April 4, 2019  |  Expertise

Blockchain for the Natural Consumer

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The natural products market has come a long way since Tom’s of Maine introduced the first natural toothpaste in 1975 and Whole Foods opened in 1980. The U.S. organic food industry has exploded from a $1 billion industry in 1990 to a $45 billion industry in 2017, doubling in the last decade.

The natural and organic personal care products industry continues to gain popularity in North America, with revenues surpassing $5 billion in 2018 according to Ecovia Intelligence’s December 2018 report The North American Market for Natural & Organic Personal Care Products.  There is plenty of runway ahead, too, as Grand View Research Inc. projects the organic personal care market to be a $25.1 billion industry by 2025.

Further evidence of how mainstream natural products have become were the 36,000 companies from 136 countries at the 39th annual Natural Products Expo West held in March 2019. The world’s largest natural, organic and healthy products event hosted 86,000 attendees this year – a long way from its humble beginnings with 3,000 attendees in 1981.

Consumers are increasingly aware of what they put into their bodies, seeking in-depth nutritional and product information, and demanding more from food, beverage and beauty products than ever before.

Originally a niche fringe market dominated by smaller companies selling products at co-ops and farmers markets, with the meteoric rise of this category there was an influx in investment and acquisitions over the past decade from the Big Food players, including Colgate’s purchase of Tom’s of Maine for $100 million in 2006; Kellogg’s purchase of Kashi in 2000 and Bear Naked granola for $60 million in 2007; and General Mills’ acquisition of Annie’s Homegrown for $820 million in 2014.

These are just a few of the corporate giants looking to broaden their appeal to Millennial and Gen Z shoppers who care not only about avoiding synthetic ingredients and chemicals deemed hazardous but who are also the biggest advocates for avoiding animal cruelty, GMOs and unsustainable supply chains. In fact, this changing consumer behavior drove CPG behemoths to push mergers and acquisitions to a 15-year high in 2018.

While led by Millennials, this movement isn’t limited to younger generations, according to a recent Nielsen sustainability report: 34% of Baby Boomers and 46% of Gen X consumers say they would definitely or probably change their consumption habits to reduce their environmental impact.

In world where differentiation is key to driving sales, adding the words “natural” or “organic” to packaging helped CPG brands stand out among competitors. That is a thing of past as these products have become mainstream. Consumers browsing retail aisles are bombarded with products bearing the labels “Natural,” “Clean,” “Green,” “Non-GMO,” “100% Organic,” “Organic,” “Made with Organic Ingredients” or “Contains Organic Ingredients.”

If you weren’t confused enough already, this is further compounded by the fact that the U.S. Food and Drug Administration does not have a formal definition of “natural” as they do for “organic.”  They only note a working assumption around the term: “nothing artificial or synthetic has been included in, or has been added to, a food that would not normally be expected to be in that food.”

No wonder only one-third of Americans understand what those claims mean.

The FDA plans to provide regulations in Summer 2019 around “healthy” and “natural” claims, but until then, the abstract nature of these labels builds distrust and impacts product sales. Many consumers are willing to switch and even pay more for another food product if they understand the ingredients in that product.

How can brands, especially smaller ones without multimillion-dollar ad budgets, stand out in crowded retail aisles or in the sea of products available on Amazon and at a higher price point?

The answer is blockchain.

Blockchain taps into key attributes that Millennials and Generation Z value: authenticity, transparency, experiences and sustainability. Blockchain allows brands to tell their origin and environmental-impact story, helping bring clarity to consumers in this increasingly crowded space.

What is blockchain?

Most simply, blockchain is an open, decentralized ledger that records transactions between two parties efficiently in a verifiable and permanent way.

Encrypted transaction data is recorded across a network of computers utilizing blockchain code. Any changes are immediately registered on all computers. Transactions can be programmed to trigger automatically and allow participants to transfer assets across the internet directly eliminating the need of a centralized third party to broker or confirm transactions on independent ledgers. Individuals, organizations, machines and algorithms can freely transact and interact with one another with little friction.

The evolution from a central authority to consensus-based authorization across an entire network will fundamentally shift how businesses operate. The power of blockchain will drive the Fourth Industrial Revolution disrupting the natural products industry as we know it.

Why is blockchain valuable?

Blockchain simplifies operations by cutting out intermediaries, reducing costs and increasing speed, while bringing transparency to business transactions and traceability of products. Blockchain also:

  • Accelerates transactions, enabling new business models and revenue streams
  • Automates multi-party business processes
  • Reduces cost and risk of using intermediaries to broker and confirm transactions
  • Reduces risk of fraud and cost of regulatory compliance
  • Improves data quality and timeliness by avoiding offline reconciliation
  • Increases auditability and trust
  • Improves food safety
  • Reduces the impact of food contamination by more quickly identifying the source so that only impacted products are recalled eliminating waste

How can blockchain help natural products tell their brand story?

Blockchain addresses the key issues driving global organic and natural industry growth: sustainability (which means different things to consumers and growers), eco-consciousness and trust issues in food and products.

Global supply chains are limited by flawed information because reams of data are unavailable to parties in cross-border transactions. Additionally, farmers are rightfully guarded when sharing their methodologies. Blockchain demystifies the supply-chain process for businesses and consumers, providing a secure methodology for documenting and transferring key information about raw materials.

It allows the grower to share information with the processor, retailer and ultimately the consumer privately and securely so the technology provides the transparency consumers are craving without violating trust or revealing proprietary practices of those along the supply chain.

Blockchain is anticipated to reach critical mass for supply chains later this year, meaning more widespread adoption by retailers and consumers. In fact, after an 18-month beta test with IBM Food Trust, Walmart has announced the Walmart Food Traceability Initiative. It’s a food-safety program that requires suppliers of fresh leafy greens to use the IBM Food Trust blockchain network to capture digital end-to-end traceability information by September 2019.

The difference in speed to incorporate blockchain while the supply chain is smaller versus the massive undertaking it will be for the CPG giants to demand widespread implementation creates a competitive advantage for small businesses. With this broader adoption, there will be a reduction in brands able to claim “natural” or “organic” without the story to back it up, and that will create an opportunity for products that truly deliver on their natural promises.

For businesses, blockchain bridges the gap between distribution and production teams. Blockchain can be integrated with existing ERP systems, creating collaboration to ensure the transfer of goods were explicitly authorized by their relevant controllers without solely relying on the competence of a processor.

It provides accurate inventory management systems, essentially making a once-arbitrary process now fully auditable. This, in turn, helps provide more accurate forecasting data, less waste, increased capacity and ultimately increased profit. Most importantly, it helps deliver your value proposition to consumers.

Why do consumers care?

Transparency matters with today’s buyers. Ubiquitous claims are no longer impactful; consumers want specifics around sustainability. Consumers demand more from the products they eat, wear and purchase. They want to understand:

  • How was this made?
  • Was the product sustainably farmed?
  • Is this actually good for me?
  • How unique is this item?
  • Is this really paraben-free?
  • How recyclable is this product?
  • How does the production of this product impact the environment?

Simply adding an NFC tag or QR code on packaging brings the product’s origin story to life with one tap.  Blockchain is used by producers and retailers to track items from seed to sale. The blockchain record can start at harvest or even with the seed. The product is assigned a hash key as a seed which is scanned at every touchpoint along its journey.

Whenever the container is moved, changes transportation modes, stops for a period, passes through ports or customs or gets stored in a warehouse, it is scanned, and a block is added to the chain on the distributed ledger. This technology can substantiate or dismiss products labeled “natural,” “clean,” “green” or “organic” within seconds.

As consumers become more focused on transparency from brands and their sustainable practices that go into making the product, blockchain validates authenticity. Since the product information is put on the blockchain at the origin, the information cannot be falsified, and all details of the transactions are in the block.

 

Contact Ideabar:
(561) 820-4280
ideabar@coxinc.com