-you snacks has grown so dramatically over the last several years is that the ability
to make snacks that are better-for-you but also taste really good has also improved a lot, so that’s actually
more of a driver of people shifting to better-for-you snacks than price or affordability would be.
[00:16:28]
Q: Are there any specific ingredients you expect to play a major role in the shift towards healthy snacking
products? Could you comment on the clean labelling phenomenon? Is it all about fewer ingredients?
AL: Yes, I think less is more, certainly, within all food categories, and it’s this idea about four or six
ingredients or less or something like that is definitely a benefit. The types of oil. A lot of snacks, whether
they’re better-for-you or not, are fried, and so the types of oil that it’s fried in, that’s another area that some of
the better-for-you manufacturers have dabbled in. It’s not a huge part of the segment, but it is one where
ingredients can play a difference. Corn is obviously a really big part of better-for-you salty snacks. It’s a big
part of all salty snacks. Non-GMO is kind of prerequisite or an ante, if you like, to be in the better-for-you
business. Some verify to The Non-GMO Project and others sell verifying, but being non-GMO is typically an
ante to be in the better-for-you segment. Then there are some, I mentioned earlier From The Ground Up and
some other brands that are looking at maybe unique ingredients that might have a health halo that’s broader
than corn, so things like chickpeas or cauliflower. Seems like cauliflower is now in everything and that’s like
the best thing for you. Mushrooms is another one. If you go to Expo West or when we can go to Expo West
again, there’s a lot. A couple of years ago, mushrooms were really, really big, and I actually saw some,
yesterday I think in a store, mushroom jerky. Those kinds of things are still relatively niche in terms of their
appeal and their distribution.
The other one, I would say, is protein, and no one has cracked the code yet on a better-for-you or really not
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even better-for-you but just a salty snack that has protein that tastes good. Any snack that I’ve tasted, my own
opinion, that has protein in it, it either doesn’t have enough protein in it for it to be meaningful or it does not
taste good because the protein makes it taste bad because of the type of protein that needs to be used and all
that. I’m not a food scientist, so I don’t know enough about exactly how that works, but that’s one that I think
that’s a big unlock that if somebody can figure out how to make a better-for-you high-protein snack, I think
that’s going to be big. That tastes good, I think that will be big.
[00:20:02]
Q: How important is consumers’ perception of taste for better-for-you products? Is there a feedback loop
where a lot of products are healthy but don’t necessarily taste that good? How willing are consumers to
sacrifice taste for health?
AL: Yes, so couple of different questions there. In terms of consumers’ willingness to sacrifice taste over
health, my experience is that consumers will not sacrifice taste over health. At the end of the day, being tasty is
still more important than anything else. There are some that will, but those people are typically on the fringe,
and most people want to eat stuff that tastes good and they will not sacrifice that. That’s not a snacks thing.
That’s just overall general behaviour. Humans like stuff that tastes good. In terms of, shoot, it was a second
question in there, how do you measure taste, or that’s the wrong way to put it, but how good things taste. At
the end of the day, people measure that with their pocketbooks. The more that they buy, the more it shows
that they like, or the less that they buy, the more that it shows that they don’t like what you have in the bag or
what you’re selling.
That’s the obvious answer to how you measure it, but there are a lot of other tests and feedback loops that
manufacturers will use to measure that. Most manufacturers have some sort of consumer services hotline, so
to speak, where consumers provide feedback and if you change a formulation, you’ll often very quickly know,
even if the absolute numbers are small, you’ll very quickly see a spike in either liking or disliking the change
that you’ve made, so that’s one way to do it. There are a lot of other ways to do it as well. It’s a little bit more
difficult than just typical online survey stuff because you actually have to have somebody taste it, but there are
many other ways to do those kinds of testing as well.
[00:22:53]
Q: How would you define healthy snacking? There are lots of different definitions of how different
manufacturers use the term. Everyone has a different formula. Everyone has a different product.
AL: Yes. It’s a good question. I think actually you might have said it at the very beginning, and I didn’t answer
it, but in certain categories, it’s much easier than others. I’m trying to think of a good case where it’s actually
easy to do.
NH: I guess organic is pretty straight to the point.
AL: It is, although just because something is organic doesn’t necessarily mean it’s healthy. At the end of the
day, salty snacks are still not good for you. There are better-for-you versions, but if all you eat are Kettle potato
chips, that’s better than eating Lay’s potato chips because they’re better for you, they have fewer ingredients
and less preservatives and they’re made with non-GMO products and all that kind of stuff, but they’re still not
good for you. That’s what I mean by in certain categories it’s more difficult. Healthy, when I was in the ice-
cream business, we would talk about better-for-you ice-cream. We even talked about better-for-you
mayonnaise. Mayonnaise is not good for you. At the end of the day, if you can avoid eating mayonnaise, you
should avoid eating mayonnaise, but there are better mayonnaises out there than others because of the way
that the ingredients that they use and the healthy fats and that sort of stuff. That’s what I mean by it being a
little bit difficult. In terms of the definition itself, a lot of it is driven by the way the manufacturer… what’s the
right word? The way that they bring the product to market. It’s not the exact way I was trying to say it, but I
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can’t think of a better way, and the ingredients that they use, so using things that are non-GMO or even
organic, like you said.
Then, a lot of it also, especially in salty snacks, has to do with where in the store those items are sold. Most
grocery stores will have a better-for-you snack section, and so by default, the items in this aisle are considered
better for you by that store, and so that also is part of the definition. There isn’t a natural definition, so that’s
why a lot of manufacturers have taken the words natural off of their products because they don’t want to get
sued by some sort of class action lawsuit. Yes, I probably didn’t give you a super-clear answer, but that’s
because it’s a difficult thing to specifically say.
[00:26:25]
Q: Is the ambiguity around the definition of a healthy snack an advantage or a disadvantage for
manufacturers?
AL: I would say that I think it is somewhat of an advantage because you’re not boxed in, and so any time that
you have more flexibility, almost always, that’s going to be a benefit. I do actually think that that allows for
manufacturers to be more creative in what they might consider to be better-for-you. Then, when you’re not
locked in to certain ingredients or certain types of things, you’re not stuck within a box, so from that
standpoint I think it can be a benefit.
NH: Are consumers confused about whether these products are healthy or not?
AL: I wouldn’t use the word confused. I think consumers are more educated on what is good for you and what
isn’t good for you than they’ve ever been. I don’t know that most consumers aren’t super-educated on that, but
there’s a lot more education now around. Just think about dieting and the way that consumers diet. Most
consumers don’t just go on a two-week diet anymore. They’re making some sort of a lifestyle change. Even
things like keto which could be considered a diet, it’s not something that you just do for a week or two when
you try to lose five pounds. You’re changing your lifestyle. Then sugar, that’s the devil, so to speak, and it’s
because of education. Consumers are just more educated now about the impact excess sugar can have and the
harmful things that it can do to your body and all those sorts of things, so I wouldn’t say that consumers are
necessarily confused. I think they are hungry, pardon the pun, for more better-for-you options, but I don’t
think that it’s a negative. I think there’s actually the explosion of better-for-you categories within food and
non-food is a good thing for consumers and they see it as such.
[00:29:45]
Q: What are some recent or prominent innovations in this segment? What do you think manufacturers have
done right?
AL: Sure. I would say some of them I mentioned already, so things like specific ingredients like cauliflower
that I mentioned or chickpeas or other things like that. Trying to make a better-for-you version of existing
products by using a different ingredient, a different base I guess is probably the best way to say it, so instead of
replacing the corn, usually it’s corn, with something that either is better for you or has a better-for-you
connotation, so to speak. I would also say that there has been some interesting innovation in more just taking
some conventional ideas and bringing them to better-for-you. One is spicy. Within conventional, spicy is, in
salty snacks, somewhere in the range of 10% of the overall category. A little less than that. Between 5% and
10%. High single digits of the category. I believe that this number is right, but if it isn’t right, it’s close. The,
what does Frito-Lay call it, they call it Flamin’ Hot. Their Flamin’ Hot franchise, which they have across most
of their products, is something like a USD 1bn business. Just that alone. It’s just a massive, massive business.
Within better-for-you snacks, it was well less than 1%. It was tiny, and mainly because the products in a lot of
natural categories start out as more niche, the innovations tend to be niche or esoteric. That seems to have
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changed a bit where manufacturers are now looking to the big trends, even if they might be older trends within
conventional, and now bringing those to better-for-you. So spicy would be one of those things where now spicy
is becoming a much bigger part over the last two or three years or so within better-for-you because of the fact
that it had become such a big part of the conventional segment. It’s not really innovation. It’s not necessarily a
new idea. It’s just an existing idea done in a new way.
[00:32:51]
Q: Where have most of the coronavirus-related changes taken place within the healthy snacking or better-for-
you snacking between e-commerce, mass channel and convenience?
AL: Yes, so some general trends, I guess, and then some specific to snacks. Generally speaking, obviously, e-
commerce has grown leaps and bounds. The typical stat that most of us have seen likely is it’s grown five years
in basically a year. Maybe even more than that. I actually think it’s more than five years worth of growth. By e-
commerce, I don’t just mean Amazon, although that is the biggest part of it. Even just within your
conventional retailers, their omnichannel business has also grown. I forget the exact stats, but I think Target’s
business is now somewhere in the 12-15% of their sales are now done via some type of digital selling, whether
it’s consumers buying it from their website directly or doing click-and-collect or doing other types of
modalities. The digital sale has become a very big part now of the overall consumer products industry in the
way that consumers are getting their food. Again, not just by going online, ordering it and having it delivered
to you. Then on the flip-side of that, convenience stores have obviously taken a big hit with people staying at
home much more and not driving as much, therefore not needing as much gas and not stopping and grabbing
a snack or a drink or whatever it may be at a convenience store, so C-stores have taken a fairly big hit, I think,
through this.
Then, just generally speaking, people are nervous about going out and getting COVID, and so they’re trying to
put all of their focus of their shopping into let me get it done in as fast and in as few places to stop or to shop as
possible. Some of these other channels are getting impacted by that. That will change, I would suspect, and
people will go back to some much more normal behaviour. As it relates specifically to snacks, certainly the
contraction of C-store has had a big impact on the snacks category. Less on better-for-you than on
conventional just because the distribution of better-for-you was lower in C-store. C-store, even though most of
them are now trying to pivot to be better-for-you, they’re not typically known or thought of as a better-for-you
destination where most grocers are, whether they’re a natural grocer like Whole Foods or Sprouts or they’re a
conventional grocer like Kroger or Publix, they’re trying to be about health and wellness, and so when you go
in a grocery store and it starts with produce and you have these beautiful apples or avocados or bananas, it has
a much different connotation to the types of products that are there as opposed to starting with Reese’s Peanut
Butter Cups and Hershey’s candy bars and cigarettes and that kind of stuff. I think it’s had a bigger impact. C-
store decline has had a bigger impact on conventional snacks than it has in better-for-you snacks, but it’s
impacted both negatively.
In terms of e-commerce, e-commerce is an interesting one for salty snacks specifically because of the nature of
the product. It’s high-cube, low-weight and high-breakage, which is not ideal for delivered to home, and it’s
also a relatively low ring, and so pure-play e-comm, in particular Amazon, within consumer goods what works
well there are the higher-ring products because the financials just work so much better for Amazon and for the
manufacturer. Snacks just being that they weigh so little and they’re hard to ship because the stuff can break
inside the bag and the individual selling price is low makes it a difficult sell on the pure-play websites,
obviously Amazon being the largest. However, the growth of click-and-collect and digital sales or omnichannel
sales through the more conventional outlets, whether it be Walmart OPD or Kroger click-and-collect or
Target’s various modalities and so on and so forth, that has actually had a big benefit for snacks, but
specifically for better-for-you snacks because it’s a great way for manufacturers to target specific consumers by
using paid search. You can now target consumers who are looking for better-for-you products through those
channels to reach those consumers in an easier way. Maybe easier is the wrong word. A more targeted way
than you could by just having them go into a store and hope that they find the better-for-you snack aisle.
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[00:39:26]
Q: How has marketing and digital marketing changed and how has that lowered the barriers to entry within
the healthy snacking category? Is it easier for smaller players to get some recognition?
AL: Let’s see. It’s another two-parter there I think because you’re really talking about marketing in general
has changed. I read something yesterday that Amazon for the first time ever is now over 10% of a
manufacturer’s marketing spend is now done through Amazon, which is the first time that they’ve cracked the
10% mark. Marketing in general has changed. Less TV or just conventional TV and that sort of stuff and now
much more… I have an 11-year-old and she does everything is on TikTok and YouTube. You asked if she
watched regular TV channels. She’d say, “I don’t even know what that means.” That, just generally speaking,
marketing is changing there. In terms of the barrier to entry, that’s an interesting one because Amazon has
made it easier in some ways for these start-ups to reach consumers. If you can get distribution on Amazon, you
can then spend money and do targeted search and paid search and you can reach consumers. Some of the
products that are the best-selling products on Amazon in various categories, you’ve never heard of before.
Personal care is a good example. There are a lot of products on Amazon that are crazy, crazy sellers that you’ve
literally never heard of before but they’ve just done a good job of having a unique insight and high-quality
product and then targeted consumers.
For snacks, in particular salty snacks, it’s harder because of what I was talking about earlier where you really
have to use the omnichannel part of the business to reach consumers because of the nature of being low-
weight, low-cost and breakable, and most of that is based off of having distribution in the store or using the
store as the fulfilment centre. If you don’t have distribution in the store, you’re not going to be able to sell your
products to a consumer if they buy it via Walmart online pick-up and delivery because it has to be in the store
for the Walmart shopper to go, quote, buy it for the consumer. This phenomenon or this behavioural change
doesn’t necessarily benefit the smaller guys because, in many ways, you still have to get the traditional
distribution in the traditional channels to be able to reach consumers through some of these new digital
formats or modalities.
[00:42:39]
Q: Could you elaborate on manufacturers’ abilities or capabilities to keep up with demand in the category and
some of the supply chain restraints being experienced? There has been a coronavirus-related shift in demand
for at-home indulgence and healthy snacking and a breakaway from convenience. You mentioned the DSD
[direct store delivery] model is a key factor in being able to keep your shelves stocked.
AL: Yes. I think, like most things, it’ll vary pretty dramatically by company. In generally speaking, I would say
that the larger manufacturers had a harder time. It was a mix of both maybe is a better way to say it. Some of
the larger manufacturers had a harder time because their supply chains were so efficient and so dialled-in that
a massive abnormality like the surge of being at home through COVID was so disruptive to their supply chain
that they couldn’t react fast enough. You have some like Gojo and Purell and hand sanitiser where there just
was no way possible that anybody could keep up with that level of demand for a fairly short period of time but
there was no way. It was just impossible. Then you had others like Kraft Heinz and ketchup and just the shift
from packets of ketchup to bottles of ketchup that their supply chain is so dialled-in and so efficient in making
exactly the right amount of packets and exactly the right amount of bottles that when that whole thing shifted
and no one needed packets anymore because they were only buying bottles because they needed to have it at
home, they weren’t able to adapt fast enough. I’m just using that as one example. To be honest, I don’t even
know if that’s fact, what I just said. I’m just using it as an example. It likely it is, but I don’t know for sure.
NH: I think you’re right. They did have some supply issues.
AL: Yes, probably, although I did hear something yesterday that, now, packets of ketchup, they’re like packets
of cigarettes in jail. They’re like currency, and I don’t exactly know why. I can’t remember even where I heard
it, but I’m going to have to go back and look that up and see what that was all about. The smaller
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manufacturers on the flip side also had a hard time, mainly because most smaller manufacturers go though co-
manufacturers, so they’re the marketing arm, but they contract with an outside manufacturer who then makes
the products for them, and then the manufacturer is really the distributor. They’re the marketer and the
distributor. Those co-manufacturers also had a hard time keeping up with demand and, therefore, they were
forced to prioritise their customers, who were typically the larger manufacturers or were those that were
willing to pay the most. Some of the smaller manufacturers got squeezed in that. There are some other
manufacturers that benefited through this that weren’t super-efficient in their supply chains, and that
inefficiency actually became a benefit during the surge through COVID because they were able to dial up their
supply chain and instead of it producing at a five, they were able to turn it up to a seven, an eight or a nine
because they had underutilised capacity that most of the big guys didn’t have because they were so dialled-in
and so efficient.
It really depends on the unique situation of that particular manufacturer or probably within even the category,
the brand, that they might be in, if they have a multi-branded portfolio. Bottom line is it hit manufacturers in
many different ways. The DSD part of it is less about manufacturing and more about just delivery and their
ability to get to stores. The other thing that’s interesting about better-for-you snacks that we haven’t talked at
all about is the route to market is either or usually either DSD through a… or Snyder’s or Frito or Utz or it’s
through distributors like a UNFI or a Kehe. Just because of the nature of the way that Frito works, or even
Snyder’s for that matter, vs a Kehe, it was often easier for the Frito driver to get product into the stores than it
was for a tractor-trailer from UNFI to back up to a loading dock and all because there was just so much
congestion at the store. Again, that’s more about the actual route to market and less about the manufacturing
on the front end.
[00:48:49]
Q: Could you provide an overview of the healthy snacking and better-for-you snacking competitive landscape?
You mentioned a few of the big players, but who’s really leading the charge in better-for-you offerings?
AL: Yes, so I would say again, Frito has done a really good job, and it kind of goes under the radar in some
ways because you just don’t realise how big their Simply line is, but with Simply Lay’s and Simply Tostitos and
that line, it’s a massive, massive business, so they’ve done, I think, a really good job. On a price-per-ounce
basis, like I was talking about earlier, when you do the comparison, it’s a pretty significant price-per-ounce up-
charge to buy their Simply line, but on an absolute basis, they’ve done a good job of pricing it similarly to the
rest of their products. Snyder’s, I think, has also done a good job in particular with Late July and with Kettle.
Sensible Portions, which is a Hain product, I’d say is absolutely one of the leaders in terms of growth with
better-for-you healthy snacks. I’ve mentioned now I think a couple of times, but From The Ground Up has also
done, I think, a really interesting job of somewhat of a niche idea but it’s becoming bigger and bigger. Then
there’s a really long tail, for lack of a better way to put it, of a lot of small brands, some of which are gaining
some pretty significant traction. Mostly the bigger guys I think is where I focused, but there are a lot of really
small guys that are also doing some unique things as well.
[00:51:14]
Q: How would you assess some of the competitive advantages within this industry, excluding distribution and
go-to-market? Just focus purely on what the consumer wants. Would Hain have a leg up given its very
extensive portfolio of better-for-you snacks?
AL: Yes. I think it is the ability to garner insights. Insight, to me, it is the single biggest competitive advantage
in CPG, and it’s usually the large manufacturers that are able to do that because of the resources that they
have. Frito, and maybe even Campbell’s to a certain extent, have almost unlimited resource when it comes to
insights, and so their ability to understand what consumers want or what consumers don’t know that they
want yet until Frito puts it in front of them, that is definitely a competitive advantage for them. The flip side of
that is the bigger guys usually can’t move fast. They’re extraordinarily slow. Like I mentioned earlier, I worked
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at Unilever for a long, long time, and it was not rare that an innovation would be incubating for 3-5 years.
There are some things now that have just launched this most recent innovation cycle in ice-cream that I was
working on seven years ago. Sometimes they don’t launch things because the timing wasn’t right or whatever
the reason might, be but a lot of times, it’s because they can’t get out of their own way. They move very, very
slowly, where the smaller guys are much more nimble and flexible and willing to take risks as well. In
particular, for those that aren’t public companies, their ability to take risk is far greater because there’s just
that much less concern about valuation and whatnot. It kind of goes both ways, but I’d say those are some of
the big ones.
Then, marketing and ability to reach consumers in really meaningful ways, I think, is another big one and it
does benefit the big companies because of the resource that they have but you don’t have to be just a big
company. Siete in what they’ve done and the way that they’ve reached consumers all through social media is
remarkable. They’ve created a massive, massive business literally out of nothing, and it all started with social
media. You might argue a little bit of it was luck and whatnot but they’ve got great packaging and great
products and a great insight, and so you don’t have to just be the big guys, but I still do think the big guys have
more of a competitive advantage because of the resources that they have both in terms of insights and just
financial resource.
[00:54:47]
Q: How willing do you think consumers are to switch brands in healthy snacking vs other categories during
coronavirus? A lot of people flocked to the brands that they knew. How does that dynamic play out within this
segment? How important is brand loyalty within healthy snacking?
AL: Yes, so I think brand loyalty is always important. It’s become less important over the years, but it’s still
really important. It started with millennials, and it will continue with, I think, future generations who are
willing to try new brands. Outside of healthy snacking, to me, a remarkable example of this is in baby food,
and, hopefully, they’ve shied away from this a bit now, but if you look at some of the baby foods that they sell
in their stores and it’s things you’ve literally never heard of and it’s outrageously expensive, yet consumers will
buy it. Maybe some of those didn’t work as well as they hoped and that’s why they’re going back to a more less-
on-the-edge approach, maybe. Even so, if a consumer is willing to give their baby something that she has never
heard of before because they think it’s better for you and has better ingredients and is better made and all that
kind of stuff, then, for sure, that trend is going to happen in other categories where you’re giving it to yourself
or maybe to your older kids. The consumer’s willingness to try new things, in particular that are better for you
and that will taste better, I think, is definitely a trend that is here to stay. Even though consumers have gone
back to the more traditional brands, part of that was driven by availability in store and just the fact that those
brands, they have more shelf presence.
It was less likely that their products might be out of stock because they just have so much of it on the shelf in
the stores, and so if some of it is the big manufacturers saying that because they want their investors to invest
more money with them or to think that things aren’t as good as they are… although, I do think some of it is
true. Some of it is more consumer behaviour in thinking, “Well, if I’m going to make this now from scratch,
I’m going to use a brand that my mum used or my grandma used,” or those kinds of things. Anyway, I digress.
I do think that the consumer’s willingness to try new things, especially in better-for-you categories, will
continue to be a benefit to those in the better-for-you categories.
[00:58:00]
NH: We will now end the Interview there. Let me close by just thanking you again for your input, and thank
you, clients, for joining Third Bridge Forum’s Interview today. If you would like to arrange a private meeting
or consultation, please contact your relationship managers. Goodbye.
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Transcription ends at 00:58:09 of the recorded material
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