With rising incomes and a middle class estimated to have reached 3.2 billion people in 2016, and growing at a pace of 160 million annually,1 there is a greater ability to afford better food. One of the first things people do when they make a bit more money is to buy healthier, more nutritious food for themselves and their families. The rise out of subsistence living is providing people with the discretionary income to be more selective about what they eat.
Another factor driving this shift is the increased focus on healthier lifestyles and diets across the developed world. Recent analysis by the Nielsen Company found increases in sales of foods that can advertise they are “local grown/sourced,” had “no added sugar,” or are “GMO free” or “antibiotic free.”2
Millennials’ preferences are also driving the shift to higher-quality foods. They are proving to be a very health-conscious generation. According to the Organic Trade Association, 52% of the consumers of organic foods are Millennials. This younger generation has actually heeded the advice of their parents, as Millennials eat 52% more vegetables than older generations do.3
This massive structural change in consumer preferences is creating very tasty growth opportunities for a number of companies.
A Growing Preference for Organic Foods
Ebro, a Spanish company that distributes rice and pasta products, has been reshaping itself to focus on consumers’ desire for natural, organic, and healthy eating choices. The company focuses on whole grains, high fiber, and nutrient-dense foods. It recognizes consumers today are concerned not only with the quality of ingredients, but also the ways in which their foods are farmed and produced. The company has expanded through acquisitions in the healthy and organic food category. Consumers’ preferences are constantly evolving, and today’s Internet-savvy, smart shoppers also want easy access to quality foods that can be prepared quickly and conveniently. Ebro is working to remain at the forefront of these trends.
Consumption of Farmed Fish Will Continue to Rise
If you talk to a random sample of people around the world, they’d probably tell you that overall, they’re eating a lot more fish than they have in decades past. The numbers back this up. In the 1960s, the average person ate just 21.8 pounds of fish per year, according to a United Nations report.4 50 years later, the level of fish consumption had doubled to more than 44 pounds. However, this huge increase creates major concerns about sustainability and overfishing of the world’s oceans. Indeed, over the past several years, the growth rate of the world’s wild catch has plateaued, leaving consumers searching for other ways to satiate their appetite for fish.
Since the 1960s, the proportion of the global fish catch originating from fish farms has expanded from practically nothing to exceeding the total volume of fish caught in the wild in recent years. The world’s largest supplier of farmed salmon, a particularly nutritious fish yet notoriously hard to farm, is a company called Mowi (formerly known as Marine Harvest). Based in Norway, a country whose fjords provide the perfect growing conditions for this fickle fish, Mowi sells more than 370,000 tons of salmon to more than 70 markets around the globe. The company has been a major advocate of sustainable approaches and a developer of innovative techniques in the field of fish farming. In an era when there are major concerns about feeding the world’s growing population and overfishing of the world’s oceans, we expect a continuing tailwind for this best-in-class farmer.
A Seal of Approval for Fish Quality
As people eat more fish, they also want a way to verify its quality and origins. Seafood fraud is a major problem across the food industry. A recent study from Oceana,5 a conservation group, showed that 21% of seafood samples they tested from restaurants, markets, and stores were something other than what the label said. The most common form of fraud is where an expensive fish, such as sea bass, is replaced by a visually similar but much cheaper fish like giant perch or Nile tilapia. This is where the Luxembourg-based Eurofins Scientific comes in. The company has a broad-based diagnostics and testing business, and one of its services is a DNA-based technology that distribution companies can use to identify fish samples. A label can then be used to prove that a premium fish is fresh and exactly what it is supposed to be. As a result, suppliers, restaurants, and consumers don’t have to worry that a lower-quality substitute is pretending to be something it’s not.
A Hip Brand Can Make a Difference
Shake Shack is a chain of restaurants that has capitalized on consumers’ appetite for a “better burger.” People have demonstrated they are willing to pay a premium price for a more premium experience than the biggest names in fast-foods offer. Shake Shack markets itself as a “fine casual” dining choice rather than a fast-food restaurant. With a large social media presence and consumer adoption of a smartphone app, the Shake Shack brand has created a bit of cult status among its patrons. They also boast a heavy volume of positive reviews on sites like Yelp where these loyal customers effectively act as advocates for the company. We think Shake Shack can continue its growth while maintaining its cachet as a choice distinct from the burger establishments that seem to be on every corner.
Healthy Non-Alcoholic Beverage Alternatives
Millennials are drinking less alcohol than Baby Boomers and older generations did, as noted in a 2018 report from Berenberg Research.6 That is helping companies like Britvic, the British company that manufactures and bottles a broad range of soft drinks in markets around the globe. Its J20 brand – which combines fruit juices and water – is marketed to adults and even sold in bars and clubs to provide non-drinkers with a healthy alcohol-free beverage option. The company also had success marketing its Fruit Shoots brands for children and health-conscious parents, who want alternatives to high-sugar drinks for their children.
Consumers Willing to Pay More
Higher-quality food, of course, often comes at a premium price, but consumers have made it clear they’re willing to pay more to achieve a healthier diet. That willingness also provides some protection from the impact of competitive pricing for these companies, an important characteristic for the types of long-term investments we’re interested in.
As investors, we are always looking for trends that can drive sustainable, long-term growth for companies. We believe the growth of the health-conscious consumer is here to stay.
As of 2/28/19, Ebro represented 0.52% of Oppenheimer Global Opportunities Fund’s holdings; Mowi 1.12%; Shake Shack 0.67%; and Eurofins, 1.54%.
As of 2/28/19, Britvic represented 1.12% of Oppenheimer International Small-Mid Company Fund’s holdings.
- ^Source: Brookings Institution, “The unprecedented expansion of the global middle class,” 2/28/17.
- ^Source: Nielsen Company: “What Food-Related Causes Do U.S. Consumers Care About Today,” 3/6/19.
- ^Source: Forbes: “Food Leaders Take Notice: How Millennials Are Changing the Way We Eat,” 8/26/17.
- ^Source: U.N. Food and Agricultural Organization FishStat Database.
- ^Source: CNN.com: “Fish Fraud: What’s on the menu often isn’t what’s on your plate,” 3/7/19.
- ^Source Berenberg Research, as noted in Business Insider: “Millennials Are Dragging Down Beer Sales…” 2/21/18.
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