Natural Selection
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Moving gradually but with the brute force of a tsunami, the natural movement is flowing through every aisle in every store near you, churning up tough questions for every growth-minded consumer-facing business and its innovation efforts. In our newest white paper, we examine this movement and how we believe it will impact businesses globally.
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Natural Selection
- 2. Natural Selection 2 Moving gradually but with the brute force of a tsunami, the natural movement is flowing through every aisle in every store near you, churning up tough questions for every growth-minded consumer-facing business and its innovation efforts.
- 3. Natural Selection 3 By now, the natural movement’s beginnings a few decades ago seem quaint and cute, tucked away in quiet, crunchy natural specialty outlets where the snacks tasted like recycled cardboard, the deodorants left you naturally odiferous, the toothpaste was chalky and the skin creams left you spotty. Initially laughed off by big business as a permanently fringe vestige of the Woodstock generation —a largely symbolic push-back against consumerism and the toxic side-effects of scientific progress — the aspiration for more natural lifestyles has transcended those origins and never looked back. Fast-forward to today and the natural movement is a powerful market-changing force rapidly transforming a host of verticals, categories, and channels that once scoffed at its importance. Natural Origins
- 4. Natural Selection 4 markets. The world’s fastest growing markets for natural personal care, for instance, are Brazil and China, with the latter racking up 24% growth in 2013. That’s a lot of green. With much of this growth coming at the expense of established, less natural products, the movement is opening doors for new winners, denting unresponsive incumbents, reshaping retail, and remaking consumer expectations on the way. It took a while, but big business is now gulping the natural Kool-Aid, for the obvious reason that natural is now worth a fortune. Sales of “natural products” — a loosely defined amalgam of things sitting at the crossroads of simplicity, sustainability, health and wellness, less bad stuff and more of nature’s bounty — are growing at rates that many big companies can only envy, and with a breadth that few saw coming. What began in natural channels has gushed into mainstream grocery, which now accounts for the majority of natural product sales. Surprising though it may be, Costco is surpassing Whole Foods as the biggest purveyor of organic foods in the U.S. From its original beachhead in food, the natural wave has now hit dozens of categories spanning food & beverage, health & beauty, household products and more. And what was initially seen as a mature market phenomenon has proved equally powerful in emerging Natural Growth
- 5. Natural Selection 5 SproutingUp Salesofproductslabelednaturalororganicaresignificantly outperformingthetotalmarket. 8.5% 11.7% 3.6% 6.3% 9.3% Packaged Food YearonYearGrowth%,2014 PersonalCare YearonYearGrowth%,2014 TotalIndustry Organic-LabelOrganic-Label Natural-LabelTotalIndustry
- 6. Natural Selection 6 On the whole, big manufacturers’ responses to the natural movement have been fragmented and patchy. Most players have come late to the movement, and spent the last few years blowing out dandelion-like sprays of disconnected tactical initiatives across multiple fronts. Some are trying to tap in by applying a more natural veneer to largely unchanged products. Others by writing big checks to purge unpronounceable ingredients from their labels, improve the footprint of their processes, packaging and supply chains, or buy up interesting little natural businesses with no clear sightline to scale. For many companies, natural demands a dramatic widening of the innovation aperture, driving innovation downward into supply chains, processes and business models, and upward into defining public stances on a host of category-specific issues relevant to naturalness and sustainability. These changes are overdue and undeniably positive. But they can be painful, slow, and margin dilutive in the near term, with little certainty of payout for businesses built on speed, scale and mass marketing. Facing these dilemmas, many a growth-minded leader is losing sleep (or should be) over which natural bets to double down on. Call it the conundrum of natural selection — the pressure to replace scattered, reactive activities with deliberate, choiceful strategy. To move from shallow, fast-follower product adjustments to bolder bets capable of disrupting the competition and carving big, defensible slices of this growing market. Natural Response
- 7. Natural Selection The root cause of the conundrum is that while many companies have embraced the need to be in the natural game, too few have clarity on what they want out of it. The natural dynamic is an inclusive one, but without clarity on your goals and your right to win, the odds of beating back the Naturalistas — companies purpose-built for the natural game — aren’t what you need them to be. For big companies, changing the odds demands that they answer a host of difficult questions, make hard choices, and find the uniquely winnable battles. To get there, it’s helpful to look beneath the natural veneer at the deep human needs propelling the movement. Natural Motives 7
- 8. TRANS PARENCY authent icity trust Natural Selection 8 Mainstream consumers didn’t just wake up one morning, see the sun beaming off the morning dew and decide natural matters more than it used to. The movement traces to a handful of factors splicing together: greater public consciousness of health & wellness, unprecedented access to information and peer opinions, rising expectations for transparency, and a desire to reconnect to simpler values in stressful, tech-saturated lives. But there’s a less-discussed dynamic in the background that’s responsible for the movement’s new breadth and urgency: the meltdown of mainstream consumers’ faith in institutions they once trusted. Like a row of falling dominoes, big government, big banks, big science, big media, big medicine, and Natural, Uprooted big food have stumbled or outright fallen from grace, leaving consumers wondering whether anyone really has their backs. Evaporating confidence in these institutions has left a vacuum of trust and control that’s spawned compensatory consumer behavior. When you look deeply at the consumers who ignited the natural movement decades ago, many of their underlying motivations weren’t about health and nature, but trust and control. For these early movers, the need to question the merits of every product and ingredient flowing through their lives was a by-product of doubting whether big modern enterprises could be trusted to do the right thing.
- 9. To win in the natural dynamic, these businesses need a different playbook than the one that got them where they are today. And for too many companies, that playbook remains ill defined. The opportunity cost of not figuring it out is soaring. 9 In a way, nature wasn’t just pristine and fresh; it was the last unfettered institution — the only institution that never gets it wrong, never has a hidden agenda, never cuts corners, and, barring the occasional chameleon or stick bug, never pretends to be anything it isn’t. Nature doesn’t dress actors in lab coats, use chemicals to simulate flavors, or use formaldehyde to fend off spoilage. The scary thing for big companies is that trust in all things natural is, for a growing cadre of consumers, trumping the trust that once vested only in famous brands. To an unprecedented degree, upstart natural brands can now arrive at shelf day one with levels of trust and pricing power that once took decades and millions of marketing dollars to cultivate. The consequences of this are huge. Hard-earned brand equity, which has long been big CPG’s greatest barrier to entry, is by degrees being devalued as a source of competitive advantage for businesses trying to grow in the natural tailwind. The same can be said of industrial scale, mass marketing, and mass distribution. Natural, Uprooted Natural Selection
- 10. The path to winning in natural starts with answering a series of mission critical strategic questions. 10Natural Selection
- 11. Natural Selection 11 What does ‘natural’ really mean for my company and categories? In some businesses, it is defined by channel. In others it means ‘alternative to science’. In others it’s about brand positioning, formulation, semiotics or consumer segmentation. Many companies find the word natural to be too narrow and functional, when the opportunity extends beyond ingredients to ethics, esthetics, stories, the dialing down of the bad stuff and dialing up of the good. Without clarity on what you mean by natural, the rest of the questions won’t help you. A logical starting point is to understand what natural really means to your consumers today, and to those you’d like to convert, and work backwards from there. Is it fundamentally about institutional trust, personal lifestyle, social values, health concerns, or some combination of these factors? Saying it’s both a threat to the business and an opportunity to grow into new spaces is comforting and may be somewhat true, but it’s a lazy and unhelpful answer as you try to mobilize your organization. Playing offense and playing defense are very different things, with big implications for strategy, the depth of resources you’re willing to throw at it, the amount of disruption you’re willing to tolerate, and the time horizon in which you’ll measure success. SPOILER ALERT 01 If you’re primarily playing defense, seeing a real risk that the natural wave might wash your core business away, you need to be coming at it with a level of aggression which you wouldn’t need if natural was merely one of many attractive growth opportunities in consideration. Are we treating the natural movement as a threat or an opportunity? What’s the relationship between the natural space and our growth strategy? If you aren’t pulling growth in natural, where else will your growth come from? Is natural your biggest growth priority, one of many to be treated proportionally, or simply a ‘how’ — an undercurrent theme applied within other opportunity spaces?
- 12. Natural Selection 12 In which products and categories are consumers willing to pay more for natural products and experiences? Moving to more natural products typically drives up component costs, brings constraints to procurement, and shortens shelf life. Knowing these cost hits are coming, where should you aim innovation to maximize the likelihood of all those costs passing through to consumers? This is a particularly critical question for big companies and brands whose business models are predicated on leveraging efficiency to hit attractive price points. The right answer to this is a function of the questions before it. SPOILER ALERT 02 If you’re viewing natural as a growth play, you’re more likely to succeed if you’re stepping into new adjacencies, rather than parking cannibalistic natural options alongside your current non-natural offerings. Should we approach the natural space through close-in renovation, further out adjacencies, or bona fide disruption? How can we be sure our natural plays disrupt the market as much as they disrupt our operations, supply chain and cost structure? The point is not to play in natural, but to win there. The problem for late-mover big CPG organizations is they can easily spend a fortune swapping out existing ingredients, packs and processes for more natural ones, only to find the marketplace yawning when the updated offerings arrive. Filling competitive gaps is important. But spending a fortune only to get to parity isn’t good business. Obsess over how to bring transformational new consumer value to the natural space.
- 13. Natural Selection 13 What tradeoffs are we willing to endure to win in natural? For many businesses, entering the natural fray can mean sacrificing sacred cows, be they performance attributes, brand identity, line architecture, price thresholds, or relative perception of legacy products. Getting these tradeoffs into the strategy discussion from day one is critical to avoiding years of expensive development work getting bogged down at the back end, when the tough tradeoff discussions belatedly happen. The natural space is packed with beautiful but tiny businesses. It’s fragmented in a way that big businesses find toxic, and growing more crowded by the day. Most natural success stories start small, build a passionate base, and require cautious cultivation that few big companies have the patience for. This is where the build or buy question is critical. Buying fledgling natural businesses can be a helpful accelerant, circumventing the early stages of proof of concept. But it doesn’t ensure meaningful scale will arrive down the road. This is where strategic decisions around categories and synergies with existing capabilities are critical. As is defining what acceptable scale looks like for the natural businesses that will sit alongside the bigger base business in the P&L. What’s our definition of scale, and cadence to getting there? How do we innovate for the natural movement’s future, rather than its present? One of the biggest traps for late-movers into the natural space is seeing natural as the point, rather than a means to an end. Another is seeing natural as a destination rather than a dynamic. The natural marketplace has undergone multiple evolutions from its early days. Where devout early adopter natural consumers were willing endure big performance tradeoffs, that’s not the case today. Just as the hybrid car only became popular when it could do 70mph, mainstream acceptance of natural only took hold as natural options began to perform, taste, look and feel as good as their less natural counterparts. Ask yourself questions like: ‘am I out to bring new naturalness to performance, or new performance to naturalness?’ Go where natural is heading, rather than where it is today.
- 14. Natural Selection 14 Natural is a very simple idea. Succeeding in it less so. The myriad constraints of natural can be powerful mechanisms to spur breakthrough innovations, challenging us to do more with less, and to find simple, elegant solves for the killer questions that need to be navigated. The companies that tackle these questions head-on, with a bravery and clarity of strategic intent, will be the ones who surf the natural wave, before it washes them away.
- 15. Fahrenheit212isaglobalinnovationstrategyanddesignfirm.Wedefine innovationstrategies,anddevelopnewproducts,services,andexperiences thatcreatesustainable,profitablegrowthforourclients.Overthepastdozen years,we’vepartneredwithsomeoftheworld’sgreatestcompaniestohelp themachievetheirgrowthambitions.To-date,theinnovationswe’vedefined representover$3Billioninestimatednewrevenueforourclients.The pursuitofhealth&wellnessthroughnaturalandsustainableofferingshas beenapillarofourworkfromdayone. Mark Payne President,Founder MPayne@fahrenheit-212.com Eric Turkington SeniorNewBusinessStrategist ETurkington@fahrenheit-212.com Jagatjoti Khalsa HeadofTalent,InnovationDirector JKhalsa@fahrenheit-212.com Get in touch!