Big Food Is Dying

In business after business, the food industry is finding out that millennials’ preferences are different than their parents’ or the previous generation's.

For me, grocery shopping is a terrible experience. You wander around a poorly laid out, fluorescent-lit warehouse searching for the 10 things you really want. Meanwhile, grocery stores waylay you by trying to induce you to buy things you don’t want by making those things easy to find.

No wonder then that customers are increasingly rejecting traditional grocery shopping.

Instead, they are going for new kinds of services, such as meal kit services, prepared food delivery or online grocers that deliver weekly.

Until now, none of these services really had enough of a customer base to truly go mainstream.

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However, there’s one thing that’s happened over the last couple of years that’s a game changer … and it’s going to radically alter the face of the grocery and food shopping business.

Bye-Bye, Blue Chips

That game changer is the increasing dominance of the preferences of the millennial generation.

In business after business, they are finding out that millennials’ values, preferences and habits are different than their parents’ or the previous generation’s.

And this shift is causing companies that had built incredible, blue-chip reputations and businesses to suddenly see their fortunes begin to sink.

The grocery and food industry is one of these industries. Big Food, as I like to call it, is companies such as General Mills, Kellogg’s, Coca-Cola, Campbell Soup, Kraft, etc. These companies built their businesses on the preferences and habits of the baby-boom generation. Baby boomers’ habits and preferences were driven by the emergence of office jobs, suburban homes and two working parents. These habits created a huge need for fast, convenient food and giant supermarkets.

However, the millennial generation has different ideas about food. They still value fast, convenient foods … however, they want their food to be healthy and nutritious too. The millennial generation is also the most educated generation in American history, with 37% having university degrees. Because of this, they keep up with new trends and research on food. In their lifetimes they have seen obesity soar, metabolic diseases such as diabetes surge and food allergies rocket higher.

And while the evidence is thus far inconclusive on exactly why this is happening, millennials are changing their food habits. They are dropping the highly processed food that Big Food specializes in and are choosing fresh, natural foods instead. Many millennials also want their food to be organic because they worry about the overuse of chemical fertilizers and pesticides and the long-term damage they do to the land. Finally, some millennials want their food to be ethically sourced, meaning it’s not harvested through child labor or grown through clear-cutting forests for farming.

Now, many of you may laugh or snicker at all these preferences. Whatever you think, these food preferences are having a major impact on Big Food companies. General Mills, the maker of Cheerios and Betty Crocker, just saw its second consecutive year of negative sales growth. You’ll find the same thing at Kellogg’s, Coca-Cola and most Big Food companies.

Many of you own these companies because they pay dividends. And many people have assumed that the Big Food businesses are bulletproof … that it’s just a matter of time before millennials wise up and begin buying the processed foods that they specialize in. But that’s not going to happen anytime soon.

That’s my belief, and some stock market investors clearly get it … which is why you see General Mills’ stock down about 7% in the last year. Many of the other Big Food stocks have been volatile, swinging from small gains to small losses over the last year. I believe that the Big Food companies and stocks have seen their best days … and they are going to see their businesses deteriorate and then die as the millennial generation’s preferences and spending habits become our economy’s preferences and habits.

That’s why I’d tell you that as tempting as it might seem to buy these companies because of their historical performance … it’s time to sell them and stay away. Instead, look out for new food companies that express millennials’ food choices. These are the kinds of companies I’m putting into Profits Unlimited, where the millennial generation is one of two mega trends that I focus on.

Regards,

Paul Mampilly
Editor, Profits Unlimited