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The Future of FMCG: The Whole Foods Test

09/19/2018

Most large fast-moving consumer goods companies find it difficult, if not impossible, to grow at the rate of the economy. One part of the solution is to premiumize, and/or move to a more organic or sustainable brand portfolio.

We thus constructed the “Whole Foods Test” to see if this is happening. Whole Foods is an upscale U.S. supermarket chain focused on healthy, organic, sustainable (but also indulgent) products. While today it is the territory for higher-income and better-educated consumers, it will be tomorrow’s mainstream.

Arguably, Whole Foods’ assortment shows where the FMCG market is heading, especially in food and beverage.

Why is this a good test? Is Whole Foods not different from the mainstream markets these companies cater to?

It is a good test because it reveals the headwinds that large brands face. Once-iconic brands may carry little meaning in the future. If they did, Whole Foods would be compelled to carry them, otherwise consumers would not come to the stores. Think of the alternative: it could easily have been that consumers would reject Whole Foods because they do not carry the large traditional brands.

We visited Whole Foods in 2016 and again in 2018 in Boston and Chicago to see which of the large1 brands owned by major FMCG companies are carried there. We also cross-checked against their website. Here are our findings:

First, it is a fairly small share of brand portfolios that are carried at Whole Foods. Some of the companies have done well, though.

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In total for the 10 companies: 20 brands are carried, out of 147 possibilities.

Second, there has been progress over the past two years for some companies.

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Third, does it matter? We believe it does: Whole Foods has grown 7% annually over the past 5 years and was recently acquired by Amazon. While still a small part of the potential market, surely the large FMCG companies would like to be part of that growth story because all have had anemic growth, as seen below:

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In sum, the large FMCG companies have a long way to go to position themselves for future growth. The Whole Foods Test shows one aspect of this.

1. The brands that are prominently displayed on the companies’ websites. These are often, but not always, billion-dollar brands.