Blame it on the consumer for being an enigma

So PepsiCo’s CEO Indra Nooyi is “puzzled” by her younger consumers because they seem “confused”? Consumers “confused”? That’s a bit much. But Ms Nooyi would say that, wouldn’t she, as Millennials obstinately refuse to fall for her marketing spin.

“We’ve never seen the consumer as confused [sic] as they are today,” she said in April 2015, in response to a question from an analyst about PepsiCo’s approach of sorting its products into three buckets: “fun for you,” “better for you” and “good for you.” The categories roughly capture a spectrum ranging from junk food to relatively healthy. “If you’d asked me a few years ago, it was about things like [diet drinks],” Ms Nooyi said. “Now they view real sugar as good for you. They’re willing to go to organics even if they have high sugar, high salt and high fat. It’s a challenge.”

Sorry for criticising Mr Nooyi, but in a market economy, finding your consumer should be a challenge. Hasn’t there long been talk about the consumer being “king”? Kings, as we know from history, have always been capricious and hard to impress. The only alternative to giving consumer choice is producers operating a cushy monopoly, which free marketers consider a boo-boo because it limits, yes exactly, consumer choice.

Perhaps Mr Nooyi’s recent moan comes from the realisation that in the past Fast Moving Consumer Goods (FMCG) companies had it so good. Whatever they flogged to the consumers, they just bought it. Even when they merely added a bit of gold to the label and sold the same stuff for a higher price, consumers still bought it.

In the old days, consumers fell into two categories: gullible yea-sayers and hard-core refusniks. For FMCG companies the choice was easy: why bother throwing good marketing money at the latter if peddling your wares to the former was like selling hot buns?

These days are gone. Today, consumers fall into three broad categories: old-timers (who are the ageing yea-sayers), middle-of-the-road types (who are open to most product suggestions) and Stalinists (who are ideologically opposed to almost everything that smacks of Big Business).

The troubles that consumers represent to big FMCG companies, especially in the U.S. food and beverage industry (F&B), have made Dutch Rabobank publish a report, fetchingly or catchingly entitled “Dude, where’s my consumer?” (June 2015).

Rabobank acknowledges that iconic brands are increasingly out of favour with U.S. consumers, whose preferences and priorities have evolved. Bank analysts predict that unless large F&B brands take bold action, they run the risk of following baby boomers (once their core consumer) into retirement.

How can America’s big brands reconnect with the U.S. consumer?

Rabobank says that repositioning the core brand may help to improve the situation, but also emphasises the need for new brands and products that better respond to the demands of today’s new consumers.

Nick Fereday, Senior Global Consumer Analyst for Rabobank, says, “We propose five key recommendations based around acquisition strategies (i.e., buy, not build) and in-house innovation (i.e., build, not buy).”

The five recommendations are:

1. Say hello, wave goodbye. Although companies are no longer in public denial about the change in consumer trends, many haven’t fully digested the implications: the need for a transformation in corporate culture that welcomes new ideas, brands, and riskier strategies, while also permitting iconic brands to exit stage left.

2. Buy small or pay high. For those companies who have lost their Research & Development (R&D) mojo, Rabobank’s advice is to continue to outsource innovation by buying companies, but at an earlier-than-normal stage in the life cycle, thereby reducing the risk of paying too much.

3. Room to breathe. The big players have learned the hard way not to mess around with their shiny new purchases. To maintain the culture and integrity of these acquisitions, they need to be nurtured, not suffocated.

4. Step up the innovation. Companies who pride themselves on their R&D capabilities need to focus on bolder and more disruptive innovations. Going forward, no more ’innovation-lite’: product reformulations just won’t cut it.

5. If it ain’t broke...This isn’t a total meltdown, and not every brand is in trouble. There are lessons to be learnt from iconic brands that remain irreverently relevant and laugh in the face of today’s health and wellness trends: from Jack Daniel’s, Lunchables, and Oreos, to Twinkies, Domino’s Pizza, and Popeye’s.

Stephen Rannekleiv, spirits and wine analyst for Rabobank, says, “These strategies are not mutually exclusive, and many companies are actively pursuing both ’buy, not build’ and ’build, not buy’ - depending on the need they’re trying to fill, how much time they think they have, their appetite for risk, and the strengths and weaknesses of the company itself. We don’t believe one strategy is preferable over the other. There are multiple drivers behind changing consumer preferences, and it would be naive to assume there is a single solution.”

Ms Nooyi and PepsiCo may still be struggling to come to terms with their fickle consumers but at least they have woken up and smelt the coffee.