Last year on this blog, I announced the GAIN Business Model Research (BMR) Project: funded by the Netherlands Ministry of Foreign Affairs, this project aims to identify promising business models to reach consumers on lower incomes with nutritious foods. Such approaches could help to improve the quality of diets—which currently are often lacking in food diversity and quality—if they can provide food that meets customers’ needs at an affordable price. But they must do so in ways that are profitable and sustainable for the company. How can they do this?
To find out, the BMR project undertook a systematic review of existing research and evidence. We screened about 8,000 documents before selecting 74 documents, and 99 case-study companies, that were eligible for inclusion. We included companies producing highly nutritious foods as well as those producing less nutritious alternatives—with the understanding that they might offer insights that could be applied to nutritious foods. We then analysed these documents to extract and synthesise 13 specific approaches used by firms to reach lower-income consumers with food and beverage products. Here, we discuss the first of these approaches: using cheaper ingredients.
Companies entering the lower-income consumer market often adapt existing products to meet lower-income consumers’ needs—in particular, redesigning the product to improve affordability. One way to do this is to simply replace more expensive ingredients with cheaper alternatives, or omit certain ingredients altogether.
For example, Coopérative de Transformation d’Approvisionnement et d’Écoulement de Soja (CTAE) in Benin developed a product, soya goussi, which replaces the mashed seeds used in a traditional dish with roast soybean to create a cheaper product – which is also more nutritious, having a higher protein content. This is particularly low-cost as it is made using soy cake, a by-product of soybean oil production. The product can also be used to substitute for meat, at a price about 30% lower than chicken.
A Cambodian producer of fortified snacks and therapeutic foods, Danish Care Foods, replaces the imported dairy- and peanut-based products used by its competitors with cheaper local fish and beans, which also enable it to better cater to local tastes. Similarly, Promasidor, a South African seller of powdered milk, replaces milk fat with vegetable fat, creating both a cheaper product and a more shelf-stable one. And the southern African brewer SABMiller has succeeded with marketing a beer made from local starches like cassava, maize, and sorghum, as opposed to traditional brewing grains, at a price 40% cheaper than standard beer. While beer is certainly not a nutritious food—or a food at all—the approach can offer inspiration for approaches that could be applied to nutritious food products.
Companies entering the lower-income consumer market often adapt existing products to meet lower-income consumers’ needs—in particular, redesigning the product to improve affordability. © GAIN
Regarding the removal of ingredients, a Ghanaian fortified complementary feeding supplement, KokoPlus, excluded the cereal part of a typical fortified porridge flour, since households already had access to grain flours. This allowed for cost reductions in production (due to fewer ingredients and simpler processes), packaging (due to smaller packages), and distribution (due to smaller and lighter packages). At the same time, this strategy has natural limits: there are only so many ingredients one can remove before a product becomes undesirable or not useful.
The documents reviewed by BMR also provided two cautionary tales related to this strategy. First, Indian manufacturer Amulspray developed milk-replacement 'tea creamers' using vegetable fats instead of dairy ones (which cost about half as much). These products were very successful (accounting for 55% of UHT milk product sales and being a major source of firm growth), but as an unintended consequence began to be used as drinks for children, with much lower nutritional quality than the milk they were replacing. Second, a Mozambican meat processing firm sought to replace some of the beef in its hamburger patties with cowpeas, rice, soy, or beans to reduce costs, but was met with very negative customer reactions and had to lower the proportion of filler used (and, worryingly, chose to omit these ingredients from the product labelling, to avoid scaring off customers).
Replacement of ingredients may thus seem like a straightforward strategy, but success with it depends on achieving customer acceptability. This can be done through a product that is highly similar to the original (regarding cooking, taste, texture, and storage properties) or through careful marketing and consumer education. From a nutrition perspective, the replacement ingredients should be nutritionally similar (or superior) to the original ones. From a safety perspective, it is important to be transparent with the labelling of the products, to make it clear which ingredients have been replaced and with what. By applying these principles—plus a bit of creativity—companies may be able to cut ingredient costs while retaining a nutritious product that meets customer needs, at an affordable price.