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CPG Market Research: Kellogg's Looks to RXBARs to Find Cure for Decline

Posted by TrendSource on 12/14/17 10:44 AM

Kellogg’s made a quiet play at continued relevancy last month, purchasing the Chicago Bar Company, makers of the incredibly popular RXBAR, for $600 million. The bars, which boldly advertise their simplicity (only four ingredients!) and their transparency (no BS!), have been a hit among health-conscious millennials both online and in-store.

Protein bars are quite the ascendant category these days, and in addition to illuminating an often under-reported market, Kellogg’s move offers a window into how evolving American tastes and health standards have started to erode into legacy food manufacturers’ bottom lines. In order to quickly catch up to today’s tastes and health standards—said simply, go get some street cred—these manufacturers are acquiring upstarts who have already earned their millennial appeal.

In Today’s Health Food Market, Special K is not Special Enough

Kellogg’s has been growing increasingly concerned about getting stale. As we described last year, the cereal manufacturer opened a concept café to bring new life to its flagging cereal brands, liberating them from breakfast staple-dom, bringing them into snack and dessert territory, and more importantly, into the current moment.

In purchasing RXBARs, Kellogg’s tacitly acknowledges that its own “healthy” lines of products, particularly Special K, are not all that special any longer. Consumers associate them with empty carbohydrates, overly-processed ingredients, and their grandparents’ breakfast table. The move also seemingly acknowledges Kellogg’s failures in a similar venture, its much ballyhooed, and then blundered, purchase of Kashi brands in 2000. The plucky brand allowed Kellogg’s to enter the natural/organic market, but ultimately lost its brand identity in the Battle Creek corporate milieu. 

Of course, that was then and this is now. Among many of today’s consumers, smaller is better, and independent is best, and the past is not without its lessons for RXBAR leadership. Co-founder and Chief Executive Peter Rahal believes the Kashi experience was necessarily instructive, “Kellogg learned some lessons with Kashi. We won’t compromise our values.”

Thus, the company will continue to operate out of Chicago, but will nonetheless enjoy access to Kellogg’s distribution networks, as well as research and development budgets. With plans to push into schools, hospitals, and hotels, RXBAR can find great competitive advantages in its new relationship with Kellogg’s, so long as said relationship doesn’t alter their winning formula by adding in some BS.

With Those Kind of Profit Margins...

For Kellogg’s, nutrition bars make sense. There’s a reason every trip to the 7-11 uncovers a new brand of protein bar—those suckers are profitable.

In an era where grocery margins are razor thin and only getting thinner—welcome, Mr. Bezos—the numbers behind the bars are downright inspiring. According to the Wall-Street Journal, only 25% of cost actually goes to the product’s ingredients and profit margins hover around 40%-50%. A 50% profit margin is insane in nearly every industry, and even more so when compared to typical packaged food profit margins at 20%-30%.

Over the last decade, the average cost of a protein bar has doubled. Category sales online—where devoted gym-goers load up on protein in bulk—have increased 60% in the last year.

Particularly as grocers roll out more and more private label goods to attract price-conscious consumers, such margins, coupled with exponential growth, is energizing news indeed. Throw in the fact that they are shelf-stable, easily shippable, and small and you have a winner, not just for grocers but convenience-store operators as well (heck, even Shark Tank got in on it!).

CPG market research

Protein Bars from Mars?!

Of course, as with any product labeled “healthy”, there are innumerable investigations and think pieces about how nutritious and healthy these bars really are. One, by the Daily Mail, found that some have more saturated fat and sugars than a famed Krispy Kreme glazed donut, illustrating a fact many consumers have quickly come to learn—not all nutrition bars are created equal. They run the gamut from “so healthy it tastes like cardboard” all the way to “this is basically a protein packed sugar stick”

As the differences between dessert and nutrition blur,  it is not without a bit of irony that Mars debuted a new line in the UK: Snickers protein bars. Coming in at 200 calories, with nine grams of sugar and 19 grams of protein (from whey, milk, and soy), they are not actually all that misplaced within the health bar category.

You might ask, how do they swallow the contradictions? Well, it’s not that anybody would mistake the Mars Protein line as the most nutritious choice, it’s just that people want to be responsible, even when being irresponsible. They want to know that their dessert is bad enough for them that it will taste good—but they also want to know that it will do them some good. The thinking goes something like: “Yeah, I might have just scarfed down a carnival of chocolate, nugget, caramel, and peanuts…but I got some wicked protein with my sugar!”

Such bars will be a hit with consumers looking to ‘hack’ their diet by ensuring that even their ‘cheats’ don’t’ really count as cheating. However, with all that sugar, it is sure to be rejected by the gym-rat segment.

Legacy Food Brands Must Simplify or Die

It’s not just Kellogg’s that needs to simplify or die—Campbells recent purchase of Pacific Foods is another fine example of a legacy corporation whose brand connotes artificiality and hyper-industrialization looking to acquire some millennial cache by cleaning up their labels and brand promise.

According to AT Kearney,  this is all against a backdrop of great decline among the 25 largest food and beverage companies, who have lost billions of dollars in market share in recent years. These companies averaged 2% annual sales growth from 2012 to 2016, compared with 6% growth for their smaller, newer, and cleaner rivals.

Of course, the only direction upstarts have to go is up, and market attrition can be expected for legacy brands. But such declines cannot be ignored and so big food manufacturers are turning to the power of the purse, buying out the upstarts eating into their bottom lines.

Yes, this is a familiar dance whose steps most corporate leaders long ago learned—if you can’t beat ‘em, buy ‘em. But this isn’t just about some aggressive work to bring in the competition, it is about getting cooler, younger, and more relevant in the face of the changing face of American dietary trends.  

Thus, Kellogg’s CEO did not mince words in explaining the acquisition, “RXBAR is perfectly positioned to perform well against future food trends.”

What the Market Research Says

How could Kellogg’s have been so sure that a) they needed to get into the protein bar business under a new brand and b) RXBAR was that brand? Market research industry solutions, that’s how.

Of course, we’ll never know what went on behind closed Kellogg’s doors (a Tony the Tiger, Toucan Sam tete-a-tete, no doubt), but we can offer advice for companies looking to move into the protein bar market.

First, there are different types of protein appealing to different market segments. Though it should be obvious, protein is protein bars’ key selling feature. For some, it is a magic eraser that balances out a bar’s sins, for others it is their exclusive purpose. Either way, each of the top five best-selling bars contain the word “protein” somewhere on their label, and a manufacturer's first choice is which source, or sources, to turn to.

Soy is the cheapest and vegan friendly, but among some consumers connotes factory farming and raises concerns about long-term health effects. Whey and dairy are popular among gym-goers as a complete, cost-effective protein but are shunned by the plant-powered among them. Then there are paleo options like eggs and nuts, often preferred protein bar ingredients but costly ones that scare away price-conscious consumers.

Like we said, it’s complicated—and that’s just talking protein. Sweeteners (you will need sweeteners!) are a-whole-nother conversation involving words like caloric load, glycemic index, stevia, monk fruit, and organic cane sugar.

That’s why CPG market research is important. We recommend Consumer Panel Surveys to help guide you, both in development and marketing. As a market research methodology, Panel Surveys provide you the depth and insights of a focus group at a fraction of the cost. Identify the different buyer personas within the market, decide who you are going after, and then let the market research tell you how.

Oh, and whatever market research methodology you turn to, you must make sure it is mobile. Consumers buy and consume protein bars on-the-go. Mobile market research allows for real-time data collection and analysis, capturing perceptions as they are formed, not after the fact.

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Topics: Market Research, Grocery, Retail, Manufacturing, Food, Health Food

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