Dive Brief:
- While food and beverage innovation continued at a level pace in 2020, the number of line extensions fell 29% compared to the previous three-year average, according to a new analysis by IRI.
- Grocery brands are now focused on new products that elevate self and societal care, indulgence and convenience. Small brands and private label also found opportunity to grab consumers' attention and win their loyalty during the last year by demonstrating innovative thinking.
- With annual CPG sales up 10% in February, IRI sees continued opportunity for large brands and private labels to innovate — particularly with plant-based, premium and health and wellness products. At the same time, they will be shaped by the "new normal" of consumer behavior, including more at-home cooking, the elevation of on-the-go convenience and frictionless shopping.
Dive Insight:
The pandemic has established new consumer behaviors that will sustain in 2021 and shape product innovation for years to come.
According to IRI, 53% of consumers said they would continue to create meals from scratch more often than they did before the pandemic. A separate survey by consumer market research firm Hunter found more than seven in 10 would cook more after the pandemic ends. It's created an opportunity for brands such as Tyson and Kraft Heinz to invest in products that support home cooking, and for grocers like The Giant Company to offer similar solutions in private label.
The wave of out-of-stocks at the pandemic's beginning last spring also left an indelible imprint. Even though IRI found the assortment of products in stores has returned to pre-pandemic norms, the period of name-brand scarcity introduced shoppers to smaller brands and private label. Small brands, with store sales of less than $100 million, saw an 18.3% jump in multi-outlet retail and convenience store sales in 2020, according to IRI. In the same period, private label saw a nearly 12% increase. This compares to a 7.5% sales increase for large brands.
Meanwhile, consumers shifted a lot of their spending online and have grown comfortable using e-commerce to seek out innovation. In a January survey, IRI found 30% of shoppers aim to spend as little time in stores as possible when looking for new products — up 5 points from May 2020. The potential is so great that online sales of packaged food and beverages could reach up to $109 billion this year, according to research from the Food Industry Association (FMI) and NielsenIQ.
Consumers' interest in health and wellness attributes also rose during the pandemic. Food and beverage products with self-care messaging, such as immune support or containing antioxidants, saw a 12% sales increase in 2020, according to IRI. Separate research by Evergi found consumers concerned by COVID-19 are especially open to this product messaging. And sales for products with allergy-friendly attributes rose 13%. This comes as more than half of U.S. shoppers are affected by food allergies and sensitivities.
Plant-based protein, another segment that speaks to health and wellness messaging, saw a 9% increase in retail sales, per IRI. The category has witnessed a wave of innovation during the past year and is ramping up in 2021 as new protein forms, partnerships and efforts to reach price parity with animal-based protein continue.
IRI also sees greater opportunity for products that address societal care in the year ahead — in particular, items that use sustainable, renewable and refillable packaging. Brands have recently put forth products that make a big statement about sustainability. Last summer, Kroger said it plans to make its private label packaging more sustainable by 2030.
The fact that trends such as home cooking, online shopping and self-care will stick around in 2021 reflects the reality of this pandemic, which is easing but also dependent on the rollout of vaccines. For suppliers and retailers, a key challenge in the months ahead will be balancing innovation with remaining sensitive to consumers' current realities.
