After decades of rising sales and high popularity, makers and sellers of processed food are under pressure. Stringent regulations, negative media campaigns, declining popularity, shrinking margins and consolidation are the trending words in the food processing industry.
What’s the way out for Big Food companies?
- Consolidation and cost-cutting: The situation in Big Food sector is similar to that of tobacco industry where consolidation and cost-cutting was the only way-out to keep profits up. If the decline in processed foods’ popularity continues, two further strategies—consolidation and cost cutting—will become more prevalent.
- Example: In 2015, Berkshire and 3G backed Heinz in its roughly $45b merger with Kraft Foods, created the third-largest North American food company.
- Emulate lean startups: Big companies face a common issue: sunk-cost fallacy. As per sunk-cost fallacy, companies continue to invest more time and money into the existing projects because they have already invested a lot of time and money into that project. This situation is similar to the case of Family farms, who are going out of business for decades, but new ones are being founded, promising organic, locally grown produce.
- Example: Chobani, a maker of Greekstyle yogurt started in 2005, has reached to a sales of around $1.5b by 2018, as per forbes estimates.