Premiumization Strategies in Food and Drinks: Fighting product commoditization through added value product positioning

The premiumization trend has been identified as starting in the 1970s in alcoholic drinks. It moved first into food and drinks that were associated with treating / indulgence and gifts, such as boxed chocolates. Throughout the latter part of the 1980s, the 1990s and into the 21st century, premiumization has continued apace, developing both horizontally, in terms of the number of categories in which it can be observed, and vertically, in terms of the tiers of premiumization that have been created.

It has been an appealing strategy for manufacturers, offering the possibility of avoiding discounting wars and building better profit margins. However recently it has become increasingly hard 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.

This report identifies recent and current successful premiumization strategies and considers the impact that the economic downturn has had on the premium sectors of the food and drinks industry. It demonstrates how premiumization can be achieved and defended against the threats it also describes. It identifies the essential elements of success in premiumization and also looks more broadly to emerging consumer trends to consider where the new post-recession forms of premium may come from.

Key features of this report

• An examination of the factors that have enabled premiumization to grow in developed markets and a consideration of how far these will also hold true for developing markets.
• An analysis of the impact thus far of the recession on premium brands in developed markets and the post-recession prognosis.
• An analysis of premiumization in a mature market; the development of tiers or levels of premium, what happens to premium brands when the whole category shifts premium-ward;
• The main premiumization strategies employed – product based (including health, ingredients etc), distribution, packaging, production-based, with examples from around the globe.
• A model of consumer motivations. Why do people pay more for premium? Identification of intrinsic product-related motives and status-related motives. An exploration of the evolution of each; contrasting the motives of mature developed markets and the developing economies.
• An analysis of the main threats to maintaining a premium position and an identification of the tools and approaches that can make a strategy most defensible.
• Emerging consumer trends and the way in which these could be harnessed and applied in developing new premiumization strategies
• Case studies exploring the different routes manufacturers have successfully taken to carve out a premium position, based on ingredients or packaging, distribution, exclusivity etc.

Key benefits from reading this report

• Understand what it is that motivates consumers to pay a higher price and purchase a premium product and tailor your communication and marketing strategy to those motivations.
• Importantly, learn which are the key emerging consumer trends increasingly being identified as influencing the way consumers now think and shop. Affected by these, the ‘new’ premiumization will look very different from that prior to the recession. Consider the application of this for your own portfolio.
• Benefit from numerous examples of new premium products and the ways in which they meet the consumer motivations described. In particular understand how motivations and the cues, such as packaging and descriptors, vary geographically and by product category, thus enabling you to tailor your communication appropriately in different markets.
• Identify the key threats to maintaining a premium positioning and how to develop a strategy that is most defensive to these threats
• Benefit from case studies which demonstrate how companies of different sizes, in different categories and in different geographies have used a variety of strategies to build sustainable premium brands. Strategies include those based on product specification, specific ingredients, distribution, exclusivity, scarcity, concerned consumerism and packaging.

Key findings of this report

• Women are the driving force behind premiumization as they increasingly not only do the shopping but earn more of the money with which they shop. This, coupled with rising disposable income leads to an increasing comfort with, and desire to ‘trade up’ beyond products that would have previously been purchased.

• The first ‘rule’ of successful premiumization is that at least some degree of product superiority exists. However simply offering ‘more of’ or ‘better’ is not a very defensible strategy, being easily copied by private label or leapfrogged by another product. More sophisticated and individualized approaches are increasingly being offered, using a mix of product, distribution, brand positioning, and relationship strategies.

• The main approach used to establish premium credentials is product specification, and as noted above, these have become increasingly complex. Health claims, particularly ‘clean’ products (containing no…bad ingredients), high end, natural or exclusive ingredients (particularly super fruits) are increasingly evident. In production, both new and sophisticated techniques offering consumer and/or environmental benefits or, conversely, traditional or ‘handmade’ options all feature.

• Consumers motivations for buying premium brands can be divided into intrinsic product or status related reasons. The intrinsic product can be worth more by being experientially (taste, texture etc) or emotionally (treat, reward) pleasing. In western economies status-related motivations have moved on from being dominated by conspicuous consumption of the most expensive or luxurious. Whilst those motivations are still important, and indeed dominate in developing markets, connoisseurship, and exclusivity based on scarcity have become increasingly important.

• Post-recession, new consumer trends point to the increasing importance of provenance in premiumization, also of being local and trustworthy. Concerned consumerism means strategies which enable consumers to be display altruism and environmental concern will flourish. Scarcity or exclusivity is a key driver of premiumization which can be realised through distribution or production techniques as demonstrated by the success of members clubs with their customised high-end products and personal delivery.

Key questions answered by this report

• How has premiumization developed in mature consumer markets to date?
• What are the differences and similarities between developed markets and the developing countries in terms of premiumization ?
• What impact is the recession likely to have on premiumization in the next few years?
• What are the strategies that manufacturers use to support a premium positioning?
• Are all premiumization strategies based on intrinsic product superiority? What is the role of other aspects of the marketing mix such as distribution, packaging and advertising?
• What are the main threats facing a manufacturer as he tries to maintain a premium positioning for his brand?
• What tactics provide the best defence against an erosion of premium positioning?
• Why do consumers pay more than they have to and buy a premium brand? What motivates them? Have those motivations changed over time?
• What cues do premium products use to indicate to consumers that they are premium and worthy of their higher price point? How do these vary by category and geography?
• What broader consumer trends can we identify that can be adopted profitably by manufacturers to create premiumization?
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Table of Contents
About the author 2
Disclaimer 2
Executive summary 11
Introduction 11
Major trends in premiumization 12
Defining premiumization 13
Premiumization and consumer needs 14
Emerging consumer trends and their application in premiumization 15
Building a successful premiumization strategy 16
Chapter 1 Introduction 17
Summary 17
Introduction 18
Defining premiumization 18
What constitutes premium? 19
Tiered premiumization 20
Scope and structure of this report 23
Definition of ‘premium’ 23
Report overview 23
Chapter 2 Major trends in premiumization 24
Summary 24
Introduction 25
A brief history 25
Drivers behind the development of premiumization 26
Economic and social factors 26
Rise in disposable income 26
Development of the middle class 28
Increase in smaller households 30
Later marriage and later, or smaller, families 32
The increasing proportion of women in the labor force 32
Drivers by stage of premiumization 34
Early stage 34
Expansion 34
The role of manufacturers and retailers 34
Consumer drivers in the expansion of premiumization 35
Maturation 36
The development of masstige 36
Case Study of a Mature market: The UK crisps category 38
What distinguishes tiers in the current crisp market? 39
Masstige or premium? 40
Implications for premiumization in a mature market 41
The impact of recession 43
Consumers have sought to save money in their shopping basket 43
Non grocery purchasing has been affected more than grocery 43
Sales of premium products have been under pressure 44
Many premium products have benefited from the economic downturn 45
The shift to eating in 45
The shift to cooking and home baking 45
A retained ‘small luxury’ 46
Concerns about food and ethical standards remain 46
Wider consumer values have been affected 47
Post recession implications for premiumization 48
Economic recovery 48
Sales of premium products will remain subdued 50
Premiumization will recover to its pre-recession days 51
A change in the nature of ‘premium’: 51
Chapter 3 Defining premiumization 53
Summary 53
Introduction 54
Product specification 54
Product ‘quality’ 55
‘More of’ or ‘a better quality of’ 57
Increasingly complex product specification 57
Health related ingredients 58
‘High in…’ claims as a premium health positioning 59
‘Added…’ claims as a premium health positioning 61
‘Low in…’ claims as a premium health positioning 63
‘No…’ claims as a premium health positioning 63
High end and natural ingredients 65
Limited and exclusive ingredients 67
Production and manufacturing 68
High-end production techniques that retain or add to the high quality ingredients 68
Minimal production techniques 70
Scale of production 70
Ethical production techniques or approaches 72
Premiumization through provenance 73
Distribution strategies 76
Packaging strategies 77
Packaging material 78
Pack design 80
Pack description 80
Luxury 80
Connoisseur 83
Exclusive 83
Premium 84
Super-premium 84
Other terms 85
Premiumization via packaging 85
Brand positioning 87
Chapter 4 Premiumization and consumer needs 88
Summary 88
Introduction 89
A model of consumer motivations 89
Motivation relating to the intrinsic product 90
Status acquired from product (brand) consumption 91
By tier of premiumization 93
The evolution of consumer motivations 94
Status motivations 94
Intrinsic product motivations 95
Chapter 5 Emerging consumer trends and their application in premiumization 97
Summary 97
Introduction 97
Consumers are seeking reassurance and trustworthiness 98
The continued importance of local 99
The opportunity of handmade and customized 101
Concerned consumerism 103
Environmental, the premium way 103
Case Study: ILOHAS water 103
Generosity 105
A different relationship with the brand 106
Members' clubs 106
Part ownership of production – a honey case study 107
Chapter 6 Building a successful premiumization strategy 112
Summary 112
Introduction 113
Sphere of operation 113
Tier of premiumization 113
Markets of operation 113
The threats to a premium product 115
Maximizing the chances of success 117
Provide a clear reason for purchase 117
Offer clear product and status benefits 118
Create a new category or consumer motivation 119
Case Study: Red Bull 119
Be obviously premium 122
A premium brand positioning 122
Be packaged premium 123
Be small or offer small company values 123
Be premium in the use of media 123
Build the premiumization strategy on relevant and emerging consumer trends 124
Added or super ingredients 124
Local, simple, just high quality 124
Relational and experiential 124
Knowledge 125
Exclusivity and scarcity 125
Superior quality 125
Concerned consumerism 125
Table of figures
Figure 1: Quality segments of the global wine market 20
Figure 2: Tiers of premiumization in food and drinks 21
Figure 3: Development of premiumization 26
Figure 4: GDP at purchasing power parity (PPP) in $ per capita, selected major economies, 2004-2014 27
Figure 5: Trends in global middle class growth 28
Figure 6: Heinz Farmers' Market 37
Figure 7: Development of premiumization in the UK crisps market 38
Figure 8: Walkers Sensations and Tyrrells Potato Chips 40
Figure 9: Hairy Biker Potato Crisps range (also available in lemon and olive tagine) 42
Figure 10: Areas of expenditure most affected by the recession (ranked 1 to 10 by consumers in each of 8 countries) 44
Figure 11: Consumers ‘ladder up’ through technical and functional to emotional benefits 55
Figure 12: Evolution of the meaning of ‘quality’ in relation to premium food and drink products 56
Figure 13: Guggisberg - Grass-Fed Premium Swiss Cheese 60
Figure 14: Choclatique - Q-91 Chocolate Wafers - Bali-Hi; Bora Bora; Forbidden City; Original;
Saigon Cinnamon flavors 61
Figure 15: Anti Ageing Water Range – Nutra Resvetarol 62
Figure 16: Japanese Delight - Premium Kombu Seaweed 64
Figure 17: SoZo CoffeeBerry - ) - Exclusive Dietary Supplement Functional Beverage 66
Figure 18: Noni Zoda - Fortified Noni Super Premium Beverage with DMG - Organic Cane Sweetened; Sugar Free 67
Figure 19: Kona Premium Estate Coffee 69
Figure 20: Redleaf – Canada’s Ultra Premium Bottled Water 70
Figure 21: Heartland Creamery - French Style Fresh Chevre Cheese with Lavender 71
Figure 22: Ethical food and drink sales in the UK (£m), 1999- 2008 72
Figure 23: Hotel Chocolat - Chocolate Collection - The Undiscovered Cocoa of St Lucia 75
Figure 24: Freshly Wholesome Gourmet - Complete Meal - Indian Tandoori Wild Alaskan Salmon variant 79
Figure 25: Essential Trading Co-op Ltd: Organic, Luxury Mueslis, Granolas and Cereals 81
Figure 26: Hwa Tai Luxury - Cracker - Original; Vegetable 82
Figure 27: Soprole Activ - Yogurt Bebible con Micro Cal - Sabor Frambuesa; Sabor Multifruta 83
Figure 28: Forte Healthy Energy Shot 84
Figure 29: Fillico Beverly Hills Luxury Spring Water 86
Figure 30: A generalized model of the major metrics defining market tier 87
Figure 31: Consumer motivations in buying a premium product 89
Figure 32: Relative importance of product and status as purchase motivations, by tier of
premiumization 93
Figure 33: Evolution of status related motivations 94
Figure 34: Evolution of intrinsic product related motivations 96
Figure 35: Tesco’s ‘Enjoy the Taste Of....’ campaign reflects the increase in importance of ‘local’ 100
Figure 36: Mymuesli.com – customized, delivered, organic muesli 102
Figure 37: ILOHAS mineral water from Coca Cola Japan in ‘eco’ PET bottle 104
Figure 38: Your Pure Honey Manuka honey certificate of ownership, hives and jars 109
Figure 39: Innocent guest smoothie Lemon, Honey and Ginger, helping to support bee
populations 111
Figure 40: Nestlé Waters Brand Portfolio 114
Figure 41: A generalized model of the main threats to the maintenance or growth of a premium product 115
Figure 42: Red Bull Energy Drink 120
Figure 43: Red Bull Website Home Page 121
Table of tables
Table 1: Middle class population size (m) & share of global total (%), 2009-2030 29
Table 2: Average household size 1990 - 2015 31
Table 3: Proportion of labor force which is female (%), 1990-2015 32
Table 4: GDP growth for Major Economies (% change), 2008, 2009 and 2011 48
Table 5: GDP growth for Major Economies (% change), 2008, 2009 and 2011 49
Table 6: Premium product launches in categories of interest and product claims May 2006 – May 2010 58
Table 7: Percentage of new product launches with high / low /no ingredient health claims 59
Table 8: Proportion of premium new product launches with various ‘clean’ claims (%), 2007- 2010 63
Table 9: Consumer priorities and motivations 99
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Figure 1: Quality segments of the global wine market 20
Figure 2: Tiers of premiumization in food and drinks 21
Figure 3: Development of premiumization 26
Figure 4: GDP at purchasing power parity (PPP) in $ per capita, selected major economies, 2004-2014 27
Figure 5: Trends in global middle class growth 28
Figure 6: Heinz Farmers' Market 37
Figure 7: Development of premiumization in the UK crisps market 38
Figure 8: Walkers Sensations and Tyrrells Potato Chips 40
Figure 9: Hairy Biker Potato Crisps range (also available in lemon and olive tagine) 42
Figure 10: Areas of expenditure most affected by the recession (ranked 1 to 10 by consumers in each of 8 countries) 44
Figure 11: Consumers ‘ladder up’ through technical and functional to emotional benefits 55
Figure 12: Evolution of the meaning of ‘quality’ in relation to premium food and drink products 56
Figure 13: Guggisberg - Grass-Fed Premium Swiss Cheese 60
Figure 14: Choclatique - Q-91 Chocolate Wafers - Bali-Hi; Bora Bora; Forbidden City; Original;
Saigon Cinnamon flavors 61
Figure 15: Anti Ageing Water Range – Nutra Resvetarol 62
Figure 16: Japanese Delight - Premium Kombu Seaweed 64
Figure 17: SoZo CoffeeBerry - ) - Exclusive Dietary Supplement Functional Beverage 66
Figure 18: Noni Zoda - Fortified Noni Super Premium Beverage with DMG - Organic Cane Sweetened; Sugar Free 67
Figure 19: Kona Premium Estate Coffee 69
Figure 20: Redleaf – Canada’s Ultra Premium Bottled Water 70
Figure 21: Heartland Creamery - French Style Fresh Chevre Cheese with Lavender 71
Figure 22: Ethical food and drink sales in the UK (£m), 1999- 2008 72
Figure 23: Hotel Chocolat - Chocolate Collection - The Undiscovered Cocoa of St Lucia 75
Figure 24: Freshly Wholesome Gourmet - Complete Meal - Indian Tandoori Wild Alaskan Salmon variant 79
Figure 25: Essential Trading Co-op Ltd: Organic, Luxury Mueslis, Granolas and Cereals 81
Figure 26: Hwa Tai Luxury - Cracker - Original; Vegetable 82
Figure 27: Soprole Activ - Yogurt Bebible con Micro Cal - Sabor Frambuesa; Sabor Multifruta 83
Figure 28: Forte Healthy Energy Shot 84
Figure 29: Fillico Beverly Hills Luxury Spring Water 86
Figure 30: A generalized model of the major metrics defining market tier 87
Figure 31: Consumer motivations in buying a premium product 89
Figure 32: Relative importance of product and status as purchase motivations, by tier of
premiumization 93
Figure 33: Evolution of status related motivations 94
Figure 34: Evolution of intrinsic product related motivations 96
Figure 35: Tesco’s ‘Enjoy the Taste Of....’ campaign reflects the increase in importance of ‘local’ 100
Figure 36: Mymuesli.com – customized, delivered, organic muesli 102
Figure 37: ILOHAS mineral water from Coca Cola Japan in ‘eco’ PET bottle 104
Figure 38: Your Pure Honey Manuka honey certificate of ownership, hives and jars 109
Figure 39: Innocent guest smoothie Lemon, Honey and Ginger, helping to support bee
populations 111
Figure 40: Nestlé Waters Brand Portfolio 114
Figure 41: A generalized model of the main threats to the maintenance or growth of a premium product 115
Figure 42: Red Bull Energy Drink 120
Figure 43: Red Bull Website Home Page 121

Table 1: Middle class population size (m) & share of global total (%), 2009-2030 29
Table 2: Average household size 1990 - 2015 31
Table 3: Proportion of labor force which is female (%), 1990-2015 32
Table 4: GDP growth for Major Economies (% change), 2008, 2009 and 2011 48
Table 5: GDP growth for Major Economies (% change), 2008, 2009 and 2011 49
Table 6: Premium product launches in categories of interest and product claims May 2006 – May 2010 58
Table 7: Percentage of new product launches with high / low /no ingredient health claims 59
Table 8: Proportion of premium new product launches with various ‘clean’ claims (%), 2007- 2010 63
Table 9: Consumer priorities and motivations 99
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