3 Reasons Dry Mixes Are the Future of CPG Food
As supply chains broke down recently, many of us who run CPG food companies learned first-hand how problems with just a single ingredient can stop the production of an entire product. Although the pandemic feels over — just go for a walk around Austin or Las Vegas — supply-chain issues have not gone away. In fact, fears of inflation are bringing about new worries and challenges.
In our product-development strategy for Yumwoof Natural Pet Food, we have been taking inflation and future supply-chain breakdowns very seriously. The more complex a product is to make, or the more ingredients it has, the more your brand opens itself up to additional production issues that can halt its sales.
Here are three important factors to keep in mind.
1. Affordable products with pricing power will survive inflation
Companies with expensive, low-margin products will get pinched once inflation begins to hit. Today's market of affluent buyers will shrink, and middle-income customers will search for lower-cost alternatives to their favorite products to maintain a budget.
I like to call this the Costco outcome. Inflation will cause the majority of consumers to cut back on expenses and stretch their dollars as far as they can. Furthermore, seeing the prices of favorite products increase will be difficult to contemplate at the beginning. As packaged food prices go up, consumers will try hard to change their habits and stay within their existing budget.
Manufactured foods are at a disadvantage here, such as those that are extruded. As commodity prices go up in an inflationary market, these products will get hit by higher ingredient costs. Brands selling premium products may not have an easy time passing these costs onto stressed consumers.
Dry mixes have an advantage here, as I believe ingredient price inflation will be more easily passed onto consumers. They tend to be more affordable products to begin with, which makes it easier for consumers to accept price increases in nominal terms. They also tend to have a higher profit margin that can act as a cushion.
2. Fewer ingredients and backup sources are needed for supply-chain breakdowns
Packaged foods aren’t the most agile products in the world. Once a food formulation is completed, a repeatable recipe and manufacturing process is used over and over again. The ingredients of complex foods that must maintain a desired texture, flavor or appearance cannot be easily changed.
To give you an example, our dog food company’s Perfect Kibble just went through a five-month product cycle to create a v2 recipe. It was immensely challenging to maintain the fresh look of our food while making other substantial improvements. Luckily, we keep our ingredient list relatively short.
I would not want to manufacture a food with over 20 ingredients in the coming economic environment. All it takes is for one ingredient in the supply chain to break down, especially one that is not produced locally, and a food's entire production can be stopped. Looking into the future, I believe foreign ingredients will be the demise of many conglomerates if military conflict were to occur in Asia, as many shipping routes would be cut off completely.
Dry mixes have a clear advantage here: They don’t need to look pretty, and their ingredients can be more easily swapped out. For instance, it’s easier to replace ingredients when you’re not trying to keep an extruded bar physically bound together. For this reason, protein bars are at the top of my “risky products” list.
3. Dry mixes are part of the clean-ingredient trend
The more I review ingredient spec sheets, I learn how hidden sub-ingredients are secretly inside the packaged foods we love — without any requirement to be disclosed on the label. That’s right, the keto pre-packaged snack you eat may actually have maltodextrin or a variety of other hidden ingredients in it.
As more health-conscious consumers become aware of this, I believe there will be a further shift towards making homemade food convenient using dry mixes. Many of us are already cooking at home more often because of our work-from-home lifestyle. This trend will extend, and this product category provides the perfect balance of health and ease.
Even better, dry mixes are a perfect solution for ensuring hidden ingredients don't make into your food. Dehydrated ingredients tend to be very clean and free of unwanted additives. That's why my company is making a big push into dry mixes right now too.
A new trend is emerging in CPG that investors and entrepreneurs should be aware of and pursue. Dry mix products are the future, and they will enjoy growing shelf space in both brick-and-mortar and online retail.