Market segmentation is fundamental to marketing. Segmentation is evergreen when it comes to building and managing brands.
J.M. Smucker, purveyor of jams, jellies, Jif peanut butter, Folgers coffee, Uncrustables, Carnation evaporated milk and pet food items including Milk Bone dog biscuits and Meow Mix, has just purchase Hostess brand snack foods. Hostess makes Twinkies, Ding Dongs, Ho Hos and Donettes.
Wall Street does not appear to be happy with this purchase, as Smucker shares dropped 7% after the announcement. Wall Street frets that the frenzy around new weight loss drugs and the ongoing focus on “healthy” snacks makes the Smucker purchase questionable, especially at the price paid: $5.6 billion according to Bloomberg/$4.6 billion according to The Wall Street Journal with the assumption of $900 million of debt. Additionally, Wall Street worries that the Hostess portfolio of brands is “mature” and only sold domestically.
There are also the two Hostess bankruptcies – 2004 and 2012. Although Hostess revitalized around the iconic Twinkies brand, there are concerns about Hostess vibrancy.
Smucker, like Campbell Soup Company (owner of Pepperidge Farm and Snyder of Hanover snack brands), sees a rosy future in sweet snack food items. Data show “indulgent snacking” saw a 20% faster growth than healthy, snack-food alternatives. Smucker also believes that the Hostess purchase will “strengthen” Smucker’s power in grocery store center aisles. Observers agree that people are snacking more often. The Wall Street Journal points out that 70% of consumers eat at least two snacks a day.
While the jury is out on how Smucker will leverage the synergies of Hostess with the existing Smucker portfolio, there is an important factor that the business press is glossing over. If Smucker can optimize this factor, the future of the Hostess purchase may, in fact, twinkle. That factor is occasion segmentation.
Occasion segmentation recognizes that people have different needs in different occasions. As situations change, sometimes so do the benefits desired by consumers. A simple occasion segmentation is by daypart. Fast food chains see differences by breakfast, lunch, dinner, late night and all night. Beverages may segment by occasions such as start the day, between meals, with meals, alone, with kids, with friends, with business associates and in the evening.
For example, you might drink one type of beer at a sporting event and another type of beer when you are dining with a client and another type of beer when you are at home hanging out with friends. The original Starbucks segmentation focused on four occasions: Emergency (as in “I must have this coffee right now to wake up.”), At home, Coffee Break and Café Society.
Levi Strauss ran into trouble because it did not move fast enough when the yoga clothes craze began. People wanted comfortable, stylish clothes for yoga but also wanted comfortable, body-revealing stylish outfits for wearing to the yoga class, after the yoga class and on weekends doing errands. Levi Strauss discovered that casual, chic, colorful yoga clothes were relevant wear for more occasions than yoga class. Yoga clothes were relevant for going to the bank, driving the car-pool car, having lunch with friends, taking strolls with family and participating in gym classes. Most of these occasions had been blue jeans occasions.
With snack foods, there are multiple eating occasions, including new dayparts as the lines between main meals and snacks blur. Barron’s, the financial newspaper, commenting on the Hostess purchase, wrote, “Consumers’ hunger for snacks is boosting cookie and candy makers as younger generations use them to substitute for full meals, according to research firm Circana Group. Snack sales were up 11% last year to $181 billion, the firm said.”
Grazing occasions have changed the way we eat as well. As has the shifting line between work and leisure, especially with work-from-home situations.
Carried food occasions such as bringing lunch to work, lunchboxes at schools or hand-held snack foods such as granola and energy bars or confectionary have also made occasions more dynamic. In fact, according to an in-depth account of the Smucker purchase of Hostess, The Wall Street Journal points out that many Hostess snack foods are designed to be “eaten on the go” or “to squeeze into a lunchbox.”
What we eat at home relative to what we eat out of home are different. For example, putting Halloween aside, confectionary items for at home-consumption tend to be bought as bagged rather than individual.
Smucker CEO, Mark Smucker agrees with the expansion of occasions. Mr. Smucker indicated that having Hostess in the Smucker portfolio would help Smucker reach people during new dayparts “beyond when they might reach for Uncrustables or Jif squeeze peanut butter.” Hostess recognizes that sometimes customer want a health snack for a specific dietary occasion. But, there are many times that customers want a snack that is designed for a treat occasion. Hostess data indicate that customers increasingly integrate healthier snacks and sweet, indulgent treats into their diets.
Mr. Smucker is not alone. Occasion segmentation is on the mind of Popeye’s president of US and Canada. In a discussion with Bloomberg, Sami Siddiqui stated that the average Popeye’s customer stopped by a Popeye’s restaurant only 3 times a year. At McDonald’s the average customer stops by 18 times a year. Mr. Siddiqui said that people talk about Popeye’s as a special treat occasion. In fast food, special treat can be a problem. The goal for Popeye’s is to become “an everyday occasion.”
Signet, the owner of Zale’s, Kay’s and Jared’s jewelry stores, is also facing issues with changing variations of occasion segmentation. Apparently, Valentine’s Day and anniversaries are now not as significant in jewelry purchasing occasions as are experiences, homemade items or dinners. According to Bloomberg, occasions such as receiving a raise or a promotion or a bonus leading to a jewelry purchase have increased. How people shop in bridal occasions has changed as well. Bridal is no longer a solely in-store experience. Shopping online for engagement rings and other bridal jewelry is growing. Signet told investors that it tracks “45 milestone occasions” in a couple’s life, each one of which is potentially a jewelry-buying occasion.
In its IPO filing, Instacart indicates that it is pursuing an array of occasions other than home delivery of groceries. Apparently, Instacart is looking into catering, stocking food for small- and midsize businesses like preschools and corporate offices and delivering food and nutritional programs through hospitals, medical providers and insurers.
Of course, knowing who is the customer and what are the customer’s needs in a given occasion are critically important. But, occasion-driven segmentation will be key for snack food innovation and growth. Wall Street should understand the marketing implications. Smucker understands.