Study: Shift occurring in food-at-home industry

by Eric Schroeder
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NEW YORK — A confluence of factors appear poised to rapidly transform the food-at-home industry, according to a new study from Jefferies Group, Inc., a global investment bank, and AlixPartners, a global business advisory firm.

The study, titled “Trouble in aisle 5,” included a survey of 2,000 adult grocery shoppers during mid-May. It found that changing demographics, economic factors and customer preferences have the potential to create long-term disruption across the food industry value chain.

Specifically, the rise of the millennials and aging of the baby boomer generation will be a major factor affecting buying patterns. Millennials currently make up a little more than 5% of the U.S. population, but by 2020 that figure is expected to grow to about 19%. As a result, the study noted that food-at-home spending by millennials may increase by $50 billion annually through 2020.

By contrast, the baby boomer generation will fall to below 20% of the population by 2020, and as a result, food-at-home spending by the group may fall by as much as $15 billion per year through 2020.

“Millennials clearly present significant challenges, and food makers and traditional grocery retailers need to start making changes now to address the emerging needs of this demographic group, as in many ways we’re just in the second inning of this ball game,” said Scott Mushkin, managing director and senior equity research analyst covering food and drug retailing and packaged food at Jefferies.

The study found strikingly different attitudes toward consumption between millennials and baby boomers.

“Convenience is king with millennials — they expect to get what they want, when and where they want it, and they know they have options for both products and retailers,” said David Garfield, managing director at AlixPartners and head of the firm’s Consumer Products Practice. “The emphasis on convenience represents a dramatic shift from baby boomers’ priorities, and it also presents big challenges — and opportunities — for companies in the food industry.”

Tied to the issue of convenience, of the millennials surveyed, 47% said brands were “extremely” or “somewhat” important in their purchasing decision for groceries, compared with 61% of baby boomers. Millennials also appear more willing to explore different distribution models, with 41% of total food spending coming at traditional grocers, which compared with 50% of total spending for baby boomers.
Millennials were found to be more price sensitive than baby boomers, but when it comes to natural/organic products, 58% of millennials surveyed said they would be willing to pay more. This compared with only 43% of baby boomers who said the same.

Despite the rising prominence of millennials, baby boomers are expected to maintain significant influence on traditional center-of-the-supermarket purchases, the study said. As they age, baby boomers finances, preferences and choices will change. While they are expected to remain loyal to both brands and retailers, the survey noted that lower incomes may mean baby boomers will be less willing to pay additional money for what they want.

“In addition to adjusting to a new financial situation, baby boomers are now paying greater attention regarding their food choices as a means of remaining healthy and extending longevity,” said Rich Vitaro, director in the Consumer Products Practice at AlixPartners. “Taste, freshness and quality will continue to be important, as will products addressing health and wellness, and specific dietary needs tied to aging.”

Overall, the study expects a more demanding environment across the entire food industry value chain. This will require food companies to be more nimble, with more innovative product development, leaner supply chains and more effective use of marketing initiatives. For traditional grocers, there will need to be a shift toward redefining models, focusing on perishables while engaging or re-engaging customers in the center store, the survey said.

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