Yesterday, FoodNavigator-USA.com reported on a new analysis from Packaged Facts, which estimated that the US market for premium foods and drinks would be worth $87bn within the next five years, with a compound annual growth rate of 5 percent. Click here to read that article.
Another new report, published last month by Business Insights, looks at recent and current successful premiumization strategies with the goal of identifying how premiumization can be successful even when threatened by less disposable income and changing consumer expectations.
“Recently, it has become increasingly difficult for manufacturers to carve out distinctive premium positionings as the markets have become more crowded, and many, but not all, premium products have been affected by the economic downturn,” writes Business Insights.
Drivers to premium
The single most important factor underscoring the development of premiumization has been the steady rise in disposable incomes, firstly in western countries but more recently also in the BRIC (Brazil, Russia, India and China) and other developing countries, notes the analyst.
“In ten years' time, the proportion of the global middle classes living in the traditional western markets of North America and Europe will have fallen from over half in 2009 to less than one-third, as the proportion living in Asia Pacific increases to 54 percent and onto 66 percent by 2030.”
In addition, the trend towards later marriage and child-bearing is also a major factor driving the market, as it results in more disposable income in one household.
Why buy premium?
According to the report, motivations for buying premium products vary by category and ‘tier’ (e.g. ‘super premium’ or ‘affordable premium’).
If consumers can afford to pay more for a brand, they will do so on two main accounts: if they believe the extra expense is justified by being either “experientially” or “emotionally” pleasing.
Whereas status was also once a motivation for going premium, in western markets it is now more likely to be prompted by connoisseurship and exclusivity based on scarcity.
“Motivations relating to the intrinsic product have similarly evolved firstly from a desire to achieve a different or richer product, through concerns about ensuring high quality (safe, additive free) food in response to concerns about food production standards and now to encompass motivations relating to ethical standards and the inclusion of ‘super ingredients’ with specific nutritional benefits,” writes Business Insight.
How to get there
The first rule of successful premiumization is that at least some degree of product superiority exists, says the report.
“In general, the degree of superiority will be directly related to the tier of premium in which the product seeks to be positioned; hence ‘super premium’ will constitute higher specification products than the ‘affordable premium’ (masstige) products.”
The most common and enduring premiumization strategy is to use “overtly, demonstrably premium” ingredients, says Business Insights. This “is arguably the quickest route to a premium product”.
The analyst notes that simply offering ‘more of’ or ‘better’ is “not a very defensible” strategy, as this can easily be copied by private label or surpassed by other products.
“More sophisticated and individualized approaches, using a bundle of premium cues are better able to command a premium and be more defensible.”
The report also cautions that as markets mature, certain claims that were initially associated with premium status change to become a condition of entry to the market – a baseline requirement for claiming premium over which further claims are required if the product is to be successful.