Buying on a Budget

After falling to their lowest volume point in more than 10 years in 2008, carbonated beverages bubbled back to the top dollar spot of all supermarket categories during the 52 weeks ending June 14. Working in these drinks' favor was their low cost relative to other beverages, industry observers note. Limited discretionary income likewise fueled budget-conscious spending in other grocery categories during the past year. Shoppers bought cases of beer rather than six-packs, multi-serve frozen entrees, and extended life roll toilet tissue to save money in the long run.

Grocery lists were also chock full of meal components that could be prepared at home. Fresh bread & rolls, soup, crackers and especially pasta, instant potatoes and frozen side dishes were on heavy rotation at dinnertime, while most house parties didn't get under way until wine, salty snacks, ice cream and other celebratory foods were purchased at the supermarket.

Shoppers also relied on drug stores for their Center Store needs, and even combined fill-in trips with missions to medicate whatever ailed them. In fact, drug stores posted the most dramatic dollar sales gains in nearly all of the grocery categories SN outlines in the following pages. Frozen side dishes and instant potatoes were the only exceptions.

KEY CATEGORIES

Carbonated Beverages

Carbonated drinks slugged it out with milk during the 52 weeks that ended June 14, to regain the top dollar volume spot of all supermarket categories. True, sales of the bubbly beverage ($11.9 billion) surpassed the dairy drink's revenues ($11.5 billion) during the turbulent year, but it wasn't exactly smooth sailing for CSDs. Although they beat out the better-for-you beverage, the libation's negative health implications caused many to flee the category for safer vitamin-enhanced waters, teas and sports drinks. The shift may be responsible, in part, for the 2.6% drop in CSD unit sales experienced by supermarkets. The drug channel is also likely eating into grocer's share. Unit sales in the segment grew 3.1% during the past year. The good news for soda marketers is that the majority of carbonated beverage drinkers are here to stay, according to Mintel, Chicago. It reports that these consumers are most likely male, under 35 and not necessarily seeking a healthier option. Still, market leaders are obliging those who are with offerings like Pepsi Raw, which counts vegetable-based sweeteners among its ingredients. Coca-Cola has also increased the availability of its zero calorie Coke Zero, its most successful product launch since Diet Coke in 1982.

Fresh Bread and Rolls

Dollar sales of packaged bread and rolls continue to rise year-over-year, spurred in part by higher commodity costs. But an across-the-board drop in unit sales in all channels tells another story. Volume sales were down 2% in supermarkets, 2.6% in drug stores, and 1.9% in all outlets combined (excluding Wal-Mart), during the 52 weeks that ended June 14. Faced with prohibitive prices, consumers are turning to discounters to meet their need for low-cost bread and rolls. A consumer poll, conducted by Mintel, Chicago, found that price is an issue with 60% of bread buyers who said they'd “eat healthier bread more often if it weren't so expensive.” The news bodes well for private labels, since the cost of an average 24-ounce store-brand loaf is $1.79, compared with $2.64 for the national-brand equivalent. Private-label bread occupies the share-leader position, comprising 26.2% of the market. It gained a bigger slice of the loaf this year thanks to new introductions from retailers like Wegmans Food Markets, which rolled out Wegmans White Hot Dog and Hamburger Rolls Made with Whole Grains. Rolls, buns, croissants, bagels, bialys, and hamburger and hot dog buns are driving the most significant dollar sales gains in the food channel, as consumers incorporate breads in their at-home breakfast, lunch and dinner menus.

SUBCATEGORIES

Beer/Ale/Alcoholic Cider

An increase in at-home beer consumption boosted supermarket sales, as consumers took their alcoholic beverage budgets to places where it could be stretched the furthest. Unit sales in food; drug; and food, drug and mass channels (excluding Wal-Mart) combined inched up to 1.7%, 1.6% and 0.5%, respectively. Although the switch in destinations helped shoppers save money, beer drinkers got even more bang for their buck in other ways. Many, for instance, began to buy in bulk to save costs on a per-unit basis. Food retailers stocked their shelves accordingly with 24-, 30- and 36-count packs. In some cases, consumers paired their buy-in-bulk strategy with less expensive brews. According to reports that cited IRI figures, sales of Bud Light, Budweiser and Miller Light suffered sizeable sales losses, while subpremium brands like Busch, Natural Light and Keystone got an unexpected boost during the two-week period ending July 5. Many are attempting to protect their market share. MillerCoors is testing a 1.5-gallon “Home Draft” with its Miller Lite and Coors Light brands, according to reports.

Salty Snacks

Chips, pretzels and other salty snacks continued their year-over-year dollar sales streak thanks to commodity cost pressures, which are often more dramatic and longer-lasting when related to processed foods. The most dramatic dollar sales jump took place in the drug channel, the only outlet to post a unit sales increase. Drug stores continue to add to their shelf-stable food offerings, increasing their viability as a quick and easy fill-in destination. The volume impact on traditional food retailers and mass merchants might have been more dramatic had it not been for consumers' newfound need to entertain at home. Many munched on pork rinds and popcorn while having friends over to watch the game, or sopped up homemade dips with tortilla chips during backyard barbecues. The category also had its fair share of healthy innovations. New Pop Chips use heat and pressure to pop chips, rather than bake or fry them. They claim to contain half the fat of fried chips. Snack maker Frito-Lay has also moved to all-natural oils like sunflower, corn and soybean oil. In an effort to build a more wholesome image, it's even added a chip-tracker function to its website so shoppers can find out where the potatoes used to make their bag of chips were grown.

SUBCATEGORIES

Frozen Dinners/Entrees

Families seeking a convenient and cost-effective way to prepare a meal turned to frozen entrees during the past year, with many opting for multi-serve sizes to get the most bang for their buck. The strategy revealed itself in dollar sales gains, in the face of unit sales decreases, in food; drug; and food, drug and mass channels (excluding Wal-Mart) combined. Volume sales took a hit since shoppers opted for fewer, larger-sized boxes, rather than buying several individual-sized meals for each member of the family. Frozen entrees also offered a portable and filling brown bag lunch option for consumers to bring to work. With a multitude of “just like mom used to make” options, the category capitalized on cash-strapped shoppers' cravings for comfort foods. An online poll conducted by Packaged Facts in February revealed that over one-third of respondents agreed that they were eating more comfort foods. Microwave useage is also up to its highest point in close to 20 years, according to Harry Balzer, vice president of the NPD Group. Though shoppers had less money for dining out, restaurant-quality meals and even options bearing the Boston Market, T.G.I. Friday's and California Pizza Kitchen names were suitable alternatives. Consumers also stuck to popular diets with ease thanks to Heinz Weight Watcher's Smart Ones and Kraft's South Beach Diet entrees. Other brands gained favor with shoppers by adding value. Nestlé, for instance, added more chicken to its Stouffer's Dinners Chicken and Fettucini Meal.

SUBCATEGORIES

Cold Cereal

Ready-to-eat cereal may have lost ground a few years ago, but dollar sales have been on the upswing since 2007. They grew 2.1% in 2008 in supermarkets and 2.9% in food, drug and mass channels (excluding Wal-Mart) combined. Drug stores, meanwhile, experienced a whopping 17.9% dollar sales increase last year. Unit sales, however, are flat to declining, largely in response to select price increases to offset higher commodity costs. Last year the retail price of cereal increased by an average of 4.7% when compared to the previous year. To draw budget-conscious consumers to pricier versions of the breakfast staple, cereal makers are innovating with new items. Take General Mills, which reportedly is introducing Wheaties Fuel, a cereal aimed at men. General Mills used a panel of male athletes, including Indianapolis Colts quarterback Peyton Manning and Boston Celtics forward Kevin Garnett, to consult on the nutritional profile and flavor, according to reports. General Mills has also tapped into health and wellness trends, by reformulating its Rice Chex cereal so that it's free of gluten. The company reformulated the product by replacing barley malt syrup with molasses. Kellogg has also improved upon its products. One of its latest introductions is Corn Flakes with a Touch of Honey. Likewise, it added fiber to many of its ready-to-eat cereals in the U.S. and Canada. Nearly 80% will be worthy of either good or excellent sources of fiber designations by the end of 2010. The first batches, including fiber-enhanced Froot Loops and Apple Jacks, will hit store shelves this month.

Wine

Retailers continue to toast to wine sales, which are up in all channels. Such performance shows that even in these recessionary times, consumers view wine as an affordable indulgence. While they may not be able to eat out as often, many are still enjoying fine dining at home — and wine plays into that. However, growth has slowed in supermarkets, which experienced a 3.5% dollar sales increase in 2008, compared with an 8.8% growth in 2006. Conversely, the growth rate is posting strong gains in the drug channel, where dollar sales rose 4.6% in 2008, compared with 0.9% in 2006. This has motivated chains like Walgreens to eye chainwide beer and wine sales, where legal. Supermarkets, however, have an action plan to keep sales on the upswing. An increasing number are offering private-label wines. Among new initiatives: Hannaford Bros. introduced Black Elk, an exclusive wine brand priced under $10. Likewise, Fresh & Easy Neighborhood Market is adding 15 new wines to its selection that is exclusive to the chain.

Cigarettes

Ever-increasing taxes are motivating smokers either to quit or buy their cigarettes at a discount online, thereby affecting brick-and-mortar supermarket sales. Sales in the outlet slid 5.3% in 2008 and 2.2% for the 52 weeks ending June 14. Some smokers may be going to the black market. New York City is losing up to $150 million in revenue from untaxed cigarettes purchased over the Internet, according to a report by U.S. Rep. Anthony Weiner, D-N.Y. Due to a new federal cigarette excise tax, which increased from 9 cents to $1.01 to help fund an expansion of the State Children's Health Insurance Program, the average price per pack in New York City approaches $10. When purchasing cigarettes in a store, consumers pay $2.75 per pack for the state excise tax and $1.50 per pack for the city excise tax. There is also an 8.4% sales tax that the consumer pays on the entire sale price. Smokers buying cigarettes online still pay these taxes, but cigarette sites almost never report the sales to state and local governments, according to Weiner. Congress will soon consider banning the mailing of cigarettes.

Ice Cream/Sherbet

Overall ice cream dollar sales may be a flat 0.9% in supermarkets, but one category — frozen yogurt — is showing particular promise. Frozen yogurt dollar sales grew 5.9% in food stores during the 52 weeks ending June 14. That's significant considering that regular ice cream and sherbet/sorbet/ices sales increases were very modest at 0.7% and 0.8%, respectively. While frozen yogurt is far from new, interest is rising due to flavor and health and wellness trends. Along with containing calcium, some frozen yogurt contains live cultures resulting in probiotics, or good bacteria that have digestive health benefits. Yogen Früz, for instance, is entering the U.S. market this year with its line of no-fat and low-fat frozen yogurt products, all of which contain probiotics. Likewise, Winn-Dixie Stores, Jacksonville, Fla., just launched Yovation, a premium frozen yogurt containing probiotics. Yovation comes in six flavors, including Cookie Fudge Crunch and Double Fudge Brownie. Made by Pierre's Ice Cream Co., a quart of Yovation sells for between $4.79 and $4.99. Dreyer's, meanwhile, markets Yogurt Blends cultured frozen dairy desserts under its Slow Churned brand. While overall ice cream sales are flat in supermarkets, they're performing particularly well in drug stores, where sales were up 7.8% for 2008 and up 6.5% for the 52 weeks ending June 14.

SUBCATEGORIES

Bottled Water

After years of strong growth, bottled water sales are drying up. Dollar sales dropped 6.8% in supermarkets and fell 6.2% in food, drug and mass channels (excluding Wal-Mart) combined during the 52 weeks ending June 14. While drug store sales were flat during the same period . Some of the loss can be attributed to the weakened economy, which may have led some shoppers to fill up containers with tap water rather than buy more expensive single-serve polyethylene terephthalate bottles. Since consumer confidence in tap water is growing, reusable water containers are a viable alternative for many. Another reason could be due to more concerns about the environmental impact of all those PET bottles that litter parks and clog landfills. Green shoppers also don't like the fact that millions of gallons of oil are required to ship bottled water to retailers. The issue has become a hot political topic. Seattle's mayor recently signed an executive order to stop the city from buying bottled water, following a similar move last year by San Francisco Mayor Gavin Newsom. The controversy has not fallen on deaf ears. Water marketers have taken steps to reduce the amount of plastic used in their water bottles. Between 2004 and 2008, Nestlé reduced the average weight of its bottles by 20%, according to the company. Its 500-milliliter Eco-Shape bottle requires 12 grams of PET, which is two times less plastic than for the average bottle, Nestlé says.

Soup

Unit sales of soup in supermarkets continued to drop this year, falling 4%, as consumers opted for simpler, more healthful varieties in the down economy. Although overall dollar sales in the food channel climbed 2.7%, the growth is mostly attributed to inexpensive subcategories like ready-to-serve broth and ramen, whose dollar sales growth increased by double digits. The drug channel, meanwhile, which has increased its lineup of Center Store food offerings in recent years and is capitalizing on consumers who are consolidating their shopping trips, saw unit sales increase by nearly 7%. Results in the condensed soup subcategory say it all: Unit sales in supermarkets declined by 5%, while drug stores' unit sales rose by 20%. To jumpstart sales across the board, manufacturers are lowering prices and developing healthful formulations. Campbell's, which accounts for about 70% of the $5 billion soup category, recently offered a two-for-$1 promotion on select cans of its soup. The company has also had success with its expanding line of low-sodium soups, which it unveiled in response to growing concern over salt intake. Recently, the company even started offering low-sodium versions of its popular “Chunky” line of soups. There are other healthful offshoots, too, like gluten-free and dairy-free soups, as well as a high-fiber soup coming out from General Mills' Progresso. It's scheduled to hit shelves this fall.

SUBCATEGORIES

Crackers

Steady growth in the cracker category can be attributed to two areas of consumer interest: whole grains and private labels. More manufacturers, from Campbell Soup Co.'s Pepperidge Farm division to Nabisco, are including whole grains in their recipes, though a study conducted earlier this year by the Whole Grains Council found that only 20% of crackers on the typical supermarket shelf qualified as a whole grain product. As shopper demand and government pressure to offer more healthful food products continue to gain momentum, look for reformulations of existing brands and new additions going forward. Crackers are also an integral part of many private-label lines, particularly if they are a natural/organic brand. Private-label organics has passed the $1 billion sales mark and last year alone, more than 500 new organic private-label food products were launched in the U.S., according to Mintel. This year, Meijer, Unified Grocers, A&P and Big Y were among the retailers who highlighted different crackers in their new or expanded private-label lines. Most, but not all, are being marketed as part of the companies' natural/organic offerings. A&P, for instance, has included better-for-you graham crackers as part of its new “America's Choice Kids” line.

Toilet Tissue

Dollar sales are on a roll in both food and drug channels, while unit sales overall are dropping. A probable explanation for this is the increasing popularity of both extended rolls, which pack more sheets per roll, and higher-priced eco-friendly varieties, many of which contain no dyes or chemicals and are made from recycled paper. Retailers are especially gravitating towards extended rolls because of the value and sustainability messages they convey. And many supermarkets have actually positioned extended rolls as their environmentally friendly offering in the category. Wal-Mart, for example, recently estimated that by selling twice as many Charmin six-roll packs, which contain as much paper as a regular 24-roll pack, it would eliminate 89.5 million cardboard roll cores and 360,087 pounds of plastic wrapping. Private-label toilet paper, which sells for close to half as much as many mainstream brands, is gaining steam, according to Mintel. But national brands like category leader Charmin, with more than $500 million in yearly sales, still account for the majority of sales.

Dog Food

These days, dog owners treat their furry friends like one of the family, and so they're reluctant to skimp on food and treats in a recession. If anything, people are likely to spend more. The latest numbers bear this out, with a 10% increase in dollar sales for the food channel and nearly 30% for drug, while overall unit sales are down about 3%. More than half of all sales in the pet market come from “premium demographics,” according to a recent report from Packaged Facts. This includes well-educated consumers who scrutinize labels and will pay more for high-quality food that offers health benefits. Catering to the group is Purina with its Pro Plan line, as well as California Naturals, which puts an emphasis on using higher-quality ingredients.

Laundry Detergent

Concentrated detergents collectively take up significant shelf space, and that's knocked unit sales down a bit since consumers who opt for larger concentrated bottles are buying them less frequently. Dollar sales in the food channel were up only slightly, while the drug channel continued its growth with an 8.8% increase. Overall, the category has seen an increasing number of premium and value-added introductions, like Tide Loads of Hope and Woolite's new line for preserving high-quality fabrics. Perhaps in stronger economic times, these pricier brands would be selling well, driving up dollar sales growth. But right now many of these offerings, like Tide Simple Pleasures and Wisk, are taking double-digit losses, according to IRI. Instead, consumers are opting for value and private-label offerings. Brands like Sun, for instance, saw a sales increase of 132%, and private labels are also experiencing double-digit sales growth. Established national brands are attempting to get in on the action. Procter & Gamble recently introduced Tide Basic — a new value-priced powdered laundry detergent that's free of the frills associated with some of its other brands. Meanwhile, eco-friendly laundry detergents like Seventh Generation, which uses plant extracts instead of chemicals, are faring well. Retailers and analysts say the consumer loyalty surrounding products like these is too great to wane, even during a recession.

Pasta

High flour prices and other commodity costs hit the pasta category hard last year driving up prices by more than 20%. Yet, consumers are still buying the convenient and versatile staple, with dollar sales in both the food and drug channels increasing nearly 20% during the 52 weeks ending June 14. Indeed, pasta is a must-have for the growing ranks of at-home cooks looking to save money. To accommodate the demand, retailers have lowered prices and sold in bulk, offering deals like 10 boxes for $10. Food retailers have also stepped up their private-label offerings, which provide an inexpensive alternative to not only standard all-purpose noodles, but also many healthful varieties. Mainstream brands like Ronzoni and Barilla have filled aisles with whole grain, organic, multigrain and other offerings in recent years. Private label has kept pace, and many consumers are springing for these more cost-effective options. According to IRI, last year private-label pasta held just over 30% of unit share in the category.

Energy Drinks

No one doubts that energy drinks continue to attract fans and devotees looking for a boost. Sales increases may not be as significant as they once were, but they remain strong and the category is profitable for all classes of trade. The bulk of energy drink consumers continue to be made up of teens and young adults quaffing aptly-named brands like Amp, Rock Star and Red Bull. Some new activity has been seen, however, in older age groups, particularly females, who are buying beverages that promise energy as well as an appetite suppressant. Top claims for new energy drinks introduced over the past year include: added vitamin and/or minerals (83 new products); low, reduced or no sugar (78); low, no or reduced calories (41); no additives or preservatives (40); low or reduced carbs (28); all natural (26); kosher (24); organic (19); and on-the-go (16), according to Mintel's Global New Products Database. Similarly, athletes have taken up purchasing powder or dry mixes that can be added to water bottles or other beverages.

Instant Potatoes

Almost certainly, the recession and consumers' desire to stretch their food dollars are the overriding themes behind the sudden rise in popularity of instant potatoes. Sales in the supermarket channel especially enjoyed a robust increase, zooming from $314 million in pre-recession 2007 to $337 million through June 14 of this year. Spotting the trend, many retailers lowered prices on this cupboard staple, a move that helped spur sales and bump volume. Last year, even discount retailer Aldi felt compelled to lower prices on many items, and instant potatoes was among the first to get a 10-cent reduction, to 99 cents a package. Indeed, almost all retailers have made instant potatoes part of their basic-tier private-label line, thereby providing consumers with even more potential savings over national brands.

Frozen Side Dishes

Frozen entrees have long been a popular option, but as the economy forces changes in the center-of-the-plate choices shoppers make, they are discovering they can still save some time if they purchase frozen side dishes. So, even though Mom has started making pot roast from scratch because it's cheaper, the family is still eating on time because she can buy less-expensive frozen sides like creamed spinach or twice-baked potatoes. For obvious reasons, the vast bulk of sales have been captured by the supermarket channel, which more often operates whole aisles of frozen foods; drug stores and members of other channels, however, can't be as generous in devoting space to the category. And supermarkets are where shoppers are making their purchases, as higher volumes allow food stores to offer more competitive prices. This is the second consecutive year supermarkets are enjoying strong sales of frozen sides. Before 2007, sales were on the decline. Then last year, sales turned around in a big way — up 18% — and they're up again this year through June 14.

Miscellaneous Snacks

With their portability and easily-merchandised packaging, miscellaneous snacks like trail mixes and chocolate-covered raisins fared well in all classes of trade, enjoying double-digit sales increases that averaged in the mid-teens. Of the subcategories, anything covered in chocolate performed the best, though the category is dominated by nutritional snacks like nut-and-seed-based trail mixes. Sales were also likely helped because of the cross-merchandising opportunities these types of product present. Some are found in produce, while others sit adjacent to the candy display; even more might be found up front at the checkout as an impulse item. The multiple intercepts allow retailers to hit shoppers in almost every part of the store. Long-term trends point to continued, steady sales growth, as American consumers become increasingly aware of the “in-between” foods they consume. With many striving for more healthful diets and better all-around eating habits, experts foresee the majority of new growth will be in the healthy snack subcategory. Besides offering prepacked items, those retailers with appropriate formats may also want to consider adding bulk bin displays for their bestselling miscellaneous snacks.

SUBCATEGORIES