Tapping into the latest North America F&B Trends 2022

Tapping into the latest North American food and beverage trends

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Contents Market overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Launching a new product in North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Successful market categories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 How to reach retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Plant-based innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6

Meat alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Dairy alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 What’s new in beverages? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Which beverages? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Health vs. indulgence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Sustainable business practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 What’s important to consumers? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Building sustainability into NPD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Key takeaways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

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Market overview The North American food and beverage market is among the most developed in the world, with more than 21,000 new products launched in the past year alone1. It is a dynamic, business friendly region where novel flavours, formats, packaging and products are welcomed, with a regulatory environment that encourages innovation, particularly in the United States2.

The most profitable startups are those that take the time to research the market and find their niche, but that niche must also present a significant market opportunity3. This report will look at the most successful food and beverage categories in North America and how to tap into them.

Among key trends, it will look at the rise and staying power of plant-based products and where they are next headed. Beverages are also in the spotlight as one of the most diverse and fastest-changing categories as consumers look for healthier options – as well as new ways to indulge4.

Sustainability is no longer an added extra for a majority of North American consumers, with 51% saying they would pay more for eco-friendly foods and beverages5. Increasingly, food companies have understood that sustainable supply chains are not only about doing the right thing, but also about ensuring long-term profitability6. This report looks at which claims and aspects of sustainability are most important to consumers, as well as ad2.pdf what companies are doing to embed preview mag 1 08/11/2021 15:30 environmental and social responsibility into their business practices.

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Launching a new product in North America The most important factor for any new product is finding a particular market need and filling it, but according to Nielsen data, for as many as 80-85% of new food or beverage products, this is not enough7.

It suggests three common reasons for innovation failure: neglecting to address a broad consumer need; failing to provide a good product experience; and providing insufficient marketing support.

“Approximately one half of initiatives tested don’t effectively articulate to consumers how they deliver on a broad consumer need,” Nielsen said in a recent report8. “…For a ‘niche’ brand to have a chance of success, it must be incremental to the brand or to the category—ideally both.”

Marketing strategy consultant Lionel Binnie agrees9.

“No-go areas are areas where your product does not have a ‘raison d’être’, it is not significantly different than what already exists,” he said10. “A new product must have a compelling difference – fill a market gap of some kind. Businesses like retailers and wholesalers have no interest in bringing in imitative products.”

Successful market categories That point of differentiation might be about identifying on-trend brand values, such as non-GMO, organic or sustainable, or being a women-owned or ethnic minority-owned business – or it could be “a radically unique product”, Binnie said11, adding that “ideally it would be both”.

According to Innova Market Insights, the top categories as a percentage of food and beverage launches in 2021 were alcoholic beverages, which accounted for 17% of all new products, bakery (10%), sauces and seasonings (9%), and soft drinks, snacks and confectionery, which each accounted for 7% of new launches12.

Top categories as a percentage (%) of new food and beverage launches North America 2017 - 2021 20%

17%

% of product launches

15% 12% 10% 10%

9%

11% 9%

8%

7%

7% 7%

Soft Drinks

Snacks

Confectionery

2017

2021

6%

7%

5%

0% Alcoholic Beverages Source: Innova

Bakery

Sauces & Seasonings

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How to reach retail Not all of these will achieve market success, and Nielsen figures show pre-market testing is more likely to improve sales than trying to experiment with a product after its launch. Its research suggests the difference between a strong and a weak experience of a product post-launch can result in a sales difference of 30% in its first year, a difference that could be avoided with better pre-market testing13.

“This can be something informal such as selling it at a street fair or farmer’s market,” according to Binnie14. “Or it could be on consignment in a local retailer. And ideally, you, the founder and product creator, or others close to the origin of the product, should be actually meeting and greeting customers, and seeing their reaction to it, in-person.”

Trade shows, seeking media coverage, and selling online via the company’s own website are other low-cost, low-risk ways to ascertain consumer interest15. Following pre-market testing, he suggests in-store testing, before finally rolling the product out with the help of a market professional, such as a broker or sales and marketing agency16.

When it comes to ensuring a new product meets regulatory requirements, Binnie said the process is relatively straightforward in the United States, but the Canadian system entails much more regulation and red tape, particularly for ingredients and on-pack claims17.

“Make sure you follow food safety protocols and make sure the labelling is all proper, but you can easily find out what you need to do online, or with help from a broker,” he said18.

Tapping into the latest North American food and beverage trends | 5

Plant-based innovation Meat alternatives Impossible Foods and Beyond Meat are now established brands, but the meat alternatives category has expanded beyond specialist players and has entered the mainstream. Major food manufacturers have launched their own plant-based brands, including Hormel19, Kellogg20, Kraf21 and Tyson22.

According to The Good Food Institute (GFI), plant-based meat retail sales grew from under $1bn in 2019 to $4.2bn in 202023.

Figures from the Innova database show the number of new meat alternative products launched in North America more than tripled in the five years from 2017 to 2021, to reach 321 last year. Burgers, meatballs and ground meat alternatives made up the largest proportion of new products, and were the fastest growing sub-category with 43% growth over the five-year period24. However, ingredients and formats are expanding beyond soy- and wheat-based burger alternatives.

Poultry substitutes now make up 6% of the North American market for meat and dairy alternatives, for instance25. Meati Foods is one US-based company making poultry-like products, with cutlets and breaded cutlets made from mycelium26, and a number of other meat alternatives is under development. Meati is also among those targeting whole muscle cuts with a classic steak alternative on the horizon, and Japanese company Next Meats recently debuted its plant-based skirt steak and short rib in California27.

Seafood alternatives are becoming more diverse, too, and plant-based tuna, salmon, caviar, scallops, squid, crab and shrimp have already entered the market. The most common ingredients in these products are soy, seaweed, yeast, legumes and various vegetable oils and starches28, but as companies – and consumers – increasingly seek a healthy nutritional profile in plant-based alternatives, a range of other ingredients is coming to the fore. Good Catch, for instance, uses a blend of peas, chickpeas, lentils, soy, fava beans and navy beans, plus algae oil, to make tuna and salmon alternatives, and it recently introduced whole plant-based fish fillets and crab cakes29. GTFO It’s Vegan is another US-based firm in the vegan seafood space, and makes plant-based sashimi from konjac, tapioca starch and glucose from seaweed30.

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Dairy alternatives Similar to the meat alternatives sector, mainstream companies also are investing heavily in plant-based dairy, especially as big names in traditional dairy, such as Nestlé31, Danone32 and Fonterra33, have diversified into the category.

Some of the fastest-growing categories in the North American food and beverage market as a whole are in dairy alternatives, according to Innova Market Insights34. Its data show plantbased non-dairy drinks remain the largest and most innovative subcategory, accounting for 28% of all newly launched meat and dairy alternatives over the past five years. However, launches of non-dairy cheese products grew 79% over the period, while non-dairy ice cream and frozen yoghurt innovation was up 49%.

The Plant-Based Foods Association says this rise can be attributed to growing interest from flexitarian consumers, as 62% of US households now buy plant-based products35.

“The success of plant-based milk has laid the groundwork for major growth in other plant-based dairy products, which reached $2.1 billion in total sales in 2021,” it said36. “Categories like ready-to-drink beverages, and plant-based creamers—which now has a 9% share of all creamers sold— experienced rapid growth as plant-based milk consumers increasingly entered these adjacent categories.”

As for ingredients, almond-based products account for 59% of the total milk alternatives category, according to SPINS, with oat milk in second place, having grown more than 44 times in the three years from 2018 to 2021, to make up 17% of category sales, up from just 0.5% in 201837.

Blending plant sources is another emerging trend. In the United States, Califia has launched a blended product with oat, sunflower seed and pea to match the protein value of dairy milk, as consumers increasingly focus on both taste and nutrition38. According to Jamie Rice, director of global data and insights at Food Trending, oat-based products similarly benefit not only from their dairy-like mouthfeel, but also from an association with the cholesterol-lowering effects of oats – even if oat-based dairy alternatives do not necessarily have the same effect39.

Meanwhile, as most companies in the plant-based dairy sector have chosen to categorise their products by their main ingredient – oat milk or coconut yoghurt, for example – Danone has decided to leverage the reputation of its brands instead. In its first half 2021 earnings call, the company’s North America CEO Shane Grant announced the development of a ‘plant-based 2.0’ platform for its soy, oat and almond products, such as Silk NextMilk and So Delicious Wondermilk, using ‘dairy-like technology’ for improved taste and texture40.

He added that plant-based yoghurt, ice cream, cheese and creamers represented about a third of the company’s plant-based revenues, and were among the fastest growing.

“They have emerging scale and, in some segments, similar or larger addressable markets versus milk,” Grant said41.

Tapping into the latest North American food and beverage trends | 7

What’s new in beverages?

Which beverages?

Beverages have long been an innovative sector for the food and beverage industry, but recently alcoholic beverages have seen a particularly strong rise in NPD activity.

New product launches in alcohol accounted for 17% of all food and beverage launches in the region in 2021 – up from 9% in 2017 and outpacing all other categories.

According to Lu Ann Williams, co-founder and global insights director at Innova Market Insights42, “Within the alcoholic beverages, the industry is innovating outside the established categories, seeking to stand out, often by adding a twist, to catch the interest of consumers looking for something new.”

Hard seltzers are the fastest growing sub-category, with the number of new products up 123% in 2021 compared to five years earlier. Based on carbonated water, alcohol and often fruit flavourings, these drinks tend to be relatively low in calories and usually contain about 5% alcohol by volume (ABV).

“The industry recognizes that younger consumers are looking for low-alcohol or non-alcoholic drinks,” Williams said43. “Flavored alcoholic beverages and the low-alcoholic hard seltzers have seen strongly growing new product launches in recent years in the face of rising interest in lighter and more convenient pre-mixed alcoholic beverages.”

Other innovative alcoholic beverage categories include flavoured alcoholic beverages, for which the number of new products was up 42% in 2021 compared to 2017; tequila (up 22%); and cider (up 21%).

Health versus indulgence Among soft drinks, the energy drinks sector boasts the fastest growth rate for new product launches over the five-year period, up 23% 44.

“Due to the increasing working and health demands, people want to gain more from their beverage experiences,” said Williams45. “A bright future lies ahead for drinks targeting active health platforms. One topic on the watch list of many consumers is food and beverages targeted at increasing energy levels.”

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Other health platforms also include fermented and fortified soft drinks with enhanced nutritional values, functional beverages with nootropics for cognitive benefits, and sugar-free or reduced sugar beverages46.

Innova has seen a particularly strong uptick in the number of sugar-free beverages among North American launches, with sugar-free claims featuring on 7% of new beverage products in 2021 compared to 3% in 201747.

Beyond the desire for healthier beverages, some soft drink launches are based purely on consumer demand for fun and celebration. More than one in three North American consumers said they wanted to see “more technological collaborations to create indulgent flavours, texture and/or format combinations”, and the same proportion said they wanted to try out new products, but only if they were familiar with the brand48.

Companies have responded with products that Innova calls “exciting and wacky”, such as Cup Noodle sodas in flavours like original, curry, seafood and chili tomato49, and Nestlé Coffee Mate creamer in Rice Krispies Treats flavour50. Harpoon Brewery also teamed with Dunkin’ Donuts to create several coffee- and donut-inspired beers, such as Harpoon Dunkin’ Blueberry Matcha IPA and Maple Crème Blonde Ale51.

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Sustainable business practices Sustainable production is no longer an optional extra for North American food and beverage companies, as consumers increasingly seek eco-friendly products, according to a recent survey from the IBM Institute for Business Value (IBV)52. It found in 2021 that more than half of consumers (51%) said they were willing to pay more for sustainable products or brands – and 49% said they actually did pay more, with an average premium of 59% for products branded as environmentally sustainable or socially responsible53.

What’s important to consumers?

According to Innova Market Insights, the health of the planet is the top concern for consumers globally, and 69% said honesty and transparency about ingredient sourcing was very or extremely important to them54. In line with this, Innova data show carbon emissions labelling has increased 93% on new food and beverage products from 2020 to 2021. Upcycling is also on the rise, with claims related to food waste and upcycling up 62% globally from 2017 to 2021.

Transparency and honesty about production and ingredients goes beyond on-pack label claims, too, as more brands seek to communicate with consumers about their values and sustainability efforts through advertising campaigns and customer hotlines. In 2020, 85% of global consumers said product information was of major importance to them, according to Innova55.

In the US, two in five consumers (38%) said they aimed to always choose the sustainable option when choosing foods and beverages, but what this means varies among individuals56. According to Innova survey data, 30% of US consumers said they had minimised food waste as a way to be more environmentally responsible over the past year, while 24% had eaten or shopped in moderation, 24% had chosen locally grown produce, and 19% had chosen products with less packaging or more environmentally friendly packaging57.

Although environmental issues are important to consumers generally, researchers still find that taste, price, appearance, brand familiarity and habits remain the dominant reasons for food purchases58.

Sustainability labelling on foods is most commonly associated with certification seals, such as USDA Organic and Fair Trade, according to a recent article published in The Lancet59 . The researchers, led by public health nutritionist Dr Kerry Ann Brown, noted the more recent emergence of labels for carbon footprint or climate change impact as a way to estimate a product’s effect on one or more environmental factors.

Indeed, Innova found on-pack communication of carbon emissions was up 116% in North America in 2021 compared to the previous year60.

“Research suggests that there is a demand for these different types of sustainability labels; yet, it is uncertain whether these labels will affect people's everyday selections and purchases of food,” the article’s authors wrote61. “…A major challenge with sustainability labelling of food products is the complexity of the sustainability concept itself, as well as the food system within which it operates.”

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Building sustainability into NPD Despite this complexity, nearly all major North American food manufacturers have implemented a sustainability strategy. Many are members of the Roundtable on Sustainable Palm Oil (RSPO), for instance, which aims to develop global standards for sustainable palm oil and its certification, and its logo appears on a wide range of products62.

Its members include some of the biggest US and multinational food and beverage brands, such as Kellogg, Coca-Cola and Kraft Heinz63. Others have their own standards for particular ingredients, such as Mondelēz International, which says it aims to develop a fully sustainable supply chain for cocoa through its Cocoa Life programme64.

For all companies, no matter their size, it is likely to be easier to build sustainability into the new product development process, rather than attempt to change or offset the environmental impact of an existing product, according to João Brites, director of growth and innovation at HowGood, an online platform that measures how thousands of different factors affect a product’s sustainability score65.

“About 80% of a product’s sustainability impact is determined at the design stage, and that is typically where we have the least information and data about social and environmental impact,” Brites said, speaking at Fi Europe 202166. “It’s really complicated to design a product with impact in mind if at that critical juncture you don’t have access to that data.”

HowGood’s approach has gained attention from some big food and beverage companies, including Danone North America, which provides access to the platform to its product developers67.

According to Danone’s global director of open innovation and circular economy for food, Merijn Dols,

“Every time we purchase a product, we have an opportunity to vote for the world that we want. However, we have to enable the consumer to do so.68”

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Tapping into the latest North American food and beverage trends | 11

Key takeaways • The vast majority of new food and beverage products fail, with about half of those poorly expressing how they fulfil a broad consumer need • Successful startups will bring a truly novel product that also reflects important consumer values in its production and marketing • Pre-market testing is crucial to improve sales in the first year post-launch • New product launches in meat alternatives more than tripled from 2017 to 2021, and most activity remains in alternatives to ground beef, burgers and meatballs • Plant-based products that mimic whole muscle cuts and seafood still represent a small share of the market but are rising fast • Dairy alternatives adjacent to plant milks, such as creamers, yoghurts and cheeses, look set for rapid growth • New launches in alcoholic beverages outpaced innovation in all other food and beverage categories in 2021 • The main purchase drivers for soft drinks were health, fun, celebration and indulgence • The health of the planet is a top concern for consumers globally, with two in five Americans considering sustainability when buying food and drink • About 80% of a product’s social and environmental impact is determined at the design stage

The information provided here was compiled with due care and up to date to the best of our knowledge on publication.

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Sources Mintel, Global New Products Database https://www.mdpi.com/2673-4060/3/1/2/htm 3 https://www.nielsen.com/wp-content/uploads/sites/3/2019/04/ setting-the-record-straight-common-causes-of-innovation-failure-1.pdf 4 https://www.ers.usda.gov/topics/food-markets-prices/processing-marketing/new-products.aspx 5 https://newsroom.ibm.com/2022-04-13-IBM-Global-ConsumerStudy-Sustainability-Actions-Can-Speak-Louder-Than-Intent 6 https://www.fao.org/3/ca2079en/CA2079EN.pdf 7 https://www.nielsen.com/wp-content/uploads/sites/3/2019/04/ setting-the-record-straight-common-causes-of-innovation-failure-1.pdf 8 https://www.nielsen.com/wp-content/uploads/sites/3/2019/04/ setting-the-record-straight-common-causes-of-innovation-failure-1.pdf 9 Lionel Binnie, Founder & CEO M Source Ideas 10 Lionel Binnie, Founder & CEO M Source Ideas, via email May 24 2022 11 Lionel Binnie, via telephone interview, May 25 2022 12 Innova database 13 https://www.nielsen.com/wp-content/uploads/ sites/3/2019/04/setting-the-record-straight-common-causes-ofinnovation-failure-1.pdf 14 https://msourceideas.com/3-key-stages-of-launching-a-foodproduct-business/ 15 Lionel Binnie, Founder & CEO M Source Ideas, via email May 24 2022 16 https://msourceideas.com/3-key-stages-of-launching-a-foodproduct-business/ 17 Lionel Binnie, via telephone interview, May 25 2022 18 Lionel Binnie, via telephone interview, May 25 2022 19 https://www.hormelfoods.com/newsroom/in-the-news/hormelfoods-takes-another-big-step-in-plant-based-meat-alternatives/ 20 https://www.kelloggs.com/en_US/plant-based-protein.html 21 https://news.kraftheinzcompany.com/press-releases-details/2022/Not-Your-Average-Joint-Venture-Kraft-Heinz-andTheNotCompany-Create-Partnership-to-Accelerate-AI-DrivenPlant-Based-Innovation-Globally/default.aspx 22 https://www.tysonfoods.com/news/news-releases/2021/5/ raised-rootedtm-brand-launches-new-products-bringingdelicious-plant 23 https://gfi.org/wp-content/uploads/2021/05/COR-SOTIR-Plantbased-meat-eggs-and-dairy-2021-0504.pdf 24 Innova database 25 Innova database 26 https://meati.com/ 27 https://www.nextmeats.co.jp/en-US/company 28 https://friendofthesea.org/sustainable-standards-and-certifications/plant-based-seafood/ 29 https://goodcatchfoods.com/ 20 https://gtfoitsvegan.com/ 31 https://www.nestle.com/aboutus/research-development/ news/expanding-portfolio-vegan-plant-based-lactose-freedairy-alternatives 32 https://www.danone.com/brands/dairy-plant-based-products.html 1 2

https://theveganreview.com/oat-milk-otis-new-zealand-firstplant-based-milk-factory/ 34 Innova database 35 https://www.plantbasedfoods.org/2021-plant-based-retailsale-data-release/ 36 https://www.plantbasedfoods.org/2021-plant-based-retailsale-data-release/ 37 https://www.spins.com/spins-plant-based-retail-sales-outpacing-total-retail-sales/ 38 https://www.califiafarms.com/products/original-protein-oat 39 Jamie Rice, Director of Food Trends and Insight, Food Trending, presentation at Fi Connect 2021, ‘From zero to hero, the rise of plant-based dairy and ice-cream’ 40 https://seekingalpha.com/article/4442663-danone-s-danoyceo-veronique-penchienati-bosetta-on-q2-2021-results-earnings-call-transcript 41 https://seekingalpha.com/article/4442663-danone-s-danoyceo-veronique-penchienati-bosetta-on-q2-2021-results-earnings-call-transcript 42 Via email May 24 2022 43 Via email May 24 2022 44 Innova database 45 Via email May 24 2022 46 https://www.futurebridge.com/blog/healthy-drinks-approaches-by-active-players-to-enhance-nutrition-proposition/ 47 Innova Market Insights 48 Innova Database, Innova Trends Survey 2021 (average of US and Canada) 49 https://www.spoon-tamago.com/2021/09/14/cup-noodle50-anniversary-soda/ 50 https://www.goodnes.com/coffeemate/products/rice-krispiestreats-liquid-coffee-creamer-32-oz-bottle/ 51 https://news.dunkindonuts.com/news/harpoon-dunkin-newbeers 52 https://www.ibm.com/thought-leadership/institute-businessvalue/report/2022-sustainability-consumer-research# 53 https://www.ibm.com/thought-leadership/institute-businessvalue/report/2022-sustainability-consumer-research# 54 Innova Market Insights, Innova Trends Survey 2021 55 Innova Market Insights, Innova Nutrition & Health Survey 2020 56 Innova Lifestyle & Attitudes Survey 2021 57 Innova Lifestyle & Attitudes Survey 2021 58 https://www.thelancet.com/journals/lanplh/article/PIIS25425196(20)30074-7/fulltext 59 https://www.thelancet.com/journals/lanplh/article/PIIS25425196(20)30074-7/fulltext 60 Innova Market Insights 61 https://www.thelancet.com/journals/lanplh/article/PIIS25425196(20)30074-7/fulltext 62 https://rspo.org/ 63 https://rspo.org/members/all 64 https://www.cocoalife.org/ 65 https://howgood.com/ 66 https://insights.figlobal.com/fi-europe-2021 67 https://www.prnewswire.com/news-releases/howgood-announces-6-million-in-funding-301232671.html 68 https://insights.figlobal.com/sustainability/how-build-sustainability-npd 33

Tapping into the latest North American food and beverage trends | 13

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Snacking the modern way An overview of EU and US trends | 14