CBD and plant-based continue to reshape the retail landscape

As consumer acceptance of CBD and plant-based alternatives continues to swell, retailers are enthusiastically embracing both of these relatively recent categories, according to a report from IRI that was presented at the FMI Midwinter Conference.

During the presentation, “From CBD to Alternative Proteins: What do emerging consumer trends mean for the grocery industry?”, Larry Levin, EVP, Market & Shopper Intelligence, IRI, and Tim Grzebinski, principal, Client Insights, IRI, outlined how far and fast both categories have grown and the opportunities they offer retailers going forward.

“Plant-based foods are now mainstream,” said Grzebinski. “Protein alternatives Beyond and Impossible are exploding. Major retailers are increasing their plant-based offerings.”

Health and wellness is the leading driver of plant-based success, with 73% of consumers in an IRI survey citing that as the reason for purchasing plant-based. Another key factor behind purchases was diet, cited by just under half of all respondents (47%). Vegan and dairy-free diets led consumers’ special diet needs influencing their purchase of plant-based alternatives, at 44% and 41%, respectively.

Despite the strong showing for health and wellness as a purchase driver, Grzebinski noted, “Plant-based does not always mean healthier, but rather the perception of healthfulness.” In addition, “clean label” advocates are increasingly pointing out the complex ingredients found in plant-based alternatives compared to many of the foods they’re replacing (most notably meat and dairy products).

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“It seems like some plant-based offerings are currently getting a pass on complex ingredients,” Grzebinski said. “But we are starting to see some pushback from clean foods groups. The jury is still out on whether they’ll be any real impact on plant-based.” For now, it appears that plant-based is safe from these criticisms — CAGR growth of plant-based options has been 14 times the growth of the total store, according to IRI data. Almost all plant-based segments are gaining share within their respective categories (i.e., milk, meat, supplements, yogurt, etc.).

“Plant-based milks are penetrating almost 40% of households, and oat milk is growing rapidly,” said Grzebinski. “Meanwhile, meat substitutes are at 15% penetration, and Beyond Meat has grown 134% over a year ago.”

Other categories outside of milk and meat alternatives are also showing strength. Shelf-stable plant-based milk is at 10.3% household penetration, frozen meals are just under 10% household penetration, while yogurt, creams/creamers and ice cream/sherbet are all performing well. Protein bars led in growth of all new plant-based products.

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“Much of the success of plant-based lies in the absence of negatives,” Grzebinski said, for example, non-GMO, non-dairy, non-gluten, etc.

Acceptance and opportunity for CBD
“The greatest opportunity for the industry today is to reap the benefits of legal cannabis,” observed IRI’s Levin, who added that “we have not seen this kind of disruption in our industry…ever.”

Cannabinoids, or CBDs, are chemical compounds found in the cannabis plant and hemp, which do not include any intoxicating THC but have properties that address a multitude of ailments. “Retailer and consumer education is necessary,” said Levin. “CBD is growing because we’re accepting it. Consumer behaviors toward CBD, hemp and cannabis are changing. It’s no longer just a western United States phenomenon as more states legalize it.”

For instance, Levin pointed out that 15% of adults aged 21 and over have consumed hemp-derived products in the past six months, according to BDS Analytics Consumer Research. Thirty-eight percent of adults in states where cannabis is fully legal consume cannabis and an additional 29% are open to consuming.

While a fair number of consumers surveyed by BDS either don’t know there is a difference in the effects of CBD and THC (30%) or state incorrectly that “there is no difference” (25%), those numbers are down from a year earlier — from a total of 63% to 55% — indicating that consumers are becoming more educated about CBD.

With the majority of U.S. adults supporting legalization of marijuana, social barriers are being eliminated that are leading to more interest in non-THC CBD. About 80% of U.S. adults agree there should be some form of legal marijuana usage, and 64% of U.S. adults agree that marijuana has medical benefits, according to BDS research.

This widespread consumer acceptance, along with CBD availability in general retail, will result in a projected U.S. total cannabinoid market of around $45 billion in 2024, said Levin — with $13 billion of that being non-THC cannabinoids at general retail.

The consumption of hemp-derived CBD products is predominately health and wellness related, as consumers seek out alternatives to prescription and over-the-counter medications for reasons as varied as improving quality of life; treat or manage a health problem; relieve pain; sleep better; improve sense of wellness; and simply to avoid prescription drugs.

The current explosion of CBD at grocery retailers ranging from Walmart to Kroger and everyone in between is focused almost exclusively on health and wellness products, such as supplements, external pain, sleep, skin care and beverages. While the cannabis dispensary channel dominates CBD product sales today, with 65% share of a total $1.9 billion market, a significant shift to general retail is projected by 2024 when the total market is expected to reach $20 billion. As the CBD category grows across retail channels, dispensary sales will drop to 26% of sales (but of a much higher dollar amount), while e-commerce (18%), pharmacy (11%), grocery (9%) and mass retail (9%) will all increase their share.

“Cannabis will be among the most disruptive trends to hit CPG in decades,” reiterated Levin. “Retailers and manufacturers have an opportunity to capitalize on a burgeoning revenue stream with unique innovation and consumer marketing.”

But, he cautioned, “education is critical to drive cannabis and CBD.” Currently, he noted, referencing the BDS study, only 22% of the U.S. adult population knows what cannabinoids are and can articulate the definition. It’s time to change that learning curve.