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Executive Summary
Human Desires – We all love a snack, a small treat that perks us up or is there to celebrate occasions with friends and family and a reliable partner during a Netflix binge. Snacks meet human needs and wants by fulfilling both psychological and physiological desires.
Snacking Takes Various Forms but for the purposes of this report, we focus on “traditional snacks” like chocolates, chips and cookies.
The industry is worth ~$1 trillion and growing 6.3%+ per year.
High Brand Loyalty, Pricing Power and Limited Private Label Penetration – Globally recognized brands, such as Frito-Lays Lindt and Kellanova typically have stronger pricing power and brand loyalty compared to “private label.” Pricing is often more resilient and results in less volume declines. For example, in 2022, the prices of salty snacks like chips, skyrocketed 20% while volumes decreased a mere 1.9%.
The Next Billion Snackers – Rising incomes in emerging markets are highly correlated with calorie consumption and adoption of premium snacks. 87% of the global population lives on <$15,000 and any increase results in higher food & discretionary spending.
E-Commerce Accelerating the Adoption of Snacking. E-commerce is expanding how shoppers are discovering products, with globally recognized brands as key victors. Industry leaders, such as Mondelez and PepsiCo, continue to invest heavily in online/offline conversions, in various mediums and targeted advertisements via streaming and AI technological insights. These brands also have active social media strategies, that can activate sales online.
“75% of people always make room for snacks in their grocery budget even as prices rise” Dirk Van de Put - CEO of Mondelez
Snacks
What is it? – Snacks are generally any food or drink, eaten in-between meals or as a smaller meal replacement. We snack on everything from chocolates, to candy, chips, cherries and cheese.
Key Focus Categories – Whilst the action of “snacking” can mean different things to different people, the most consumed products are chocolates, chips, cookies, popcorn, candy, cheese, pretzels, nuts and fruit.
Growing Industry – A large and growing industry worth ~$1 trillion, with a compound annual growth rate of 6.3%+ expected to 20302 .
In 2023 the average American consumer spends ~$15 a week on snacks, equating to ~$45,000 over their adult life.
Supportive Tailwinds – We see tailwinds from rising incomes, demographic change, shifting EM and DM eating patterns and an innate physiological desire.
Human Desire
Consumer Tastes and Preferences – We all find happiness in the little things, and we vote daily with our spending. Consumers determine which products and brands succeed, and therefore understanding why consumers act is a critical component of any assessment about the future and potential investment opportunities
The Psychological and Physiological Interconnection – Hedonic hotspots are the pleasure generators of the brain. When you stimulate them, your dopamine levels spike, creating a ‘joyful’ feeling. Dopamine is one of the most powerful chemicals in our mind and can create new connections (neural pathways) that can predict actions or rewards. Habits form and eventually, a pattern of predictable behaviour. Did you know the sound of a can of Coca Cola opening can cause your dopamine levels to spike?
Key Stimuli – Research suggests our brains, over thousands of years, have been hardwired to seek out certain stimuli – such as:
Sugar activates our hedonic hotspots and generates an enhanced liking reaction, encouraging further consumption.
Salt is an evolutionary need and our bodies crave it. It’s been proven there’s enhanced reactions within our brain post salt consumption, leading us to desire more.
Fat is a core part of our diet and is critical to so many aspects of our body, but also our mood.
Many snacks have these elements which meet our needs and wants, and the data and pricing trends are supportive.
Snacking has become habitual – Snacking trends continue to be shaped by these psychological phenomena. In 2022, the prices of salty snacks like chips, skyrocketed 20% while volumes decreased 1.9% .
Snacking is a Way to Connect– Snacks have evolved from just empty calories, into a way of ingraining yourself into a community, expressing yourself and sharing joy. There has been a substantial increase in niche and specialised community groups revolved around a snack
High Quality Snacks boast Strong Brand Loyalty
Physiology – Consumers choose brands and products for various reasons. Product quality, access, reliability, price and feeling. The brands that are globally recognised and household names have managed to combine these factors and more, to convince consumers to purchase through all market cycles. More specifically:
Emotional Connection - ~61% of Consumers will go out of their way to find their favourite snack while ~63% of Consumers (~73% for Millennials) will pay more to consume their favourite childhood brand. This emotional and psychological connection is extremely critical for the success and longevity of a snack.
Academic Research - For staples like eggs and juice, 75% of consumers prefer globally recognised brands citing beliefs in quality, a trusted name and strong branding. Most consumers who chose private labels were more price sensitive and younger
Resilient Pricing throughout economic cycles
Inflationary Pressures – Though currently 61% of consumers say they switch to private labels when budgets are tight, within the United States private bands continue to only derive 13% of the dollar share, highlighting the strength of the established household names (see chart)
Industry leaders have competitive advantages – Many of brand defining categories have enabled leaders to invest in R&D, strengthen intellectual property and invest in distribution. Rising investment in artificial intelligence has been an emerging theme in recent years as companies develop new products based on trending consumer behaviour and interest. For example:
R&D delivers New Products, to fulfil Tastes & Preferences: Companies deliver specific products for different regions, based on their data and consumer behaviour. In APAC, ~30% of Millennials choose “unusual” flavours of snacks .
In Thailand, Halls (owned by Mondelez) blue-soda-flavoured candy captures the flavour of blue soda soft drinks.
Skittles Sweet Heat Candy, a product launched in Australia, which provides a “hot twist” with flavors such as “Scorchin’ Pineapple”, “Fiery Watermelon”, “Sizzlin’ Strawberry”, and “Lemon Spark”.
AI & Food - Pepsi uses lasers to hit chips, listening to the sounds coming off the chip to determine texture, from large data sets . Algorithms process the sound and determine the texture to automate the quality check for Frito-Lay's.
Marketing Spend Reinforces & Drives Consumer Loyalty - Consumers have more faith in familiar and established brands to deliver consistency. According to research, approximately 76% of people believe “bigger brands are better equipped to deliver during challenging times.” Further industry leaders typically gain market share over the medium term, following an economic down turns as their scale, cost of capital and marketing budgets make it challenging for competitors and new entrants .
Pepsi – Spends ~$4 billion annually on marketing while consistently highlighting their products as premium, always available and the preferred product for children. Pepsi’s famous “vending machine ad-campaign,” in 2001 used a combination of emotional and product factors to highlight the superiority of Pepsi products.
The Next Billion Snackers
Emerging Markets Trends - Snacking frequency has risen in-line with increasing household disposable incomes and 24/7 access to products, owing to the explosive growth of online/offline retail.
As incomes rise, consumers increase and diversify their spend. As illustrated in the image, there is a $15k increase in food and discretionary spend, as consumers earn more.
Higher incomes impact consumer activity and lifestyle, which has influenced snacking:
Busier routines lead to shorter food-prep times and fragmented mealtimes.
~61% of EM respondents said they enjoy snacking in-between meals.
24% of consumers (29% of Gen-Z), eat a snack before breakfast up from 19% in 2020 (~30% increase on average).
~60% of Consumers (71% of Millennials and 69% of Gen-Z), believe snacking helps them take their mind off the issues of the world.14
India (42%) and Indonesia (34%) have some of the highest snacking pre- breakfast. This correlates directly with a higher Gen-Z/Millennial Population compared to DM.
Snacking consumption in China is expected to rise to the level of the US and contribute similar levels of growth. (~13% of total growth)
Premium Products in Emerging Markets – Snacks are increasingly part of life in emerging countries and adoption is growing. Most globally recognised brands in emerging countries offer premium products:
55% of households make a meal out of snacks, especially in Asia Pacific (64%).
~70% of consumers (80% of Millennials), believe sharing snacks is their ‘love language’
PepsiCo products are enjoyed by consumers more than one billion times a day in more than 200 countries and territories around the world
India Data – India’s forecast growth is unique and follows the trend of snacks transitioning to a staple. Revenue growth in the industry is outpacing average income growth and may suggest individuals are switching from full meals to smaller, fulfilling snacks.
E-Commerce Driving Snacking into the Future
Discovery Channels Changing – Since COVID-19, shoppers are increasingly discovering snacks through online channels. The internet is filled with a plethora of health and nutritional information that individuals are increasingly utilising.
56% of Consumers (70% Millennials and 65% Gen-Z), are more likely to find new snacks from digital channels than in-person.
Amazon Stronghold - Amazon has captured 23% of the snack category’s online growth, while 65% of this growth has been realized by click-and-collect and delivery vendors.
74% of Consumers (85% Millennials and 82% Gen-Z) have/would research a snack online before buying it.
Global E-Commerce Success from Globally Recognized Brands
Mondelez and Pepsi, amongst others, have effectively been able to utilize e-commerce to meet demand by leveraging targeted advertising.
Mondelez Focus – Mondelez has a market-leading share in segments of the market, and has highlighted that “online drives offline”, and therefore investing in strong digital capabilities is key to revenue growth. Key drivers include investments in paid-search, connected TV advertising and collaborating with food influencers.
Pepsi’s Success - PepsiCo's tech investment roadmap focuses on enhancing e-commerce profitability through a strategic reconsideration of channel and product mix. Ongoing consumer surveys indicate that PepsiCo anticipates 90% of consumers will continue to use digital channels, at least in a hybrid manner, for some of their shopping needs. These are the most valuable consumers, who on average have higher brand loyalty and consumer spending.
Snacking is a critical winner of the shift in how we spend our time and money.
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