Hot Products 2006

Hot Products 2006

Convenience retailers like the Campus Market at California Polytechnic State University need a constant flow of trendy new products to keep customers coming back.

New packaged product introductions have escalated from a trickle to a gusher to a veritable cascade in the past 20 years. In 1986, manufacturers rolled out about 12,500 new products to the nation's retail channel. By 2004, that number had almost tripled to over 33,000, driven in part by the explosion in gourmet, organic and specialty "natural" products.

Of course, a good portion of those highhopes rollouts flop and soon find their way to the deep discount closeout stores. But each year there are also a number of debuts that are so attuned to consumer desires that they become instant hits. Sometimes they even create whole new categories of product. Think Red Bull, which practically invented the energy drink category, or Starbucks, which reinvented the gourmet coffee industry.

For operators managing convenience retailing establishments, the flood of new products introduced each year presents a bewildering cacophony of choices. What will the hot sellers be?

Some clues to consumer attitudes and the product introductions they generate were provided recently by Tom Vierhile, executive editor of Productscan Online, a service of market research firm Datamonitor. Vierhile gave a presentation at the recent National Association of Convenience Stores (NACS) show in Las Vegas on new product trends, and FM sat down with him to flesh out some of his observations and the impact they might have on onsite convenience retailing operations.

The core of Vierhile's presentation was his list of five megatrends (Health, Convenience, Wellness, Sensory/Indulgence and Authenticity) that he believes will drive new product introductions in the packaged food and beverage categories over the next couple of years. Embedded in these megatrends is almost certainly the DNA of the "next big thing" that convenience retailing customers will be lining up for.

Here is a rundown of each megatrend and the kinds of products it is generating.

Megatrend One: Health
Consumers have for a long time claimed that they want "healthy" product choices, but marketers have repeatedly been burned by taking that declaration too seriously. The product launch landscape is littered with the corpses of low-fat, lowcalorie and—most recently— lowcarb products that either failed to find favor with consumers or were rejected after a brief flirtation.

Currently, fad diets seem to be in regression, Vierhile notes.

"After the Atkins diet fiasco, a lot of people-seem to be reluctant to embrace any new sort of diet fad. Also, food companies, who should have known better, were burned by the low-carb fad, so they're reluctant to jump on any new trend."

Nevertheless, the broad concept of " Healthfulness" cannot be ignored. Indeed, in 2005, notes Vierhile, "Health" overtook " Convenience" as the top focus of US food and beverage makers when considering the development of new products.

But that focus seems to be veering away from the bandwagon frenzy of the low-carb or low-fat heydays and towards a more broad approach. One promising avenue is portion control, which has the advantage of giving people the kinds of foods they like to eat, but in reduced quantities. Portion size has been fingered by nutritionists as a key contributor to the country's obesity crisis.

Examples Vierhile cites include reduced-size cans of soda and mini-sized packs of chips and other snacks.

The downside? Reducedportion products are considerably more expensive than traditional packs. Also, because reduced-portion products tend to be packaging driven, the run-up in world oil prices has substantially increased packaging costs, especially plastic beverage containers, Vierhile adds.

Of course, the demonization of certain food components hasn't gone away, but the list of villains has evolved away from the saturated fats and carbs of yesterday to a new set of "Least Wanted" ingredients, especially trans fats. In Datamonitor's survey of "no/low" claims made on products, "No Trans Fat" made the biggest jump between 2004 and 2005 (see chart above). This is driven in part by the FDA, which will require all food makers to list trans fat content on the Nutrition Facts panel of packaged products beginning in January 2006.

Most likely to benefit from this trend are packaged baked goods and frozen breaded products.

A sleeper category in the health-related product universe is gluten-free products, says Vierhile. "Some three million Americans can't digest gluten," he notes. Products can data shows that the number of gluten-free products introduced increased from less than 200 in 2001 to more than 700 in 2005 (see chart above). These tend to be free of simple carbohydrates like white flour (gluten is a component of grain-based foods), so in a way "gluten-free is kind of the last survivor of the low-carb trend," Vierhile says.

Other allergen-free products can also be expected to increase in number, Vierhile adds, noting that a recent survey of US health practitioners found two-thirds saying they've seen an increase in the number of food allergy complaints in their practices in the past three years.

Megatrend Two: Wellness
Wellness is related to health but encompasses a proactive, rather than a reductive, approach (in other words, products with "more of..." rather than "less of..." something). Essentially encompassing the idea of "functional foods," the Wellness megatrend melds with the growing notion in Europe and North America that diet has a marked effect on one's health. Datamonitor research shows that about threefourths of US and European consumers believe this, impacting their product preferences.

As a result, the number of foods making "high in..." claims has been expanding (see chart on p. 30). Perhaps the biggest winner has been whole grains, a category heavily promoted by the government in its revised Dietary Guidelines for Americans. Product launches utilizing whole grains have gone from 150 in 2001 to more than 400 this past year, Datamonitor reports.

Another gainer surfing the Wellness megatrend is products containing Omega-3 fats. First identified as the heart-healthy component in coldwater fishes like salmon, Omega-3s have gone from nutritional science obscurity to mainstream superstardom, with over 70 percent of American consumers now familiar with the term. Not surprisingly, the number of products claiming Omega-3 on their packaging doubled in the past two years and further gains are inevitable, says Vierhile.

In a different vein of functionality, consumers have also been flocking to energyenhancing products. Certainly, this is what launched the Red Bull phenomenon, but in that product's wake has come a veritable deluge of energy products. In the energy/nutrition bar category alone, 576 new products debuted in 2005 through November, according to Datamonitor.

Much less familiar to Americans but well known in Europe are " probiotic" products, which contain live cultures supposed to have beneficial health effects. Vierhile suggests such products may catch on as a niche interest among the extremely health-conscious.

Functional foods with particular market potential include a group of products labeled "superfoods" for their high concentrations of antioxidants and other health-promoting qualities. They include fairly familiar fruits like blueberries and black currants, emerging sleepers like pomegranate and guarana and tip-oftheradar exotics like noni, goji berries, mangosteen and acai.

Another potential "sleeper" trend: "brain" foods, which include ingredients that purportedly promote better memory and increase alertness, "so if the functional food trend goes off in a new direction, that could be the direction it goes," Vierhile speculates.

Megatrend Three: Convenience
The search for ever more convenient meal and snack solutions is driving a revolution in the way products are packaged and consumed. One hot category: traditional products packaged to make them even more convenient to eat on the run.

As examples, Vierhile cited Yoplait's single-serve bottled Smoothies, which eliminate the need for a spoon (and two hands) by turning yogurt into a drink; the Campbell's Soup At Hand line, which takes the once-ultimate convenience product— canned soup—and turns it into an ontherun meal option that dispenses with pan, bowl and even spoon (to emphasize the convenience connection, Campbell's advertising even shows a model drinking a soup in the same pose one would drink a canned soda); and Dibs frozen snacks from Edy's Grand Ice Cream, which are eaten straight from the container like potato chips or pretzels.

On-the-go-friendly products are driving packaging innovations in multiple product categories. Pfizer recently unveiled a PocketMist version of its popular Listerine mouthwash product that literally fits on a keychain; Crystal Light is marketing On the Go packets of flavor powder, each portioned to treat a standard sized bottle of water; and Land O' Frost, Inc., rolled out Chicago Sub Company portioned deli meats that come in snap-apart fresh packs, each with just enough for one sandwich.

A particular sub-category of this trend, Vierhile emphasizes, is Health On the Go products, for which there is a great hunger among consumers both concerned about healthful eating, and lacking the time to make considered choices. Nutritionists increasingly blame America's harried work culture, which prompts too many people to eat too much often-unhealthful fast and convenience foods, for significantly contributing to the obesity crisis. Datamonitor's research indicates great frustration, especially among female consumers, with the scarcity of practical health-on-the-go choices (see chart at top).

Foods aren't the only packaged products benefiting from the Convenience megatrend. Health and beauty aids that do what used to require a visit to a healthcare professional are hot sellers and can only be expected to get hotter. Examples include offthe-shelf microdermabrasion kits, chemical peels, intensive skin treatments, tooth whiteners and medical test kits (there's even a new home gender testing kit that eliminates the need to visit the ultrasound clinic to determine an unborn baby's gender).

In discussing convenience, Vierhile also emphasizes the country's changing demographics, which indicate a dramatic growth in the number of single-person households (from 17% in 1970 to 26% in 2003). That shift in consumer living conditions has a major impact on the kinds of products people buy.

Vierhile cites frozen pies as an example. The traditional grocery carried whole pies, either in the bakery or frozen foods section, which is not practical for individuals living alone. Now, some bakery companies are starting to sell their branded products by the single slice or by the half-pie to appeal to consumers living by themselves.

Megatrend Four: Sensory/Indulgence

"Globalization is driving experimentation-and exposure to new tastes and preferences," Vierhile notes. " Consequently, consumers are increasingly choosing bolder foods, different flavors and new sensations. They are also seeking to pamper themselves with upscale luxuries."

USDA import data shows the consumption of herbs, spices and seasonings doubling in the past 20 years. Growth has been especially strong among "hot" spices associated with exotic cuisines. Indeed, the spice with the greatest growth rate (657%) between 1983 and 2003 was cardamom, a fairly obscure flavoring that is a staple ingredient in Indian and Middle Eastern cooking.

There are also standby indulgent favorites. Vierhile is especially high on chocolate, which correlates with a number of megatrends as a "superfood" with high antioxidant content that is also decadently indulgent, has high gourmet potential and contains caffeine, making it an energy booster to boot. " Chocolate could be the next big thing in beverages, especially high-end drinkable chocolate products," he suggests.

A more exotic candidate that satisfies both the urge for sensory experimentation and indulgence as well as for healthfulness is acai juice, made from a Brazilian berry that has gained a niche reputation as one of the world's leading "superfoods" because of its heavy antioxidant concentration.

Indulgence extends not only to flavor sensations but to temperature: foods that offer the comfort of warmth or the refreshment of cold. Examples cited by Vierhile include Betty Crocker Warm Delights, single-serve pieces of cake, brownie and cookies that are meant to be warmed in a microwave before eating; Nestea Ice, a bottled beverage line incorporating a "cooling agent" that is supposed to augment the refreshing nature of the drink; and the Fair Warning High Intensity Sensation line its manufacturer markets as "sensation drinks" and which are supposed to provide a lingering cooling or heating sensation after ingestion.

There is also the sensory appeal of romance. "Perhaps it was the mass-market ad campaigns around Viagra and similar products, but fear is out and fun is in," Vierhile notes. Hot categories include energy products that promise better "performance" as well as romance-enhancers like massage oils.

Megatrend Five: Authenticity
Consumers are increasingly wary of generic, mass-produced, "processed" food products, Vierhile says, citing a 2004 International Dairy, Deli & Bakery Association survey that found 84% of Americans saying they use nutritional labels to help them decide which product to buy. That's up from 72% only five years earlier.

What they are looking for in those labels, Vierhile opines, are "authentic" ingredients. "People are now paying closer attention to what actually is in the food they are eating and making buying decisions based on that. Publicity given to issues like Mad Cow disease, the bird flu and mercury in fish have made people more aware and concerned about where their food comes from."

This has nurtured the growth of " natural" and "organic" foods and beverages, and Datamonitor only expects that trend to continue. Already, the organic trend is strong enough that many major manufacturers have launched organic lines, and 44% of organic sales now occur in mainstream outlets like supermarkets and club stores.

Datamonitor research indicates the strongest category leap in the natural/organic category is expected to come in the protein area. "People are increasingly concerned about hormones and antibiotics in food, and they are looking for designations that promise to minimize the presence of such substances," Vierhile says.

Related to this perception is the association of regional cuisine with "authenticity." "There's a growing perception that massmarket products are 'bland' while regional ones are more complex, tasty and ' authentic.'" Vierhile notes. "So something that is sold as simply 'Italian' is no longer considered authentic ethnic. It has to be Tuscan or Neopolitan with authentic ingredients."

Hand in hand with natural ingredients and regional authenticity is the rising appeal of small-batch production. A reaction against mass-production, so-called " artisan" production enhances a product's appeal for consumers by implying that it was made with greater care than something that rolled off an assembly line along with thousands of other indistinguishable copies. Validating this trend is the fact that according to Datamonitor figures, artisan product launches across multiple product categories (beer, baked goods, even snack products like potato chips) have tripled since 2001.

Of course, not all of these trends affect all consumers equally, and managers of convenience retailing operations should focus on those most likely to entice their particular customer mix.