LET'S MAKE A DEAL 2011

Despite temporary price reductions and other promotional deals, the average retail price of groceries like coffee inflated as high as 15% during the 52 weeks ending July 10, 2011.

Luckily for consumers, marketers were in deal-making mode and merchandising support helped offset higher prices, if only marginally. Shoppers were drawn to these deals as half of volume sold in the 20 highest-volume Center Store categories during the 52 weeks ending July 10, was sold on promotion.

Though sales were relatively flat across Center Store categories compared with the previous year, there were a few standouts. Energy drinks continued their caffeine-induced tear with sales spiking 14.5% due in large part to greater availability. Americans also demonstrated their allegiance to salty and sweet with sales of granola bars and chocolate candy both up 4.5%. Wine-selling retailers also toasted a 4% boost in sales of wine.

CENTER STORE KEY CATEGORIES

(Click on category for individual report.)

Carbonated Soft Drinks

Supermarket sales of the largest beverage category were a flat $11.9 billion for the 52 weeks ending June 12. That performance is better than the previous 52 weeks, when sales dropped about 3% to $11.8 billion.

Premium beverages such as ready-to-drink tea and coffee, sports and energy drinks continue to steal share from the category. But CSD manufacturers are working to invigorate the effervescent refreshment beverages with new formulations and packaging.

Coca-Cola launched a new 1.25-liter bottle that sells for $1 or less. The beverage maker also introduced new merchandising tools, including 100% recyclable merchandise display racks for use in the U.S.

Fresh Bread and Rolls

Bagels and bialys may be the smallest segment of the fresh bread category, but share growth is on the fast track. The segment witnessed a 6% rise to $592 million in sales. That's comparable to the growth of the second largest segment: rolls/buns/croissants.

In other segments, fresh bread sales slipped 1% to $6.5 billion. This is a big change from just two years ago, when sales rose significantly as more consumers brown-bagged it.

Still, marketers are catering to health-minded shoppers with new better-for-you bread options. Hostess, for instance, just introduced Wonder Smartwheat, a soft, whole wheat bread that provides 22 grams of whole grain, the calcium of 8 ounces of milk in two slices, and nine vitamins and minerals.

The Wonder Smartwheat launch follows the introduction of Wonder Smartwhite, with the fiber of 100% whole wheat bread and added calcium.

Salty Snacks

Pork rinds and potato chips are the shining stars of the salty snacks category. Sales of high-protein, carbohydrate-free pork rinds increased 3% to $101 million in food stores, while potato chips rose 2.8% to $3.3 billion in supermarkets.

A variety of consumers continue to seek out salty snacks as a low-cost convenience food. According to Mintel, 50% of kids, teens and 18-to-24-year-olds say they eat salty snacks five times a week or more. Adults say they eat salty snacks about 4.8 times per week.

Category growth has slowed, however, compared with 2009, when food store sales climbed 7% to $8.3 billion. That increase was largely attributed to recession-fueled sales, as consumers sought affordable indulgences.

Media coverage regarding America's obesity problem has also affected sales, which were a flat $8.5 billion in supermarkets. But salty snack companies are doing their part to maintain interest among consumers.

Innovation is key. Frito-Lay's North America division, for instance, introduced Tapatio hot sauce-flavored Ruffles potato chips, along with Tapatio-flavored Doritos and Fritos.

Beer

Unemployment among the category's core consumers continues to affect beer sales, which were flat in supermarkets for the last 52 weeks. But brewers are actively working on a turnaround. Anheuser-Busch InBev, for instance, is building its presence in the high-end category with the recent acquisition of Chicago-based Goose Island Beer Co., known for microbrews and specialty ales like 312 Urban Wheat Ale and Honker's Ale.

The brewer also partnered with consumer packaged goods companies to cross-merchandise beer with snack foods, water and other high-volume categories.

While food store sales are flat, drug store sales increased 7% to $1 billion. Along with carrying more mass-marketed beer, drug stores are exploring private-label brews. Walgreens, for instance, rolled out Big Flats 1901, a lager beer that carries suggested retail price of $2.99 for a six-pack of cans and $11.49 for a 24-pack.

Frozen Dinners

Expanded grocery sections have positioned drug stores as a destination for frozen food shoppers. Frozen dinners/entree sales in drug stores reached $68.8 million, nearly a 16% increase.

Walgreens, for instance, carries such frozen entrees as Marie Callender's Chicken Pot Pie; Stouffer's Craveable Recipes Macaroni & Cheese; Gorton's Shrimp Bowl Garlic Butter; and Stouffer's Lean Cuisine Cafe Classics Sweet & Sour Chicken.

The multi-serve dinner segment is taking off, growing 8% to $1.3 billion in food stores. Such frozens increasingly cater to health-minded, time-starved shoppers. ConAgra, for instance, has expanded its Healthy Choice Café Steamers line. The brand now includes Asian-inspired varieties including Lemongrass Chicken & Shrimp, Kung Pao Chicken, Pineapple Chicken and Beef Teriyaki.

Wine

Retailers of all kinds are toasting wine sales. But drug stores have the biggest reason to celebrate.

Drug store sales soared nearly 21% to about $493 million. That growth is much larger than the 4% that supermarkets experienced.

The stellar performance is a result of Walgreens, Rite Aid, CVS and others giving the category more attention. CVS, for example, sells wine, beer and spirits in thousands of its stores. And Rite Aid sells alcohol in most of its markets. Walgreens is also actively involved in the category. Soon after it reversed a roughly 15-year alcohol sales ban by returning beer and wine to its shelves, Walgreens partnered with Australian winemaker Daryl Groom to launch the table wine Colby Red. The 2009 Colby Red is described as “a flavorful California cuvée of cabernet sauvignon, zinfandel, shiraz, merlot and petite sirah.”

Cold Cereal

People are less likely to jumpstart their day with a snack, crackle and pop. Food store sales of ready-to-eat cereal slipped 3% to $5.8 billion. Part of the drop could be due to concerns about the nutritional content in cereals. But time constraints are another reason. The vast majority of Americans feel breakfast is important, but find it difficult fitting the meal into their day, according to a new Kellogg survey.

Among the results: 89% of moms want their kids to eat breakfast every day, but 40% report their child doesn't eat breakfast daily. To help reverse these breakfast trends, Kellogg formed the Kellogg Breakfast Council, a group of third-party nutrition experts who will work to help people understand nutrition information, and incorporate nutritious foods and habits in the diet.

Marketers are also investing heavily in innovation. Kellogg, for instance, will roll out $800 million worth of new products this year. Among the recent introductions is its first gluten-free cereal: gluten-free Rice Krispies.

Cigarettes

Thanks largely to higher taxes, a significant chunk of cigarette dollar sales went up in smoke across retail outlets during the past year. In supermarkets they fell by 6% to $4.5 billion during the 52 weeks ending June 12, reversing a nearly 4% gain during the same period between 2009 and 2010. For food, drug and mass outlets (excluding Wal-Mart Stores) over the past year, dollar sales of smokes dipped 2.5%. Only in drug stores did they show a small gain (2.1%), which was still a far cry from the 31.1% surge seen during the same period the previous year.

Federal and state excise taxes have had a clear impact in these trends. The federal excise tax rose 62 cents to $1 per pack in April 2009, while New York, Hawaii, Utah, New Mexico and South Carolina raised state cigarette taxes as of July 2010, with New York's soaring from $2.75 to $4.35 per pack, the highest in the nation. According to the Campaign for Tobacco-Free Kids, every 10% increase in the real price of cigarettes reduces overall consumption by about 3% to 5%.

Some localities have taken their own anti-smoking steps. For example, San Francisco banned tobacco sales in stores with pharmacies. Another hit to cigarette sales is expected to come in September 2012, when all cigarette packaging and ads in the U.S. will have more prominent health warnings, including graphic images depicting the health effects of smoking.

Ice Cream/Sorbet

The ice cream/sherbet category, which is dominated by the supermarket sector, continues to tread water. During the 52-week period ending June 12, dollar sales in food retail stores declined slightly (0.7%) to $4.1 billion, compared with $4.0 billion in 2010 and $4.2 billion in 2009. Dollar sales of the subcategory sherbet/sorbet/ices were essentially flat during the most recent 52 weeks, following declines in 2010 and 2009. This overall lackluster performance is generally attributed to the economy and health concerns among more consumers.

The one subcategory — albeit a small one — that showed some life was frozen yogurt/tofu, which grew in dollar sales by 5.1% to $200.9 million in supermarkets during the past year as more consumers sought an alternative to regular ice cream. Frozen/yogurt/tofu sales also rose in 2010 by nearly 3%.

Borrowing from the success of frozen yogurt, manufacturers are starting to add probiotics to ice cream, along with omega-3, antioxidant-containing fruit flavors and other healthful ingredients. A related trend is the growth in the number of organic frozen desserts and the development of natural sources to replace artificial flavor and color ingredients, according to a study from Reportlinker. Mintel reports the increasing removal of additives and preservatives from ice cream.

Bottled Water

Buffeted by the economy and environmental concerns, the bottled water category still managed to register 2.2% growth in supermarket sales to $4 billion and an even better 10.2% increase in drug store sales to $538.6 million during the most recent 52-week period. Aggressive promotions and more private-label offerings are contributing to the growth.

The strongest segment continues to be sparkling mineral water, whose dollar sales rose 7.7% during the past year in food stores, following growth of 7.2% in 2010 and 3.9% in 2009; it delivered a robust 80.4% sales gain in drug outlets during the most recent 52-week period. Sparkling water — led by Nestle Waters' Perrier and San Pellegrino brands — appeals to consumers as an all-natural, non-alcoholic beverage suitable for social occasions.

But the long-term prospects for bottled water remain hazy as they continue to come under attack for their impact on landfills and use of resources. In response to environmental concerns Weis Markets, Sunbury, Pa., introduced a 100% recycled PET plastic bottle for its private-label water earlier this year, and in April Coca-Cola announced its Dasani bottled water will be sold nationwide in PlantBottles, made from 30% plant-based materials.

Soup

With so many other simple meal options arriving on shelves every week, old-fashioned soup seems like it is falling out of favor. Sales of most soups continued their downward trend over the past three years in all channels. One of the key reasons for the drop is convenience. Practicality plays a big role in the lunch day-part, as consumers opt for easier handheld foods that require fewer utensils; even cup-ready ramen noodles took a bit of a hit, with flat sales this past year.

The campaign to remove sodium may be another reason. Campbell Soup Co. announced in July that it is adding a small amount of salt back into its Select Harvest line in an effort to turn around lagging sales.

Growth is strongest in the broth and dry soup subcategories. As both are likely used as an ingredient in a larger recipe, the improved sales demonstrate consumers' ongoing emphasis on home cooking.

Crackers

Versatile, adventurous and nibble-ready, crackers continue to capture the attention of American consumers. Both sales and volume are up in the food channel, indicating robust activity despite higher prices.

One of the biggest factors working in the category's favor is its diversity. From kid-friendly, honey-sweetened grahams to more savory filled varieties, crackers can play any number of roles in the house. The category also enjoys a brighter halo of health over its close relatives in the cookie aisle. Companies like Annie's, Mary's Gone Crackers and others offer whole grains and toppings of heirloom seeds, herbs and spices. Even major players like Kraft Foods-owned Nabisco are dressing up their best sellers with healthier ingredients. The company announced that more than 100 Nabisco SKUs will contain more whole grains by the end of 2012.

Cookies

Cookies never go out of style, but America's growing health consciousness over the past few years has produced only crumbs of growth for the category. Sales have remained largely flat in both the supermarket and food/drug/mass channels. Meanwhile, the drug channel has enjoyed a higher rate of growth, though this is likely due to larger stores that carry more SKUs and the continuing evolution of the drug channel as a fill-in grocery destination.

Manufacturers have been sensitive to consumers' desire for better-for-you snack options, and they have introduced portion-packs, whole grain varieties and like alternatives to full-fat, indulgent cookies. Retailers themselves have helped boost volume and sales by introducing entire lines of private-label cookies, which were popular during the recent recession. The higher quality of some store brands have resulted in loyal repeat purchases by shoppers well into the recovery.

Bottled Juice

While fashionable, functional beverages like coconut water and energy drinks soaked up all the buzz in the category, bottled juice saw flat sales overall.

Time-honored choices like orange juice, apple juice and lemonade held up well. And some single-fruit juices like pineapple actually saw double-digit dollar growth. But some traditional juices like grape and fruit cocktail continued what's become a precipitous drop in dollar and unit sales.

The beverage aisle has gotten crowded, and consumer dollars are increasingly going to drinks that offer clearly defined health benefits. Antioxidant counts are ballooning across the category. Everything from tea to soda is getting infused with vitamins. Drinks like grape juice and fruit cocktail, in comparison, are decidedly less appealing.

Coffee

The story in the coffee category continues to be the stratospheric success of single-serve pods, with both unit and dollar sales growth exceeding 100% for the second year in a row.

At $223 million, single-serve coffee's overall value is still only 10% of ground coffee's. But with its convenience appeal, expect this segment to continue as the category's shining star.

Convenience is definitely a key selling point for coffee. Sales of whole beans are down, while instant coffee — no doubt fueled by Starbucks' new Via line — saw decent growth. Ground coffee continues to stay relevant with a variety of flavor profiles and as a champion of the Fair Trade label.

Dog Food

Beverages for canines and breed-specific kibble are among the specialties on which pet owners are willing to splurge. But pet parents appear to be doing less of the spoiling at supermarkets. Despite the pet category's recession-proof status, food channel sales of dog food have been relatively flat, but are climbing substantially at drug stores due to greater availability.

One segment that's drawing traffic to pet food aisles is fresh pet food. Hy-Vee and Schnucks sell refrigerated food from Freshpet in cases positioned inline or on endcaps adjacent the pet food aisle.

Chocolate Candy

Americans are riding a chocolate-fueled sugar high that even pricier sweets cannot squelch. In spite of rising prices, unit sales were up nearly 5% over last year with portion-control snack packs and boxes, bags and bars of chocolate less than 3.5 ounces, most commonly satisfying the nation's sizeable sweet tooth.

Softening the blow of higher price tags were high levels of promotional support. But as is often the case with candy, purchases were impulsive and deemed relatively affordable compared with more substantial luxuries. Bearing this out is the nearly 8% rise in sales of chocolate in the drug channel where spur-of-the-moment cravings were commonly fulfilled.

Capitalizing on the craze are retailers like H.E. Butt Grocery's Central Market, which hosted a weeklong chocolate event earlier this year that included “cooking with chocolate” classes and interactive games that taught players about pairing wine with chocolate. Chains are also taking the guesswork out of such premium matches by cross-merchandising savory sweets with complementary varietals.

Frozen Pizza

While a number of grocery categories provided relief for financially compromised shoppers during the recession, scaled-back spending was a boon for frozen pizza marketers in particular as souped-up recipes made for an experience comparable to takeout. Major player DiGiorno even combined frozen pizza with boneless honey wings and cookies.

But some Americans put their frozen pizza cravings on ice this year, evidenced by a 5% drop in food channel unit sales. Mintel attributes the shift to consumers' reasoning that challenging times have subsided enough to enjoy fresh pizza delivered straight to their door, especially as outlets sweeten the deal with aggressive promotions. The same mindset has led to waning interest in lower-priced private-label offerings, which lost much of the momentum gained during the recession.

But the category is not completely cooked. Analysts project that as unemployment rates remain high and gas prices climb, consumers will seek frozen versions of the comfort food. Frozen crust/dough also presents a small but growing opportunity, with sales up nearly 20% during the year ending June 12.

Snack Bars/Granola Bars

Americans are snacking on granola bars in a big way. Not just to curb mid-afternoon cravings but in support of healthier living objectives.

SymphonyIRI's 2011 State of the Snack Industry report found that while one in four in-between-meal noshers snack to satisfy an immediate hunger, 11% treat the occasion as a mini-meal and 6% as a way to reach their nutrition goals.

Though health and wellness aspirations make up a relatively small segment of motivators, the strongest growth is emerging from nontraditional snack categories like granola (7%), yogurt (6%), dried fruit snacks (5%) and string cheese (3%), Susan Viamari, editor of SymphonyIRI's Times & Trends report told SN.

The trend is reflected within subcategories, which experienced a spike in sales of nutritional/intrinsic health bars (13.5%) and granola bars (4.9%), while sales of breakfast/cereal/snack bars were down 0.5%.

Energy Drinks

The energy drink category appears to be hopped up on its own stuff as greater availability and growing popularity boost sales of the quick and easy pick-me-up.

New forms, like energy shots, whose sales spiked 72.6%, are making the drink's functional benefits even more convenient for the largely young, male audience these drinks are targeted to. In spite of reports about heart palpitations, high blood pressure and other side effects of highly caffeinated drinks, the category continues to gain steam.

The success is likely due, in part, to stimulated promotional support, with 42% of volume sold in 2010 on price reduction, feature and/or display, up 3.2 points from the prior year. But even as marketers sweetened the deal for consumers, the average price of energy drinks was up 4.1%, according to SymphonyIRI.