Millennials Are Flocking to These Companies

Now that the millennial generation has entered the workforce -- most in the cohort are now in their 20s -- their habits and preferences are becoming crucial drivers of trends in consumer products. This is as true as ever in the snacks market, where the eating habits of millennials are driving innovation and growth.

Unlike their parents and grandparents, who were raised on three meals a day, millennials are more likely to eat between meals; in fact, they are snacking pretty much all day long. But constant snacking is no fun when all you have are the standard potato chips. Instead, millennials demand a variety of bold flavors to keep their taste buds excited.

And just because millennials snack all day does not mean they're fine with joining the boomers in the ranks of the obese. On the contrary, the cohort wants healthy options, especially organic and natural ingredients. Oh, and they also want those snacks to be ready to eat -- no waiting 10 minutes to pop popcorn the old-fashioned way.

Despite the demands from the "entitled generation," -- great-tasting, ready to eat, and healthy -- appealing to this group is of crucial importance to snack companies like PepsiCo (NYSE: PEP  ) and Kellogg (NYSE: K  ) , which are positioned to benefit tremendously from this trend toward ready-to-eat snacks.

The trend is your friend
As a result of the enormous profit opportunity, snack companies are innovating like crazy to appeal to this up-and-coming cohort. For instance, Diamond Foods (NASDAQ: DMND  ) is promoting its nut products as an easy and healthy snack: high in protein, high in fiber, and lots of different flavors. The company's Kettle Chips line is also popular with millennials; flavors range from the standard Sea Salt & Vinegar to the more adventurous Maple Bacon. In addition, the company's Pop Secret brand is popular across age groups; it takes as little as one minute to microwave deliciously buttered popcorn.

Sensing the need to get in on the snack food trend, Kellogg purchased Pringles from Procter & Gamble in 2012 for $2.7 billion. This gave Kellogg the second-largest share of the global snack market, behind only PepsiCo's Frito-Lay division. Kellogg snatched up the snacks juggernaut after P&G's deal to sell it to Diamond Foods fell apart because of an accounting scandal at the latter company, which led to the departure of two key executives.

Diamond Foods has yet to fully recover from the scandal, which makes it an attractive acquisition target for Kellogg; it would bolster the company's position in the global snacks market.

Even if Kellogg and Diamond Foods combine forces, it will be near-impossible to dethrone Frito-Lay as the global leader in snacks. With brands like Lay's, Doritos, Cheetos, and Ruffles, no other company can match the company's brand power in the global snacks market. The company's 40% share of the market ensures its domination for years to come.

Frito-Lay continually innovates to appeal to millennials. Its Doritos brand launched the spicy Dinamita Chile Limon ("Great taste and good fun") to sit alongside the tried-and-true Cool Ranch, Enchilada Supreme, and other stalwarts of this powerhouse brand.

But even if Frito-Lay has a greater share of the market than Diamond and Kellogg, all three companies benefit from millennials' love of familiar brands. Unlike many other consumer products, private labels have had little success dethroning the low-cost branded snack items that are usually considered higher-quality. Most people drink Coke, Pepsi, or Dr Pepper -- not RC Cola. It is the same for snacks, which gives all companies in the branded snacks market an enormous tailwind.

Bottom line
Millennials are the driving force behind the global snacks market -- and they're also a key reason why it is expected to grow by 7% per year through 2015. Companies that cater to this market will have to continually innovate in order to keep these customers interested. Those who do it successfully will reward shareholders for an entire generation. 

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