Probing Price In Center Aisle

Dining at home more often and choosing private label over national brands isn't the only “trading down” that cash-strapped shoppers are engaging in these days. Many have also had to re-prioritize their shopping lists based on which categories make the most economic sense. While success in 2007 was linked to almost any CPG product that offered health and convenience, price stability is what today's Center Store shopper has on her mind. The trend is evidenced in the supermarket channel by unit sales increases in categories that were minimally affected by commodity price spikes, such as snack bars, ready-to-drink tea and coffee, and energy drinks. Rising dollar sales in the face of shrinking unit volume tell a different story about the fresh bread and rolls, ice cream/sherbet and bottled juice categories. All have seen significant retail price increases driven by higher input costs.

CARBONATED BEVERAGES

Sales of carbonated soft drinks continue to lose their fizz. Unit sales in the food channel dropped 6% as shoppers quenched their thirst with isotonic beverages, energy drinks, flavored waters and other better-for-you beverages. Declining CSD sales combined with higher milk prices forced the category to relinquish its title as the largest dollar sales category in the supermarket. Dollar sales of the dairy beverage category experienced a close to 14% growth spurt, despite a drop in unit sales. Cognizant of the trend are major CSD makers Coca-Cola and PepsiCo, which have diversified their product portfolios to better accommodate demand. PepsiCo introduced Full Throttle Hydration, a non-carbonated energy drink, and Coca-Cola developed G2, which it claims has half the calories of Gatorade. Despite the demand for healthier options, the category hasn't gone completely flat. PepsiCo credited its billion-dollar Pepsi and Mountain Dew brands with driving a 13% growth in revenue of its overall business during the first quarter.

FRESH BREAD & ROLLS

Bread prices are rising. The cost of a loaf is up more than 30% since January 2005, thanks to food price inflation. Poor wheat harvests resulting from drought, floods and farmers switching to corn for ethanol have sent flour prices soaring. In January, Wegmans reported that the rise had forced it to increase the price of its packaged breads by between 10 and 30 cents. The increase seems to have affected unit sales of the staple, which dropped more than 3% in the food channel. Meanwhile, dollar sales climbed 4.6% in supermarkets. Although fewer consumers are buying bread, a more dramatic drop in unit sales might have occurred if it weren't for the dining-in trend. Consumers are curbing their away-from-home eating habits and brown-bagging it to accommodate their shrinking food budgets.

BEER/ALE/ALCOHOLIC CIDER

Americans may be drowning their financial sorrows with beer. Despite retail price increases driven by soaring hops costs and elevated malt, aluminum and fuel prices, unit sales in the food channel improved slightly, by close to 1%. Alcoholic cider, which experienced a sizable 14.7% increase in supermarket dollar sales over the previous year, may be among the affordable luxuries that consumers are allowing themselves. Recent research supports the theory that the category is recession-proof. The Nielsen Co. has reported that among beer, wine and spirits, beer is affected least by the economic downturn. A recent Gallup poll indicated a similar preference for beer. It found that nearly half of drinkers in the 30-to-49 age category said they most often drink beer, while members of the same age category were about as likely to prefer wine as beer, when asked the same question in 2004 and 2005. Meanwhile, nearly half of consumers polled as part of the Nielsen Co.'s “Through the Eyes of the Bev Al Shopper” survey reported that the economic downturn has had no influence on the amount of money they are spending on beer, wine or spirits in stores. Less than 20% of those surveyed indicated a significant impact.

SALTY SNACKS

With so many healthier reformulations hitting store shelves, the salty snacks category may soon have to change its name. In addition to lower-sodium versions of traditional favorites, natural and organic snack offerings continue to proliferate. Also becoming more mainstream are snacks that have been baked rather than fried, as well as fortified offerings. The Bachman Co. recently introduced gluten-free tortilla chips that contain 21 grams of whole grain per serving, while Frito-Lay unveiled its Flat Earth Crisps, which contain a half-serving of either fruit or vegetables in each ounce. Items in Target's premium Archer Farms snack line also got healthier this year when they went trans fat-free. Despite these items' better-for-you image, unit sales in the food channel seemed to suffer, falling almost 3%, while dollar sales climbed by 2.8%. Sales may have been lost to the drug channel, which significantly grew its category share. Unit sales there during the past year were up close to 10%.

FROZEN DINNERS/ENTREES

While supermarkets, drug stores and mass outlets continue their year-over-year dollar sales growth streak with frozen dinners/entrees, unit sales of the microwavable meals thawed in the food channel, dropping 2.4% vs. the previous year. Despite the trend toward at-home eating, supermarket shoppers purchased fewer boxes of the more expensive frozen fare, turning instead to less costly ingredients for meals. Meanwhile, time-crunched shoppers seeking frozen dinners/entrees turned to the drug channel, which experienced unit growth of 12.1%. Greater availability of frozen, restaurant-quality meals in the channel may be driving the trend, as drug stores expand their food selection in the hopes of spurring incremental sales. Healthier reformulations continue to proliferate. Among the new better-for-you offerings are Lean Pockets Made with Whole Grain sandwiches, which claim to contain the same amount of whole grain as a slice of whole grain bread. For those seeking restaurant-style meals at home, Kraft has introduced California Pizza Kitchen For One Frozen Pizza. There are even options for ecologically conscious shoppers. Green Cuisine focuses its branding around the claim that its frozen entrees are made in the first “green” frozen food manufacturing plant.

COLD CEREAL

Drug stores are increasing their share of the cereal bowl. Supermarkets enjoyed a modest 0.7% gain in unit sales of cold cereal, while members of the drug channel grew their unit volume 8.1%. Rather than pass costs resulting from food price inflation directly to shoppers, suppliers like Kellogg's reportedly reduced the content of cereal boxes by 2.4 ounces while maintaining the same price. Healthier reformulations are also a category trend. Improved health profiles have been credited with driving the mature category's modest growth. Cold cereal is also the second most active category among IRI's Pacesetters list, which tracks the most successful new consumer packaged goods brands each year. Some 13 products gained placement on the list from 2002 to 2008 — not surprising, since many consumers are looking to their cereal bowl for a convenient way to reduce cholesterol and to improve their heart health and intestinal well-being.

WINE

The dining- and drinking-in trend helped wine maintain long-term growth despite the poor economic landscape. Although the Nielsen Co. has reported that on-premise alcohol sales have suffered, Americans still seem to be enjoying their favorite varietials at home. But the category has yet to reach its full potential. Restrictive off-premise wine licensing laws stifle sales of the beverage in certain states' supermarkets. Wegmans recently solicited the help of shoppers in New Jersey when it asked them to convince their state representatives to help lift the two-liquor-license limit to which food retailers in the state remain subject. Beer also seems to be treading on wine's territory. Nearly half (47%) of drinkers in the 30-to-49 age group said that beer is the alcoholic beverage they most frequently consume, while 31% expressed a preference for wine, according to a recent Gallup poll.

CIGARETTES

Drug stores continue to grow their cigarette share at the expense of supermarkets and mass merchants. Unit sales of smokes fell 3.7% in the food channel, while volume climbed 8.7% in the drug channel. Retailers like Wegmans, Dorothy Lane Market, Andronico's Markets and DeCicco Markets contributed to the slowed food channel movement. Earlier this year the retailers abandoned the sale of tobacco products in their stores, citing the negative impact smoking has on consumers' health. According to a recent Gallup poll, many smokers would also like to kick the habit. Among the 21% of Americans who say they smoke, 74% say they would like to give up smoking, and 67% say they are addicted to cigarettes. Both public and private health advocates are working to put limits on the types of outlets that can merchandise cigarettes. San Francisco is on its way to becoming the first U.S. city to ban the sale of cigarettes at pharmacies. The law would not prohibit sales in supermarkets with pharmacies.

BOTTLED WATER

Bottled water sales continued to flow this year, with members of the drug channel increasing their sales most substantially. Unit sales in the channel were up 7%, while dollar sales were more than double that at 14.7% vs. the previous year. The variance between dollar sales and volume was not as substantial in the food channel, where dollar and unit sales rose 2.9% and 3.5%, respectively. The conveniently consumed beverage has become the subject of a growing debate. Although it's expected to remain a large category for the foreseeable future, a backlash has begun. The U.S. Conference of Mayors passed a resolution in June calling for a phasing out of bottled water by the nation's municipalities and the promotion of public water supplies. To help cut down on the amount of waste these bottles contribute to landfills, suppliers like Nestlé Waters have introduced a bottle made with 30% less plastic. Coca-Cola's Dasani also lightened its plastic bottles by 30% and introduced a shorter cap. Beverage companies are also seeking to differentiate their offerings from tap water with flavored and nutrient-enriched water.

ICE CREAM/SHERBET

Apparently not everyone is screaming for ice cream. Shoppers are having to forgo the frozen indulgence, since many can't justify paying $5 for a half gallon. Higher prices are attributed to the rising cost of commodities like cream, vanilla and cocoa. Consumers seem to be curbing their ice cream/sherbet spending in all outlets except for the drug channel, where unit sales have grown 5.5% since last year and dollar sales have risen 10.4%. Meanwhile, ice cream/sherbet unit sales dropped 5.6% in the food channel, and 5% in all channels combined. To help control costs and prevent the category's sales from melting down further, manufacturers are shrinking 1.75-quart containers of the frozen treats to a 1.5-quart size, while maintaining their retail price.

SOUP

The success of Campbell's Reduced Sodium Soups, and Progresso Light soups with a zero-point value on the Weight Watchers diet plan, weren't enough to rescue sinking soup sales. Unit movement of costlier soup was down in all channels during the 52-week period ending June 15. Unit sales dropped 3.2% in the food channel, fell 2% in drug stores and dipped 2.9% in food, drug and mass channels combined. The popularity of ready-to-serve broth as a recipe ingredient helped minimize further sales erosion, as did the perception of soup as an inexpensive meal solution. A bowl of Campbell's Condensed Soup costs about 52 cents per bowl, Douglas Conant, president and chief executive officer of Campbell's, told SN.

BOTTLED JUICE

The shelf-stable juice category was plagued by especially high ingredient cost inflation — so much so that these beverages were unaffordable for many shoppers. Unit sales dipped significantly in all channels. Supermarket volume dropped 4.6%, unit sales in the drug channel fell a sizable 7.7%, and food, drug and mass channels combined experienced a 4.6% decline. Although consumers didn't buy as much juice, higher retail prices drove dollar sales growth in all channels. Shoppers may have quenched their thirst with drinks whose price tags remained more stable. Beverages whose prices were less affected by food price inflation are ready-to-drink coffee and tea, energy drinks and sports drinks.

TOILET TISSUE

When it comes to growing their toilet paper share, drug stores are on a roll. Unit volume in the outlet is up 5.1%, while dollar sales in the channel have climbed 13.1% vs. the previous year. Shoppers are making larger fill-in trips locally as part of an effort to conserve gas in between pantry-stocking excursions to supercenters, and drug stores are benefiting. Eco-friendly options are driving the retail price of toilet tissue in the food channel, where unit sales fell 3.3%. The drop in unit sales may have something to do with the popularity of extended-roll-life products that condense several rolls' worth of tissue onto one. Other Earth-friendly options — such as Seventh Generation's line of bathroom tissue, which is made from 100% recycled paper, and Marcal's Sunrise toilet paper, also made from 100% recycled paper — are gaining popularity.

DOG FOOD

Drug stores are barking up supermarkets' trees when it comes to dog food sales, as members of the outlet eat away at food-channel share. Unit volume has grown 13.9% in drug stores, while unit sales have fallen 9.2% in the food channel and 7.4% in food, drug and mass channels combined. Despite lackluster sales in some outlets, premium fare is driving the price of dog food across the board. Natural, organic and functional fare that claims to do everything from promote hip and joint health to freshen breath, is finding its way into shoppers' baskets.

LAUNDRY DETERGENT

Wal-Mart's conversion to only concentrated liquid laundry detergents seems to have affected unit sales in the channel. Shoppers may be buying fewer bottles of detergent, since smaller-sized containers promise to clean the same number of loads as do much larger bottles. The drug channel was the only outlet that grew its volume of sales compared with the previous year. Unit sales were up 13.9% in the channel, while unit volume fell 9.2% in the food channel and dropped 7.4% in food drug and mass channels combined. The liquid laundry detergent subcategory was least affected by the drop in sales, indicating that shoppers are favoring the innovations offered by concentrated formulas.

SNACK BARS/GRANOLA BARS

Consumers crave both health and convenience, and right now snack bars are sitting comfortably at the intersection of both. Mainstream companies like General Mills and Kellogg's, as well as natural and organic manufacturers like Nature's Valley, are meeting the demand with low-fat, portion-control and nutrient-fortified bars. In all, the category is worth nearly $2 billion, and analysts see modest growth ahead. An enticing impulse buy, snack bars can continue to sell well at checkout and be cross-merchandised into various aisles. Another growing trend is marketing healthful bars to kids, who — along with their parents — are becoming increasingly involved in the health and wellness movement. Clif Bar, for example, sells a “ZBar,” which is made without hydrogenated oils or preservatives, and contains no high-fructose corn syrup. PediaSure also recently released NutriPals snack bars, aimed at children between the ages of 2 and 7.

PASTA

Soaring flour prices and other rising commodity costs have sent pasta prices spiraling. Luckily, the higher price tags haven't made much of a dent in the category, since consumers are cooking at home more and are unwilling to give up such staples as spaghetti. Both the food and drug channels experienced a slight dip in unit sales, but saw huge increases of 12.1% and 13.2%, respectively, when it comes to dollar sales. Interest in the mature category is also being driven by healthy innovation, as more palatable varieties of whole grain and multigrain pasta become available. Earlier this year, Barilla, the world's largest pasta maker, introduced Barilla Whole Grain, made with 51% whole wheat and available in four shapes. Varieties fortified with fiber and omega-3s are also becoming increasingly popular. Ronzoni recently introduced its “Healthy Harvest” pastas, which are infused with fiber, whole grains and omega-3s.

TEA/COFFEE RTD

Grab-and-go coffee and tea drinks maintained their year-over-year growth momentum as consumers found room in their tight budgets for beverages that are both functional and convenient. A minimal impact on price, relative to other categories, also drew caffeine-seekers to the category. SPINS estimates that RTD tea sales will have increased 20% by 2010, and analysts predict a similar growth pattern for the RTD coffee market. In the tea category particularly, new products touting healthy herbal and medicinal qualities are rolling out and hitting their stride with shoppers. Nestea just released a new citrus green tea that promotes its “natural” flavors. On the coffee side, Starbucks has added to its list of Frappuccino and espresso flavors, among others. It recently released a “double shot” espresso drink.

ENERGY DRINKS

They may not be exhibiting last year's stamina, but sales of beverages infused with caffeine and other energy-enhancing ingredients continue to demonstrate aggressive gains. Supermarkets still dominate as the leading sales channel, even though drug enjoyed the largest volume gains. Currently shelves are crowded with national and regional brands in a variety of serving and pack sizes, and almost all of the products target young people with names like Monster, Full Throttle and Rock Star Juiced, to name a few. The category's extraordinary growth rate over the past 10 years has attracted all the major beverage companies, including Coca-Cola and Pepsi, which market ramped-up versions of popular soft drinks. However, there are indications the category is maturing. The growth rates for both sales and volume are down from last year, indicating that the sheer number of products out there right now is saturating the playing field. While the names have grown more numerous and more outlandish, the basic ingredients of caffeine with a mixture of guarana, taurine, ginseng, ginkgo and glucuronolactone have changed little. Growing concern over the healthfulness of these beverages may also help explain the slowing growth, as pediatricians and parents express reservations about some of the marketing tactics employed by less-established manufacturers.

MISC. SNACKS

The on-the-go, gotta-do-it-now American consumer is trying to find a better way to snack on the run. The quest for healthy snacking helped push supermarket sales of snacks like trail mix, dried fruit and yogurt-coated raisins over the $206 million mark. Category volume also increased, to nearly 74 million units — well ahead of the competing drug channel, where volume approached only 25 million units on sales of $50 million. Snacks with a pronounced nutritional benefit, such as nut and seed trail mixes, performed the best. Dried fruit and fruit crisps are also now on the consumer radar as technological advances allow snack makers to produce better-tasting results. Overall, sales have been helped by manufacturers' use of portion-control packaging, which reinforces the wellness message, even if the ingredients panel doesn't. The category also includes chocolate-covered snacks; taking into account the dollar base, this is the subset that enjoyed the largest increase in sales over the past year. While at first glance chocolate's presence here may seem like a contradiction, many consumers have heard about the purported health benefits of dark chocolate. Of course, they may also simply enjoy indulging a bit as they nibble on dried apricots and sunflower seeds.