Fresh Food in the Crosshairs of Upheaval

The past 52 weeks have been a roller coaster for national grocery retail sales, with shifts in what items drive sales growth across food departments deviating from previous years. While total store sales across food, beverage and nonedibles have topped $783 billion, adding $33 billion more sales dollars since the same period in 2015, the growth’s sources are not the same as in previous years.

Perimeter is no longer the slam-dunk store sales growth engine of years ago

In fact, nonperimeter food and beverage items grew total store sales share for the first time in three years. Most surprising, as of 2017, CPG edibles have outpaced fresh perimeter food sales growth by nearly 1 percentage point, with the New England and the Great Lakes regions struggling the most to grow perimeter sales. While fresh is still in demand, key considerations contributing to the slowdown include increased competition, price pressures, lack of differentiation and a renaissance in foods within the frozen, refrigerated and general food departments, including innovation around quality, flavors and healthy options.

It is more important than ever for retailers to consider new trends in shopping and how to meet consumers’ shifting demands. For IRI’s recent Top Trends in Fresh series, we partnered with the Food Marketing Institute to break down consumer trends and potential for growth into three key areas: format experimentation, service customization and customization continuum. We’ll save the last topic for a future article on value-added meal kits and specialty foods and discuss how much prep time and effort consumers are willing to put into their meals.

Format Experimentation Pressures Fresh Dollars

For the past several years, nontraditional fresh retailers, including dollar and deep-discount stores, have recognized and met consumers’ requests for fresh foods offerings. Aldi is at the forefront of this revolution, with a recent IRI consumer survey finding that fresh produce is one of the top items consumers are most interested in buying at Aldi. This shifting consumer interest shows a direct correlation to the fragmentation of fresh dollars for traditional retailers in recent years.

In year ending June 2018, grocery still accounted for 72% of all produce dollars spent across outlets; however, consumers are spending less there versus last year and spending more on produce at Aldi, online and at dollar stores. Most impressive, Lidl already accounts for 0.1% of all national produce spending after only being open for six months, according to insights from IRI Consumer and Shopper Insights Advantage with Fresh, for the 52 weeks ending June 24, 2018.

The greatest shift for nontraditional fresh stores has been their rapid expansion, with dollar, deep discount and mass dominating new store openings in 2018. As deep discounters continue to expand their store counts and markets, combined with recent news that they plan to invest more heavily in a wider assortment of fresh, it is critical for traditional retailers and suppliers to remain focused on fresh while providing value to consumers through discounts and other offers. In a discount-driven, limited-assortment format, there is still plenty of room for supermarkets, mass and club stores to hone their differentiation and unique value propositions to continue to win in fresh foods.

A Year of Change for Fresh Online

While IRI’s consumer tracking data shows e-commerce grocery household penetration still lags behind brick-and mortar, with only 30% of households having tried online grocery shopping, major service changes from retailers will make 2018 the year to watch.

According to consumer responses, “delivery innovations” have become more important to fresh consumers in 2018 compared to one year ago. It is no surprise that a higher concentration of millennials are interested in delivery and in-store pick up for fresh foods when compared to older generations. Trust, quality and freshness make store delivery and click-and-collect options more intriguing to consumers for fresh versus pure-play online ordering.

Retailers from major national chains as well as regional and specialty grocers have responded to consumers’ demand for e-commerce options by developing solutions that shrink delivery windows and have better online ordering interfaces. While click-and-collect orders accounted for only $400 million in 2016, according to IRI’s eMarket Insights practice, it is expected to reach $6.6 billion by 2020, with 67% of consumers saying they will definitely use the service again.

Basket data also reveals a key consideration for fresh foods manufacturers and retailers. According to a January 2018 survey of online grocery shoppers who have used grocery pickup services, shoppers are more likely to use click-and-collect for small trips in which only one to five items are needed immediately, and 22% of shoppers who’ve used it say “sticking to their list” is their main motivation. While several fresh commodities such as ground beef and vegetables can often be “shopping list staples,” many high-profit and basket-building items such as deli cheeses, in-store baked goods and prepared meals rely on impulse and in-store merchandising to make it into the basket; consequently, these categories have consistently struggled to sell online.    

New consumer priorities continue to have an immediate and revolutionary effect on the fresh foods industry. We are living in a time of great change, but what’s known for sure is the path forward requires a laserlike focus on the consumer. It is exciting to see fresh food manufacturers and retailers integrate both fixed and random-weight/non-UPC items across sales, consumer behavior, frequent-shopper card and supply chain to unlock never-before-seen opportunities.

Jonna Parker is principal of IRI’s Fresh Center of Excellence.