The Future of Food Retailing in the U.S., 3rd Edition

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Market Insights: A Selection From The Report

Almost Two out of Three Consumers Buy Supermarket Take-Out

A February 2010 proprietary consumer survey by Packaged Facts determined that—not surprisingly—with its strong value, cost, and convenience propositions, the fast-food industry enjoys usage consumer that approaches saturation (93%). However, almost two out of three (64%) survey respondents have bought ready-to-eat and heat-and-eat food from a grocery store/supermarket in the past month, a testament to the high likelihood of grocery store/supermarket use and the continuing growth of prepared foods in that retail channel.
[Figure 3-1]

Warehouse Clubs to Push the Prepared Foods Envelope

With its strong private-label program (driven by the well-known Kirkland brand, generally known for both high-quality and competitive prices) we believe Costco has significant potential to grow its prepared foods sales. Its strong, high-quality private-label presence is an ideal platform: Costco’s private-label Kirkland brand has strong brand equity and a loyal consumer following. This private-label halo can only give consumers confidence in similarly marketed prepared foods. Costco does not break out its prepared foods sales. However, in a November 11, 2010 telephone interview with Packaged Facts, Costco CFO Richard Galanti said that Costco now sells “close to 50 million rotisserie chickens” annually.

Prepared Foods in C-Stores

As discussed in Chapter 5—”Convenience Channel Trends,” according to Convenience Store News’ latest “Industry Report” (June 2010) foodservice now accounts for 13% of in-store sales at convenience stores, making it the largest in-store category after cigarettes. Many cstore operators have successfully turned their stores into popular destinations for both hot and cold foods prepared on-site, such as deli sandwiches, flat breads, hoagies, breakfast sandwiches, hamburgers, pizza, grilled chicken sandwiches, salads, soups and wraps.

Yet, with competition from drugstores on the horizon, convenience stores will no longer be the only “around the corner” pick-up-and-go choice. With respondents to Packaged Facts’ February 2010 proprietary survey giving c-stores relatively low scores on food enjoyment, great taste, and high quality, convenience stores may find customers going elsewhere for food that offers better taste and quality.

A Look at the Future

Looking a bit further down the road, we believe that hybridized food retailers and restaurants will, in fact, be the rule rather than the norm, representing a seismic shift in both the food retailing and foodservice industries. Accordingly, Packaged Facts expects to see both food retailing and foodservice channels continue to converge around fresh prepared foods, working fervently to make their consumption more convenient. As a result, the competitive lines between grocery stores, restaurants, convenience stores, and other channels will continue to blur.

New York, February 1, 2011 — Gone but not forgotten, the shadow of the Great Recession continues to loom large over the food retailing landscape as consumer behaviors adopted during the economic strife linger, particularly the desire to find value in food and beverage purchases, according to The Future of Food Retailing in the U.S., 3rd Edition by market research publisher Packaged Facts.

"The value focus remains tied to the nation’s economic fortunes. As long as unemployment remains high, the likeliest scenario for the retail industry-and indeed the U.S. economy as a whole-will be slow growth, and value will continue to be a prime motivator behind consumers’ food and beverage purchases," says Don Montuori, publisher of Packaged Facts. "Whether eating more meals at home, shopping more at notoriously value-centric retailers such as dollar stores or Walmart, deferring discretionary purchases, or trading down on essentials, these new consumer tendencies will persist throughout 2011."

While price is an important part of the value proposition, it is not the only criterion. Value, defined by consumers as "worth the money," also encompasses other considerations including quality, perceived benefits (convenience, nutritional, health, etc.), and service, according to the report. As a result, consumers may be willing to pay premium prices if the products offer the benefits shoppers deem worthwhile.

Because consumers have reevaluated the price-value equation, food retailers are scrambling to adjust their marketing strategies to survive the growing competition that has erupted in the industry. Experiments with internet marketing and digital technologies, SKU reduction, price wars, tweaking private label offerings, and maneuverings to position themselves as arbiters of wellness and nutrition management are emerging retailer trends that could reshape the future of the industry in the short-term.

Retail sales of foods and beverages in the United States reached $560 billion in 2010, an increase of only 2% over the prior-year-period. Traditional grocery channel generated 57% of retail food and beverage dollar sales in 2010, with value channels ringing up 26% of sales, convenience channels 14%, and 3% for alternative channels (including drugstores and vending machines). Leading the retailer pack is Walmart, with an estimated $62 billion in food and beverage sales as of 2010.

Packaged Facts conservatively projects that total U.S. retail sales of foods and beverages will advance at an average 5% annual pace over the next five years to reach $698 billion in 2015.

The Future of Food Retailing in the U.S., 3rd Edition offers a comprehensive examination of the overriding trends in the market, highlighting opportunities and strategies retailers and CPG marketers can use to optimize their businesses during the coming years. The report provides detailed analysis of trends in the key retail channels through which foods and beverages are sold, including Grocery (major and independent supermarkets, natural food stores, ethnic supermarkets, traditional small grocery stores, and gourmet/specialty stores), Value (supercenters, mass merchandisers, warehouse clubs, dollar stores, and limited assortment stores), Convenience (convenience stores), and Alternative (drugstores, farmers’ markets, online grocery services, vending machines, and other alternative venues). In-store merchandising and food preparation trends, category sales trends, marketing trends, and media trends including use of new social media are also covered.

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