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03/29/2017

Product reformulations on the rise: Report

CPG companies and retailers trying to keep up with changing consumer tastes

Consumer packaged goods companies and retailers are scrambling to reformulate their product ingredient mixes in order to address changing consumer tastes, according a new report.

According to the recent eMarketer Retail report titled Food Fight: CPG Firms, Retailers Race to Redesign Products, 179,600 products worldwide were reformulated in 2016, as companies sought to address growing consumer interest in healthier diets and lifestyles. That is up considerably from 84,000 reformulations in 2015, and 22,500 in 2014.

The eMarketer Retail report is based on a survey conducted by The Consumer Goods Forum, which includes responses from 102 companies including Campbell’s, The Coca-Cola Company, Kellogg’s, McCain, Pepsico, P&G, Smuckers and Unilever.

Respondents identified sodium as one of the key target areas for reformulation (67%), followed by sugar (61%) and saturated fat (50%). Other key areas included trans-fat (41%), whole grains (25%) and vitamins (20%). Among companies specializing in personal care, the elimination of parabens – a commonly used preservative – was a key issue.

While the report said the growth in reformulated products is significant, it also noted they remain a small part of companies’ total brand portfolio – with 70% of respondents indicating that redesigned products represent 20% or less. Only 3% of respondents said that reformulated products comprise at least 61% of their relevant product portfolio.

Michelle Greenwald, a marketing professor at Columbia Business School, said in the report that companies are reluctant to tinker with ingredients like salt and fat because they could impact taste, leading to reduced sales.

The report also quoted Campbell’s Soup CEO Denise Morrison, who said during a recent earnings call that nearly 80% of consumers are actively trying to eat more fresh foods in the belief that they are not only cleaner, healthier and less processed, but also taste better.

At the same time, traditional grocery stores are losing share to rivals like Trader Joe’s, which offers a smaller product assortment with an emphasis on organic and fresh products. Amazon and meal delivery kit companies also pose a threat to traditional grocers, said Greenwald.

According to an August 2016 study by A.T. Kearny, the top 25 food manufacturers in the U.S. lost 3% of their market share to small and medium-sized rivals between 2012 and 2015. Smaller companies experienced average sales growth of 11-15% over the same period, compared with 1.8% for the top 25 companies.