How the consumer is transforming the food system

Introduction

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Hi there, and welcome to Food System Reimagined, an EY podcast that brings you valuable insight into our rapidly changing food system. My name is Sarah Nolet. I’m a food systems innovation expert and cofounder of Tenacious Ventures, a thesis-driven venture firm focused on decarbonization and resilience in the food system. In this three-part series, we’ll speak to food industry executives about how brands can provide value in a food system that’s being reshaped by consumer demand, planet-friendly initiatives and increasingly connected ecosystems. Sit back, and we hope that you enjoy.

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The American food system and industry has changed drastically over the past few years. What was once a landscape dictated almost exclusively by big food and agriculture supply is now shifting to a more consumer-centric one, based more in demand. You see, up until very recently, in large part, food that was being marketed and sold in grocery stores and restaurants was a practical matter based on what local environments yielded and with the main priority of keeping costs low while producing at scale. Generally, what was profitable and abundant for food companies was what consumers bought, gladly and oftentimes without question. But times have changed. Today, consumers have grown smarter about the foods they buy, what goes in them and, most importantly, what, when and how they want it, causing significant disruptions for big brands and farmers alike. Consumer preference and demand for things like ripe avocados year-round or strawberries in the month of January, with the ability to see exactly where they were sourced from, have companies asking themselves where and how to invest in categories, capabilities and markets that may not have been on their radar previously. These companies are having to take a different and more advanced approach to how they observe and respond to consumer behaviors. Decisions about the food supply chain and manufacturing system are becoming less and less about what is abundant and available. It’s the consumers who are now in the driver’s seat, foot on the pedal at full speed. So what does this mean for food companies and agriculturalists looking to create value? What does a personalized food industry really mean? How are companies changing the dial to meet these growing and potentially costly consumer preferences that, if done well, can position companies as industry leading? And, what does it mean for a brand to be truly customer-centric? In this episode, we’ll be joined by the Kellogg Company’s SVP, Global Innovation and Research and Development, Nigel Hughes, and Rob Dongoski, partner, Food and Agribusiness Leader at Ernst & Young LLP, to discuss what these changes mean and what the future of food looks like with these ever-constant disruptions in mind.

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Nigel, what are some of the major consumer trends you’re seeing that are driving change across the food industry?

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Obviously, over the last three years, the one word that’s been most used or perhaps even overused is the word “unprecedented.” And we’ve seen an unprecedented evolution of consumer trends over the last few years, partially due to COVID, but a lot due to also the follow-on impacts of COVID and everything that that’s brought us. We’ve seen big consumer lifestyle changes, changes that have moved people a lot more and evolved people’s occasions of food consumption. Obviously with COVID, everybody being at home, that flipped things one way. Now people are able to get out of the home again. But overall, we’re seeing a big jump in snacking, both snacking in the home and snacking away from home. Perhaps even more important than that, though, now is the impact of the incredible cost and supply chain impacts on food and what that’s doing in terms of consumer trends. Now we’ve got the biggest difference between high income and low income that we’ve, we certainly ever seen since the Depression, probably. We know that food inflation is extremely high and that’s really having a direct impact on consumer behavior. A part of that is that consumers are really going to brands that they know and love and trust because they know what they can get from that. Another part of it, though, is also their needing to think about the fact that they need to eat well and eat at the right low cost and accessible costs for their families. So those are just a few of the things that we’re seeing.

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Yeah. Great. And Rob, what are you guys seeing?

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I completely agree with everything Nigel said. I think through the pandemic specifically is where do you eat? And so it’s not always out. It’s not always at home. We’ve seen that pattern shift quite a bit because we spend more time at home over the last couple of years. People have rediscovered food. You know, food has always been part and is part of most major cultures. And I think we’re starting to see food is fun, food is an experience, but ultimately it’s driving some questions. And so what we’re finding is consumers are asking more and more, “Where does my food come from? How is it treated? Who are the people that are producing it along the way?” Those things are starting to really expose the food system more and more. People are navigating to brands they know and trust, but they want to know more. They want to know: What values do you stand for? What practices do you use? And so I think a lot of that increase in interest from the consumers, that’s really driving a lot of changes across the food system.

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Yeah, it’s fascinating, as consumers change and want to know more, that puts a bit of pressure on companies but perhaps also creates opportunities. Companies for a long time have been conducting consumer and market research before they think about launching new products. How is that different now? And for a company, what does it mean to be consumer-centric?

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I think on that one, Sarah, I build off the back of what Rob was just saying about people having a greater and greater interest in their food. Consumer centricity now is really much less about the mass consumer or even classical consumer groupings, and it’s much more about an intimate understanding of local regional cultures, subcultures and really getting under the skin of the role that food plays within people’s lives. We tend to talk in the food business a lot about the very dry side, the analytics of food. But the simple fact is that food is a fundamental part of cultural celebration. It’s part of our language. We’re seeing just more and more the importance of understanding those languages and speaking in those languages, not only in terms of the final foods we produce. So this is not just about flavor variants that appeal to particular subgroups, but much, much more understanding the values of those people and engaging those people in the stories about where the ingredients come from, how the food is processed and really bringing people along for the ride much, much more; very, very different to how it was 10, 15 years ago where we had a much more prescriptive analysis of the consumer landscape, I would say.

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It seems like the tools, then, that companies would need to be using to be both authentic but also have those conversations around culture and ingredients and supply chains, like, that’s pretty complex. How are companies navigating that, Nigel? Or do you have an example of anything that Kellogg is doing?

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Social listening. Social listening is critically important for us now. It’s something that’s come along with the digitization of our lives, but now we can follow conversations not only on an annual level or a monthly level, but on a day-to-day level, in a moment-to-moment level, and we can connect our foods to that social listening. That lets us tap into trends, but it also lets us understand what’s coming, where the next wave is going to be and, therefore, how we can design our foods such that they’re congruent with where the consumer is going rather than just reflective of where the consumer has been.

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And Rob, what are you seeing in terms of how companies are planning for the future, given how much consumer preferences and behavior is constantly evolving?

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I think it’s a few things, right? So I think one is

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the old, kind of, know your customer’s customer, I think, is evident in Nigel’s comments about social listening, right? But I think now in order to serve that customer, you got to know your supplier’s supplier. So that starts to get us into things like regenerative agriculture or sustainable sourcing. And so I think that’s starting to change the linear nature of the food system in a lot of ways. I think the other thing on the consumer side, the two things that are always focused on, which is affordability and taste, right? And candidly, I don’t see that changing as the top two factors any time in the near future, but what is changing is what’s their third, fourth and fifth decision point, and that gets into value. So things like sustainability impact beyond self. And so it’s not always just about what’s the most inexpensive, what’s on sale, what’s the trade promotion here and there. But it’s starting to move more into: What does this food mean to me? Because now I know my genetic makeup, I know what I’m doing from a diet standpoint, what my objectives are. So I think this impact on food on yourself is important, depending upon if you are celiac or lactose intolerant or maybe you have diabetes, and it’s really starting to treat food much more as an overall component of your health and not just a pure nutritional aspect.

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I love that point about knowing your supplier’s supplier and the need for companies now to think more broadly about their supply chain, given how much consumers care about where food is coming from. Nigel, how are companies responding to that need? How is supplier engagement working? And, in various degrees, you do or don’t have influence on what your suppliers, or suppliers’ suppliers, are doing. How are companies responding?

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Well, there’s a tremendous evolution. I rather balk from using the word “supplier” because we’ve got to look at these people as partners: partners in the food system and partners in our network. There is enormous value created by the farmer. There is enormous value created by the processes of, for as in particular grains or our other ingredient streams. Rob is right. Until fairly recently, we’ve looked at those as commodities, we’ve looked at those at arm’s length, and we haven’t really engaged in understanding a richness of what’s going on in that area, the importance of it to the consumer and how we bring it to life. So coming back to your question very directly, we’ve got major programs where we are not only engaging farmers, we’re not only engaging in ingredient processes, but we’re actually beginning to tell those stories. One of the reasons we can do that is that now 55% of our communication is digital, so we can actually share a lot more information with the engaged consumer. Very, very different world to the one that we were used to just a few years ago.

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Rob, any comments on that in terms of supply chain engagement and what you’re seeing?

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Yeah, absolutely. I think everyone in the food system, you start with kind of producers on one end and get all the way down to consumers on the other, right? And I think in somewhere in the middle of the value chain, people were kind of opposed or

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hesitant, at least, to move into production agriculture. If I can stay out of that, if I can just do spot market buys, deal with commodity players, I’m feeling pretty good. But now, I’d say, more and more we’re seeing food/beverage manufacturers, QSRs, grocery, food service, everyone starting to take a new look at: What does vertical integration mean? And maybe I don’t need to go out and buy a bunch of land and lease to farmers, but maybe I need to do a prioritized segmentation of some farmers and get down to some really detailed specs on what I need in my food and maybe I need to co-invest with them — things they couldn’t afford on their own. Maybe as a downstream player I need to co-invest with them: technology, precision agriculture, sensors, what have you, you know. And I think at the end of the day, what that’s affording any of those downstream actors to do is to start to expose that to the consumers, because what we’re really seeing is, back to consumer centricity, is consumers want to know producers. They want to know where their food comes from. And this is not old. This is almost retro in some ways because you go back to the days of consumers had their florist on one corner, their butcher on another, their baker on the third. And remember, milk was delivered to their house. So home delivery is nothing new. So I think the thing is, we don’t go back to that proximity-based relationship, but you go back to a data-based relationship that still reunites consumers with producers.

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You mentioned digital, Nigel, and there’s other things popping up in terms of how consumers buy, you know, buying online, dark stores, how they’re actually getting their food. How are you seeing consumers’ engagement with food change what brands need to do to have those consumer-centric conversations?

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I think that’s a great point because that’s the other massive thing that’s changing is the way that people are buying their food. And again, huge opportunity because not only can we direct our foods and our brands against these new channels and find tremendous new opportunities, but also we can begin to work what people have called for a number of years now is an omnichannel approach, but, to be honest, until fairly recently was still mostly a retail-based omnichannel approach. Now, we can truly have an omnichannel approach. So, in some instances, it might be that the right first touch point for one of our brands or one of our foods is in a restaurant setting because that can bring familiarity to a new idea or a new food. In other instances, it might be that the best way to engage with the consumer is through dark store. We’ve got tremendous brands, but we can interweave those into other propositions, and this becomes a wonderful play space, really, from an innovation point of view. That’s my role in Kellogg is innovation, creating that future. This becomes a really, really wonderful play space. And then finally, as I said, some of the direct-to-consumer and some of the e-commerce allows communication of a tremendous amount more information alongside our food.

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I love the conversation around omnichannel. We’ve had that for a long time. We’ve had it with consumers. We’ve actually had it upstream with farmers as well because farmers are starting to buy differently, right? But I think what’s really happening is there’s a bifurcation between the shopping decision and the buying decision. And we’ve always kind of thought that’s one and the same and traditional channel strategies and now we’re seeing that shopping actually happens, we can say maybe it’s going to happen in the metaverse at some point. We’re seeing it through social channels. We’re seeing it in lots of different ways through pure networks, right? But then the buying decision is the one that candidly starts to get into the mechanics of: Which channel am I going to get to that?

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Does a consumer really even care once they’ve made the shopping decision? Do they just really want to get it here as fast as possible at the cheapest rate? So I think that bifurcation of the shopping and the buying decision is important. When you look at a lot of the research we’ve done around future consumer now and the Future Consumer Index, I think you’re seeing that consumers, particularly millennials and Gen Zs, really separate those two behaviors in a big way.

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I love it. I love what Rob just said. Consumer is individual — shopper with a range of choices — and then buyer — really determining where they interface with the brand and with the food.

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We see people doing research on a certain product decision, right? And then they finally decide exactly what product they want. Then they go, “OK, let me first go to Amazon and see if they have it, because I’ve got a Prime membership and I get free shipping.” They may have done all the research on a website they could have bought from, but they lift all that research and go over to what they view as an easy buying channel on something like Amazon.

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Nigel, how do you, from an R&D and Kellogg perspective, think about the role of these other players? You know, consumers are looking on Amazon; they’re looking on social media. Is it harder or easier to kind of control the narrative and be engaged in that authentic conversation with consumers? How are the role of those technologies changing what you need to be good at as a brand?

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I think what you just said is the most important. It does evolve what you need to be good at as a brand. I wouldn’t say that it’s good or bad for us. I think it’s change. I think it’s very simply change. It provides us new channels by which we could communicate. We’ve got to find the best ways of communicating through those channels, and they might be quite, quite different from brand to brand. I just mentioned a health brand, yeah, and the way one might go about communicating that, which could be very fact-based and might be quite dense in terms of a communication approach, perhaps elements of digital very, very good for that. I’ll give another example, which is our Pringles brand. Digital, in that instance, we tap into the very notion that gamers actually don’t want to get lots and lots of salt and flavor on their fingers. They want to be able to be gamers and eat a simple food that doesn’t mess up their fingers. That’s a very fun way, but it very, very much engages with that particular consumer.

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I love that example, getting so targeted on the use case for the consumer, who they are, how they actually eat the product. It reminds me of another question around the two trends you mentioned, kind of snacking and convenience. I imagine that has implications for packaging and various ways that food is actually getting delivered or physically packaged up for consumers. Rob, what are you seeing in terms of how that snacking and convenience trends are impacting food companies?

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There’s definitely an interest from consumers from a buying decision standpoint on: How is this packaged? And it’s not always just packaged in front of the consumer; there’s also reverse-logistics issues. So think about the milk jugs that, how does that full circularity happen and how do consumers view that? But generally, the package itself, they want to see something sustainable. That is very clear. We’ve got challenges across the board to get there, and we’ve got a lot of innovation opportunities to figure that out. Once you get past the package itself is what’s wrapping the product. I think the other is, is it easy to handle if I only want to eat half now? Do I have a package that can help me store it for consumption later? A lot of food still consumed in cars. Is it easy to unwrap? Is it, you know, things like that, that’s for convenience. And you kind of look beyond just the sustainable story but also the ease of use and the convenience factor, I think, is a key as well.

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Nigel, is that something that Kellogg is looking at in terms of either packaging, convenience or circularity, as Rob mentioned?

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Absolutely. And I’ll give a concrete example of just the sort of thing that Rob was talking about. It’s a very nice example, which is we got some of the best consumer feedback and real success in the marketplace by introducing a sustainable and resealable packaging for our Eggo brand. Very simply, you put a number of Eggos into a, one package. One of the key things was you don’t use them all at the same time, and people wanted to be able to reseal them. In fact, they were going to all kinds of other ways and methods to find ways to reseal them. Simply introducing that, one of the first times when we’re really able to hit a trigger with the consumer around both the sustainability and the convenience. And I think that’s one of the keys. I think that’s one of the keys. You talk to some people and they will say to you, “Well, will the consumer pay for sustainability?” I think that’s the wrong question. I think it’s entirely the wrong question. It is our job to ensure circularity and sustainability because that’s what we need to be doing from a planetary point of view. That’s what’s going to build a sustainable business into the future. In addition to that, we need to continue to find the real hooks that make all of those things more convenient for the consumer.

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I love that example of convenience and thinking about the whole experience of engaging with the food, whether you’re gaming or whether it’s after you actually eat something like a waffle, how are you packaging back up the product and using it next time? Lots of nuance there in the whole kind of life of engaging. From an R&D perspective, Nigel, does that mean you guys are thinking differently about how you approach R&D from the digital, to how people buy, to how they’re using the product, what else they’re doing? Have you guys had to change your processes?

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We’ve had to change our processes regarding insight very much along the lines of what you were just saying. The other side of it is that we no longer do the same level of concept testing that we used to do. And there’s a simple issue there with concept testing, which is if you devise a beautiful concept, most consumers will be more than happy to smile at you and say yes. The challenge is when you actually produce food and price it, they might not be willing to put their hand in their pocket and buy it. And so we do a lot more of what we call transactional learning, which is actually making foods, short runs of food, short runs of packaging, and putting it out in the marketplace and learning firsthand. That sounds fairly easy to do. It’s actually not quite as easy as that, because you need, therefore, to be able to have pilot facilities and packaging facilities that come up to the regulatory standards, be that the FDA in the US and different regulatory standards around the world, so that you can actually put that food out there for sale. But that gives us a much more direct feedback in terms of understanding the acceptance of those foods and the willingness of the consumer to pay.

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My head goes to the cost of that, those different facilities and trialing and products that may or may not work. That seems to create, in some ways, a barrier to entry for smaller, newer companies coming into this space. And yet I think there’s also a trend for consumers to want to feel like it’s a small brand vs. “big food.” Rob, what are your thoughts on the kind of R&D requirements for big brands and whether that will prevent or enable more smaller brands from coming into the space?

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I think, particularly the big brands, if there are shelf-stable centers for items as we navigate to more dark stores, the question is how are you going to differentiate in a dark store environment the same way you differentiate in traditional grocery, as an example, right? Ninety-nine percent of the decisions by consumers in a grocery store happen at the shelf. Very few people write down on their grocery lists exactly the cereal they’re going to buy or the snacks they’re going to buy. They say they know they need chips. They need cereal. They make the decision at the store based upon, could be brands or could be packaging, could be promotions, what have you. What happens when that goes into a dark store is a big challenge. And so I think the opportunity is tremendous for big brands to figure out how to appear small, how to appear intimate and transparent, the same way a lot of the small brands do. And I think on the other side, I think small brands got to be careful. They don’t try to get too big. There’s probably a tipping point there where you’re now in the other category. So I think there’s a, there’s a fine line to walk for both the well-established, super-valuable brands in the marketplace today and some of the emerging brands.

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Do you think there’s a tradeoff there in, I like what you said, Rob, about big brands needing to sort of appear small. Are consumers going to see through that? Are they going to look to, “Oh, no, this brand’s owned by big food and we have a view on that.” Is that something that companies need to be worried about?

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I don’t think it’s necessarily big brands, it’s what your company stands for. Do consumers specifically still view that as a place they want to be? And I think there are so many variables well beyond affordability and taste that are starting to creep into that, that consumers’ buying decision. Do you have a brand that they see as good for the planet? Is it good for society? Are you equitable in your food distribution? There’s lots of factors, I think, that are factoring into that decision. And then ultimately, can you demonstrate how your food gets to them? I think that’s becoming more and more important vs. this black box of “I hear it comes from a cornfield because it says it’s got corn in it. But then I look at the ingredient list and there’s 28 other things in there, only 23 I can pronounce.” And they say, “Boy, where’s all this stuff coming from?” So I think transparency will be a really, really vital piece to make some of those bigger brands feel small.

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Nigel, are there any areas where you see things that smaller brands are doing or able to do that you say, “Wow, we’re a bit behind and we need to, it feels like we’re playing catch up with what a small brand is actually able to do that a bigger one isn’t”?

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First of all, let me build off what Rob was just saying. I think the notion that organizations understand their purpose and are driven by their purpose is now absolutely fundamental. Doesn’t matter about the scale of the company. It really matters about whether you do what you say you’re going to do. Transparency is we’re upset and people will catch you out on that. And it doesn’t matter whether you’re big or you’re small. The second point I would have on this whole conversation is, is what appears big and what appears small. And one of the things that is most definitely changed, I would argue, over the last five to 10 years is there was a notion that there would be global foods and these things would be identical across the world. And actually that notion has changed quite dramatically. In fact, we might have similar food bases, similar grain-based foods or whatever, and we might have similar brand names, but their executions locally are tending to be more and more differentiated and tuned to the local culture. Do I see things that small companies can do that big companies can’t? I would have said before COVID, there were some advantages. There was a vitality and a vibrancy that small companies could have, and there was an energy in the startup food space. I think, post-COVID, people have retrenched a lot into known brands and their known foods, and it’s quite a big change in the dynamic there.

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If consumers want to know where ingredients come from, they want fewer ingredients. Clean label. How is that impacting supply chains and what companies need to do to respond to that trend? Rob, I’ll start with you.

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Yeah, I mean, a lot of that pressure goes to single-ingredient items right out of the gate, right? So it’s a lot of your veggies and fruits and meats right out of the gate. There’s a lot of pressure on all those systems to get things more fresh, local, maybe not. We’re tracking food miles. So how far did that strawberry come to me? That’s an indication of freshness and quality. Now we’re talking about more detailed specifications that come out of the recipe system to say, “I need this kind of a grain, with this moisture content, grown like this.” And so it’s moving that spec not just from what comes out, but also how it was produced because people want to track their carbon impact scores and roll those up into a product and they want to be able to make claims of regionally grown things like that that indicate not just that this is going to taste good and it’s affordable but, again, you know, this was sustainably grown.

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Nigel, any comments on that, especially in terms of number of ingredients and that transparency element and, I guess, especially a number of ingredients, like, how is that changing the R&D you might need to do to respond to that pressure?

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Yeah, that’s a great point. To me, this is another one where you might call it, in a sense, a bit future retro, if you like, because in the past, I’ll give a specific example

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within the Kellogg Company. We took for granted that people understood that our foods were made of relatively few ingredients with low processing. You know, one single grain makes one single flake for corn flakes. You make it by simply pressure cooking it a bit, taking it out, flattening it and cooking it. And that’s pretty much it. But we can no longer take that for granted. There are a number of people that paint with pretty broad brush strokes and start to talk about ultra-processed foods and this sort of thing. So again, this is another discussion that we’ve got to reengage in and continue with the communication. The other dimension of this is we also see consumers more and more who have particular allergies or dislikes or mixtures of allergies and dislikes. So it can be anything from gluten free to nut intolerances to just genuine dislikes or lactate intolerance and all these kinds of things. We’ve got to produce foods that work for those people and that are up to standard for those people. And that just simply adds an additional layer of sophistication into our manufacturing processes to build a factory that can produce those foods where you can really and truly be sure of the food quality. Now, you might think that’s straightforward enough in your kitchen. It’s no easy task at the sort of scales that we’re producing. And so

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again, those are things we’ve got to do, but we have to do that because that’s where the consumer is moving. And that’s really the ultimate driver of what we do every day.

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I can imagine there’s perhaps a tension, that example with high-pressure cooking or processing or where ingredients come from, like, one possible response is sort of to defend those practices, or we need to educate consumers about why we do them. On the other end of the spectrum you have, “Oh, well, the consumer is always right and we should respond and kind of do what they want.” Rob, do you see that tension for companies, and how do you, how would you advise companies sort of make that decision?

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Well, I think the first thing is we need to define consumer, right? And so not every company is going to react to consumer the same way, right? And there’s some, there’s some really differences in the way consumers are behaving today. We’ve got a large number of people on a global basis that struggle to eat every day. So food poverty remains a problem. So are they concerned about non-GMO or are they concerned about regenerative farming? Probably not, right? But then you start to look at some of the developed economies, particularly generational gaps. And what’s fascinating when you think about generational gaps, millennials and Gen Zs are more apt to pay higher prices for food than boomers and Xers. So Boomers and Xers have always viewed status as cars and houses. That’s how you know if you’re doing better than your neighbor kind of thing. And food was just a necessity. That’s why in the United States, I think 7.8% of disposable income goes towards food. But if you look at Gen Zs/millennials, they have a very different attitude towards food. And that attitude is much more as it’s an experience, it’s status. And so sometimes they’ll talk about maybe they won’t mention they shop at a discount grocer, but they’ll talk about if they’re at a specialty grocer, like a Whole Foods, Sprouts, Fresh Market kind of thing. They’re not picking up driver’s licenses. You’re not doing things in the car space because they’d rather spend more

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of their income on food or experiences and vacations and so forth. So I think that has a huge impact on some of these things.

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Yeah, it goes back to some of the segmentation points we were talking about before, like who is your consumer? How are they engaging? And, I guess, how do you divide your understanding of the consumer into much more nuanced segments so that you can actually deliver products that fit gamers vs. Sprouts shoppers of different ages? There’s a lot of complexity there, though.

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Sounds pretty difficult. The role of people like Nigel is getting harder.

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Just makes my job more interesting, Sarah.

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That just makes my job more interesting. And I won’t say my job is getting harder and harder and harder, but following the path that Rob was just describing and what we talked about right up front, we’ve actually got an even bigger challenge facing us over the next, let’s say, 10 to 20 years. Some people would say it’s even less than 10 years, which is, which is all around the climate impact of our food system. We barely touched on that today. But when you start to look at that and the transformations you need in the food system in order to hit any of the climate targets, you know, the food system is 30% of the total climate impact and also carries a heavy burden in terms of biodiversity. So there’s huge innovation opportunity, I would say.

00:31:01:05 --> 00:31:15:00

I guess on that climate point, Rob, that you wanted to touch on in terms of consumers, and I don’t know if we want to open the can of worms on Scope 3 emissions and things, but I guess consumers and their relationship or their thinking around climate and what that means for brands.

00:31:15:03 --> 00:32:22:02

I’ll put consumers in two categories in this case, right? There’s consumers who really care about their food and they have the ability and willingness to pay for it. And then we’ve got consumers who aren’t as concerned with their food, or are unwilling or unable to pay for it. And so what that does is it starts to create some narratives around the sustainability conversation, and what we have to be really careful on is we don’t create a lot of energy and put more cost into a system to make it sustainable, whether it’s water use, land use, soil preservation. If that creates a more expensive food system, then we run the risk of having a perceived healthy, good system and an unhealthy, poor system, which from an ESG standpoint, we’re really addressing the E at that point. But we could actually do damage to the S in the ESG equation. So I think that’s a real balance of you’ve got to ask yourselves a question of if I’m going to put additional cost into the system, who’s going to pay for it? Is that buried in my margin? Will investors reward me? Even though I have lower margins, I’m providing more enterprise value. Is that the argument, or how much of that am I going to push down to consumers?

00:32:22:03 --> 00:32:28:14

Nigel, any comments on that and how you think about making sure that equity piece is maintained as these climate initiatives are considered?

00:32:28:14 --> 00:34:04:10

You stated it beautifully, Rob. We cannot allow a lowering in access to healthy food to happen simply because we’re making a better food system. That’s just not going to work. It doesn’t work at all. And that’s why I view all of this as an innovation problem. In fact, I would define it as the innovation problem in the food business right now. And why do I say that? Because the examples I see where we’re able to best manage the balance that Rob so beautifully defined there are examples where we very, very early get into an understanding of the ingredient streams, the farming practices even, the ingredient streams, and we build that right through the system, through our food design, right through into the hands of the consumer and shopper. And if we can do that, we can find ways of not putting overbearing cost into these systems, of not trading off in terms of access and health. And so is it easy? Will it be straightforward? No. Is it doable? I believe firmly, yes, because I have a very simple principle when I talk to my teams: If it doesn’t break the laws of chemistry and physics, then it’s possible, and it doesn’t break the laws of chemistry and physics. It might bend a few of our current laws of economics, but they’re not laws, anyway. So yeah, I think that’s the challenge we face and the exciting opportunity we face over the next five, 10, 15, 20 years.

00:34:04:10 --> 00:34:31:17

I love that. I think it brings me to my final question maybe for you, Rob, is Nigel’s kind of alluding there to how organizations might need to change as they think about ESG pressures and changing consumer preferences. How are you seeing, or any examples of how food companies, whether it’s integrating sustainability with procurement or finance or thinking about R&D differently, how are companies needing to change to make sure they remain consumer-centric for all the different kinds of consumers?

00:34:31:18 --> 00:34:47:10

Yeah, I think it’s a persistent view on what’s changing in consumers for one, right? Two is, I think it’s not just to think about their customers and not just to think about their role in the system, but to think about their impact on the entire system.

00:34:48:00 --> 00:35:28:09

And can they play a pivotal role as a, as a hub in an ecosystem, or are they a participant in multiple ecosystems? I think that, that agility is important. And then lastly, I’d say, experimentation, innovation constantly and then figure out, pick your spots when you really want to take that to scale and double down. I think these business cases we develop 10, 20 years ago that said, “We’re going to make X number of dollars over the next 10 years,” I think are really being challenged to say we need to kind of revisit those constantly and figure out almost a classic staging kind of approach: When do we really pour money in because we think this is going to capture something entirely new in the marketplace?

00:35:31:06 --> 00:36:00:19

Thank you to our guests, Nigel Hughes and Rob Dongoski, for their time and insights today. Nigel is the SVP, Global Innovation and Research and Development, at the Kellogg Company. Rob is a partner and Food and Agribusiness Leader at Ernst & Young LLP. If you want to hear more like this, make sure to subscribe to Food System Reimagined on Apple Podcasts, Spotify or your podcast app of choice. You’ve been listening to Food System Reimagined, an Ernst & Young LLP production. This episode was produced by Clara Shannon with audio production by Kieron Banerji. Thanks for listening.