WHITE PAPER. Why the U.S. Canned Tomato Market Requires a Bold Change

Transcription

1 WHITE PAPER Why the U.S. Canned Tomato Market Requires a Bold Change

2 How aseptic carton packaging innovation can successfully help address the challenges facing the shelf-stable tomato market The U.S. canned tomato industry has reliably delivered high quality, shelf-stable tomato products to consumers for decades. Canned tomatoes (e.g. crushed-, diced-, sauce-, whole-paste) are a well-established cooking ingredient in U.S. households. However, in recent years, the market for canned tomato products has faced a number of significant challenges, resulting in declining sales volume and value. Current and expected shifts in consumer attitudes and shopping behaviors will most likely further challenge the market environment of the U.S. canned tomato industry. Tomato brand owners, canned tomato manufacturers and retailers face the critical question of how to address declining sales in a rapidly changing consumer environment. A SEGMENT UNDER PRESSURE Like many other shelf-stable food segments in the grocery store center, the canned tomato segment has been struggling with weak sales performance in recent years. According to AC Nielsen, the segment experienced a 4.2% decline in volume from In addition to declining unit sales, the canned tomato segment sales value has declined by 2.4% from GRAPH 1 U.S. Canned Tomato Segment Sales Development [mio. sales units] GRAPH 2 U.S. Canned Tomato Segment Sales Development [mio. dollars] 1, % 1,364 1, % 1,266 01/ / / /2013 SOURCE: AC Nielsen, 2014, ScanTrack, Total U.S. Canned Tomatoes, Ending 01/23/2010 vs. Ending 01/19/2013 SOURCE: AC Nielsen, 2014, ScanTrack, Total U.S. Canned Tomatoes, Ending 01/23/2010 vs. Ending 01/19/2013 While numerous factors affect sales value of canned tomatoes, it is mainly heavy price promotions (e.g., 10 cans for $10) and the increasing shares of store brands propelling the commoditization of the segment. 1 AC Nielsen, 2014, ScanTrack, U.S. Canned Tomatoes, Ending 01/23/2010 vs. Ending 01/19/ AC Nielsen, 2014, ScanTrack, U.S. Canned Tomatoes, Ending 01/23/2010 vs. Ending 01/19/2013 1

3 The share of private label canned tomatoes reached 43.7% in 2013, which is significantly above the average of private label penetration of 23% unit share of private label in the U.S. grocery retail. 3 Both trends offer a clear indication that consumers increasingly view canned tomatoes as undifferentiated products with little to justify paying premium prices. Only a sub-segment of canned tomato products offering specific attributes such as organic, imported or selected specialty brands are still able to command a premium retail price. GRAPH 3 U.S. Canned Tomato Segment 03/2013 [mio. sales units] Branded 43.7% 56.3% Private Label SOURCE: AC Nielsen, 2014, ScanTrack, Total U.S. Canned Tomatoes, Ending 02/15/2014 The erosion of volume and value in the canned tomatoes segment is an example of emerging changes in the consumer landscape and shopper attitudes toward the store center and shelf-stable canned food products in general. CHANGING CONSUMERS AND LACK OF TRUE INNOVATION The erosion of volume and value in the canned tomatoes segment is an example of emerging changes in the consumer landscape and shopper attitudes toward the store center and shelf-stable canned food products in general. In particular, millennials (consumers born from the early 1980s to the early 2000s), with their growing influence and spending power, will increasingly drive these changes in shopping behavior and product preferences. Millennials already account for 80 million consumers in the U.S., with an annual spending power of roughly $600 billion. By 2020, their spending power will reach $1.4 trillion and represent 30% of total retail sales. 4 According to research conducted by the Hartman group, Millennials predominantly characterize their food and beverage brands and product choices as more healthy, organic, and natural. They also indicate an expectation of higher prices for higher-quality food and beverage experiences (Hartman Group, 2014). 5 Brand owners of other shelf-stable food categories in the store center have successfully engaged in innovation driven by packaging, product concept or usage to retain and attract consumers. For example, the broth segment managed to become a very dynamic category, driven by packaging innovation and usage expansion. In addition, brand owners have heavily engaged in moving their product from store centers to store peripheries in order to cater to changing shopping habits. 3 AC Nielsen, 2014, ScanTrack, Total U.S. Canned Tomatoes, Ending 02/15/ Donnelly C., Scaff R. Who are millenial shoppes? And what do they really want? Available at: com/us-en/outlook/pages/outlook-journal-2013-who-are-millennial-shoppers-what-do-they-really-want-retail.aspx. Accessed April 1, The Hartman Group. Five things you need to know about Millennials Available at: article/463/five-things-you-need-to-know-about-millennials. Accessed April 1,

4 By contrast, the canned tomato category has seen limited innovation. In 2013, 99% of all tomato products were still offered only in metal cans. 6 Additionally, the segment appears to be locked in its traditional center store aisle. A rapidly evolving consumer base is seeking alternative food packaging that meets their perceptions and expectations concerning sustainability, freshness and health. Consumers have seen very limited changes or additions to their choices of canned tomato products or packaging over the years. The major selling points they have been offered are the brand and quality promise, origin of the tomato, style of product (paste, diced, crushed, sauce, whole, etc.) and price promotion. The total sum of innovations in the segment has been flavor variations and the use of on-pack claims. From a consumer perspective, the industry has been struggling to offer additional motivations to increase the purchase, value and consumption of shelf-stable tomato products. CHANGING CONSUMER ATTITUDES TOWARD SUSTAINABILITY AND HEALTH A mega-trend facing the packaged food industry is that consumers are becoming more aware of sustainability and health attributes (e.g., nutrition, product freshness, etc.). In particular, millennials have been driving demand for brands and food products that support their increasingly conscious lifestyle. This trend will fundamentally change how consumers evaluate product and packaging choices. It therefore seems apparent that this rapidly evolving consumer base is seeking alternative food packaging that meets their perceptions and expectations concerning sustainability, freshness and health. It seems that the current standard packaging for tomatoes, the food metal can, will face additional challenges as it will not meet these consumers expectations. CANNED TOMATO INDUSTRY FACES A PIVOTAL MOMENT Considering all factors, it seems that the canned tomato industry faces a pivotal moment. The industry needs to successfully adapt product and packaging portfolios to meet the expectations of an evolving and more demanding consumer base with the goal to expand the usage and value of tomato ingredient products. The risk for the canned tomato industry is that without change, the segment decline will continue. LEVERAGING ASEPTIC CARTON TECHNOLOGY TO LEAD CHANGE IN SHELF-STABLE TOMATOES Aseptic carton packaging technology offers vast opportunities to play an essential role in supporting U.S. tomato brands and manufacturers in innovating and adapting product and packaging offerings. By utilizing the full potential of aseptic carton packaging technology, the tomato industry can offer consumers innovation required to revitalize and create sustainable value in the shelf-stable tomato segment. 6 AC Nielsen, 2014, ScanTrack, Total U.S. Canned Tomatoes, Ending 02/15/2014 3

5 According to AC Nielsen, broth in aseptic carton packaging grew by 14.1% in 2013, thereby growing the broth segment overall by 2.7%, now surpassing the ASEPTIC CARTON REVITALIZED THE U.S. READY-TO-SERVE BROTH SEGMENT Ready-to-serve broth, once only available in metal cans, has become a very dynamic segment during the last decade, driven among other factors by aseptic carton packaging innovation and product usage expansion. According to AC Nielsen, broth in aseptic carton packaging grew by 14.1% in 2013, thereby growing the broth segment overall by 2.7%, now surpassing the metal can as the dominant packaging format. 7 In addition, brand owners have supported the move of some of their product placements from store centers to store peripheries, end-of-aisle displays, etc., in order to cater to changing shopping habits. GRAPH 4 U.S. RTS Broth by packaging type [mio. sales units] metal can as the dominant packaging format % +14.1% -6.7% Carton Can 01/ /2013 SOURCE: AC Nielsen, 2014, ScanTrack, Total U.S. RTS Broth, Ending 02/15/2014 vs. Ending 02/16/2013 A PROVEN TRACK RECORD AS PACKAGING FOR TOMATOES Utilizing aseptic cartons for tomato products is a proven concept. As early as 1985, aseptic cartons made their debut as a packaging vehicle for diced tomatoes and tomato sauce in Italy. Since then, aseptic cartons have gradually expanded market share throughout Europe, capturing key brands such as POMI, KNORR, NESTLE and HEINZ. The market share of cartons in the shelf-stable tomatoes segment in 2013 was already 19%, but cartons are gaining further traction in Europe as retailers adapt cartons to gain retail efficiencies and meet sustainability targets. 8 For example, in 2010, U.K. retailer Sainbury s switched from metal cans to carton packaging for private label canned tomatoes to reduce packaging, leading other European retailers to follow suit. 9 7 AC Nielsen, 2014, ScanTrack, Total U.S. RTS Broth, Ending 02/15/2014 vs. Ending 02/16/ Euromonitor production data, SIG Combibloc Business Intelligence, Harrington R. Sainsbury s switches from tin to carton for tomatoes Available at: Accessed April 1,

6 GENERATING SUSTAINABLE GROWTH, INNOVATION AND VALUE WITH ASEPTIC CARTONS Aseptic carton packaging has enjoyed a sustainable growth in the U.S. food and beverage landscape. Besides the meteoric rise of cartons in the broth segment, cartons have driven growth and gained consumer popularity in plant-based beverages (e.g., soy and almond beverages) and, in recent years, soups. The Perception Research Services study reveals that 64% of consumers prefer cartons as packaging for tomato products. It seems fair to say that carton packaging has gained widespread consumer acceptance as a viable and Part of the success of aseptic cartons in these segments is their perceived positive attributes. Qualitative and quantitative research studies conducted for SIG Combibloc by Psyma Research Group (2010) and Perception Research Services (2014) strongly support this argument. 10 These studies confirmed that consumers perceive: products offered in cartons as fresher and more nutritious than conventional packaging products packaged in cartons as improved product quality cartons as an environmentally friendly packaging choice cartons to have superior handling vs. conventional tomato packaging Moreover, the Perception Research Services study also reveals that 64% of consumers prefer cartons as packaging for tomato products. It seems fair to say that carton packaging has gained widespread consumer acceptance as a viable and trusted food packaging choice in the U.S. GRAPH 5 Consumer Packaging Preference for Shelf-Stable Tomato Products trusted food packaging choice in the U.S. 36% Prefer Aseptic Cartons Prefer Metal Cans 64% SOURCE: Perception Research Services, 2014; 300 respondents (U.S. tomato consumers); study conducted for SIG Combibloc Inc. The study also confirmed that consumers accept the value proposition of tomatoes in cartons. Consumer purchase interest is maintained at a high level even with the expectation of a 20% price premium of tomatoes in carton versus canned counterparts. It is not surprising that trendsetting U.S. retailers such as Whole Foods and Trader Joe s are carrying significantly more food products in cartons, as they cater to a consumer base that values quality, sustainability, and freshness. 10 Qualitative Consumer Research Study performed in 2010 by Psyma Research Group for SIG Combibloc Inc.; Quantitative Consumer Research Study performed in 2014 by Perception Research Services for SIG Combibloc Inc. 5

7 In addition, packaging convenience certainly will play a more important role for millennial and baby boomer consumers alike. With various safe, easy-opening features such as twist caps and perforations, cartons offer brand owners the option to add packaging convenience features that consumers demand. Leveraging the outlined aseptic carton packaging benefits has clearly been successful in the broth segment, driving innovation, growth and value over the last decade. For the U.S. canned tomato industry, this proven approach can support catering to changing consumers, attracting new ones and sustaining a retail pricing trade-up strategy to drive real innovation and sustainable growth and value in the segment. UTILIZE ASEPTIC CARTON TO DRIVE SHELF DIFFERENTIATION There is currently little retail shelf differentiation in canned tomatoes: Consumers face a wall of metal cans. With its differentiating square shape and billboard-print effect, carton packaging can be a stand-out alternative in the canned tomato aisle. In addition, carton packaging can improve retailing and cost efficiencies. Due to their rectangular shape, cartons can save up to 40% shelf space compared to metal cans, which offers room for additional product facings in the same retail space and consequently less re-stocking and handling cost. A TREND IS STARTING CARTON PACKAGING FOR TOMATOES Carton packaging for tomato products was introduced in the U.S. by POMI, a brand of imported Italian tomatoes. POMI has built a loyal consumer base and growing retail penetration. Most recently however, U.S.-based brands such as ConAgra have launched tomato products in carton packaging. The first domestic aseptically produced particulate tomato products (diced, crushed, etc.) were launched in 2013 by premium tomato brands Dei Fratelli and Cento. CONCLUSION The U.S. canned tomato market faces a daunting challenge of declining sales and value. The segment has been landlocked in offering products with limited differentiation and perceived value in one packaging type. In parallel, the evolving U.S. consumer base will further challenge the tomato industry if their changing shopping and consumer habits as well as product and packaging requirements are not fully addressed by the U.S. canned tomato industry. U.S. consumers have an increasingly positive value perception and acceptance of aseptic carton packaging for food products. Aseptic carton packaging has proven to be a vehicle to transform the broth segment, enabling sustainable sales and value growth as well as adding real consumer innovation and benefits. Early innovators in the tomato industry have already leveraged carton packaging solutions for their tomato products. Tomato brand owners, retailers and manufacturers should embrace aseptic carton packaging technology to offer real innovation, address an evolving consumer landscape and drive sustainable growth. 6

8 About SIG Combibloc SIG Combibloc is one of the world s leading system suppliers of carton packaging and filling machines for beverages and food. The company supplies complete systems, including both the packaging materials and the corresponding filling machines. About the Authors Tim Kirchen, Vice President Marketing and Business Development for SIG Combibloc North America Blane Armor, Sr. Director Business Development and Product Applications for SIG Combibloc North America Cliff Panish, Sales Manager Eastern U.S. and Tomato Segment 7