Food industry growth sectors - overview
- Premiumisation supports growth by increasing value despite limited volume expansion
- Convenience formats benefit from busier lifestyles and changing consumption habits
- Health, wellness and functionality provide stronger reasons for consumer purchases
- Proprietary technology attracts investment through defensible margins and resilience benefits
- Companies favour categories offering pricing power, differentiation and consumer loyalty
Big Food is changing. New sectors are flourishing, while many traditional food segments are seeing declining interest.
Traditional sectors – which are often operationally intensive, with low volume growth and strong private label competition – are increasingly seen as unattractive.
The industry is reorienting itself towards sectors, areas and formats where more growth is possible, explains Nandini Roy Choudhury, principal consultant at food and beverage analytics group Future Market Insights.
Which sectors does the food industry consider to have the most growth potential?
Premiumisation
The premiumisation trend has spread into a wide range of sectors, from confectionery to drinks to pet food. It continues to be a major draw for food and beverage companies.
The appeal of premiumisation for these companies is that it creates a “route to growth” even when the expansion of volumes is limited, explains Future Market Insights’ Choudhury. With populations in many developed markets growing slowly or even declining, volume growth is harder to sustain than it once was.
Yet consumers will pay more for less if there is a good reason to.
This reason could be almost anything – artisanal positioning, ethical sourcing, clean-label credentials or just plain quality. What matters is that brands must make the case for why a high price reflects a high value if they want to see growth from smaller volumes.
Because it allows companies to charge more for less, premiumisation can help companies offset cost inflation, says Choudhury. When the costs of labour, logistics and raw materials rise, premium offerings are better able to pass on these price increases to consumers, as they have the justification for such a price at hand.
Today, “most want to pivot into premiumisation“, explains Matthew Barry, global insight manager for packaged food at consumer analytics company Euromonitor. This is due to pressures exerted on the food industry, such as slowing population growth, high food prices and disruptions from AI and GLP-1s.
“The old model does not work anymore, at least not if you are primarily selling to developed markets.“
Convenience
On the flip-side of premiumisation is convenience.
Convenience food attracts investment because it responds to the “structural changes in how people eat”, explains Choudhury. Households are smaller, lifestyles are busier and people are snacking more, all of which is driving demand for quicker food consumption.
The appeal of convenience for food companies is that it allows them to create value without the need to radically change the composition of their products. All they really need to do is change formats.
Such formats include ready-to-eat, ready-to-drink, frozen, single-serve, meal-kit, chilled and on-the-go.
These formats can add value; companies can charge consumers for time-saving, portability, portion-control, and ease of preparation.
The convenience trend also enables companies to delve into a variety of channels, including foodservice, e-commerce, delivery, vending machines and impulse retail.
Nevertheless, for convenience to work well in today’s landscape, it should tap into trends such as affordability, sustainability and health.
Health, wellness and functionality
Health, wellness and functionality are three distinct concepts, but in the food world, they are inextricably linked.
A focus on healthy foods allows manufacturers to move towards “need-based” rather than “discretionary” consumption, explains Choudhury. In an environment where consumers are under pressure from high food prices, this creates a stronger justification for purchase.
Functionality takes this even further, presenting food in a similar way to medicine and turning it into “a solution for a specific occasion or consumer need“. Functional foods have been positioned with a focus on energy, sleep, satiety, hydration, stress support, performance and recovery.
Taste and price alone are often not enough to drive growth in mature food categories. Functionality provides consumers with a clear reason other than these to buy a product. This helps nullify the effect of price comparison; a consumer might find a cheaper version of a product, but they may still choose the more expensive one if it boasts functional benefits.
Wellness can also be a form of premiumisation, appealing to consumers precisely because it does not feel indulgent, explains Euromonitor’s Barry.
“You want products that make people feel like they are investing in themselves, whether that be added protein, fibre, clean label or whatever else the value-add might be. That’s a resilient form of premium demand because it feels not like a splurge but a sensible and maybe even essential thing to spend money on even when the budget is tight.”
Proprietary technology
Proprietary technology gives food companies an advantage for a simple reason – it enables them to do what their competitors cannot.
Such tech can give companies access to novel processing methods, says Choudhury. It can range from fermentation platforms to sugar- and salt-reduction technologies, allowing companies to extend shelf life, improve personalised nutrition capabilities or reformulate plant-based products.
“This area is attractive because it can create defensible margins,” Choudhury explains.
Proprietary tech can also support resilience. Technology-led businesses may be less dependent on a single commodity, and therefore less exposed to commodity volatility. Reformulation tech specifically may enable a business to more quickly change formulations to keep up with consumer tastes.
For investors and strategic buyers, suggests Choudhury, this is a more attractive prospect than scale or distribution alone.
A changing landscape
All in all, food businesses want growth. They are attracted to categories that can help them justify higher prices for smaller volumes, protect them from commodity volatility, compete with private label products and maintain consumer loyalty in a crowded landscape.
Like all businesses, food goes where there is value. And where there is value is changing.
