Ireland’s Kerry Group and France’s Danone are “in the vanguard” of sating global consumer demands for natural foods but they face huge challenges, according to a major report by Davy.
The broker says many food firms may struggle to respond to the “clean label” consumer movement that demands natural ingredients. Kerry has acknowledged by its 2015 purchase of food flavouring firm Red Arrow and, through its acquisition last month, of Fleischmann’s Vinegar Company in the US, of the importance of the movement, Davy says.
According to the report by analysts Katy Hutchinson and Liz Coen, Red Arrow’s smoking and grilling technology meet global consumer demands “to clean up product label”, while Danone “is at the forefront of this movement”.
The report, however, finds food firms cannot easily respond to the challenges as “the practicalities of reformulating food products are complex”, while consumers in different parts of the world respond to different food label messages. And while many consumers may be willing to pay more, “in reality price realisation is a major challenge for food manufacturers”.
On Kerry, Davy says it has replaced the common food flavouring disodium inosinate with chicken fat, stock, and spices, because “its chemical sounding name renders it undesirable by consumers”. It has also replaced modified corn starch and tapioca starch, which are used to boost texture, with potato starch and carrageenan, the broker says.
“These ingredients are likely to be perceived as more favourable — ie of more natural origin and less processed — than previous ingredients. Carrageenan, used as a thickening or emulsifying agent in food products, also has additional preservative properties.” Davy said Danone’s introduction of its Greek yoghurt range is “an interesting example of clean labelling in action”.
“Clean label products are leading the pathway to growth — products containing claims such as ‘nothing artificial’, ‘free of additives and artificial ingredients’ and ‘all natural’ have grown in dollar terms by 3.6%, 8% and 7.8% respectively,” the report says. “Brand owners are identifying consumer needs and showing these clearly on product labels, using clean labelling as a marketing lever,” according to the analysts.
“Demographics also have a part to play — according to Nielsen, millennial consumers rank claims of ‘organic’ on food products higher in importance than any other age group, viewing it as more important than hormone-free or GMO-free foods. In contrast, older generations do not rank any of the three claims as highly important. Smart marketing campaigns, including a strong social media presence, clear communication with customers, and transparent product labels are imperative for winning in this category.”