Keeping up with the rapid pace of change at retail

by Donna Berry
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Donna Berry

CHICAGO — The retail marketplace for food and beverages is undergoing dramatic changes, according to the International Dairy-Deli-Bakery Association’s (I.D.D.B.A.), Madison, Wis., recently released What’s in Store 2018, the 32nd installment of the association’s annual report containing data on retail/market trends, growth and category changes shaping the food industry. The secondary research report is developed through interviews with industry experts and sourcing of third-party data and trends.

“The shopper landscape is continuously shifting and What’s in Store is designed to help food industry professionals better understand today’s retail world,” said Jeremy Johnson, vice-president of education at I.D.D.B.A. and co-managing editor of the report. “Consumer trends give insights on how to engage with shoppers’ desires, lifestyles and trip missions, which are critical toward ensuring a prominent role for fresh categories in today’s changing food roadmap.” 

IDDBA What's In Store
What’s in Store is designed to help food industry professionals better understand today’s retail world. The research findings are organized into four themes. They are: the economy and retail trends, channels and competition, consumer lifestyles, and eating trends. This themed narrative is reflected in each of the four product chapters: bakery, cheese, dairy and deli/retail food service.
 

Eric Richard, education coordinator at the I.D.D.B.A., said, “Just as retail channels are continually evolving, so too are the shoppers who frequent them. Today’s consumers represent a variety of generational and ethnic demographics, and their palates and dining preferences are shining light into new tastes, flavors and eating occasions. Grocers have the potential to be at the forefront of eating innovation and creation.”

Food Business News spoke with Mary Kay O’Connor, vice-president of special projects at the I.D.D.B.A., and co-managing editor of the report.

FBN: How has grocery shopping changed in the past few years?

Ms. O’Connor: It is no longer just about buying food. For today’s shoppers, it’s a destination experience. Retailers are adding more and creative in-store eating areas, more intriguing private label and more local products. Retailers that reflect the communities they serve appeal to today’s shoppers. “Localism” is a dominant theme to help communities feel connected.

Further, in our research we learned that consumer spending appears to be split evenly between preparing meals at home and eating out. This presents retailers with an opportunity to provide food service offerings for at-home dining. It’s no wonder that supermarket prepared foods are the fastest-growing segment of the food service industry.

Mary Kay O’Connor, vice-president of special projects, International Dairy-Deli-Bakery Association
Mary Kay O’Connor, vice-president of special projects, International Dairy-Deli-Bakery Association.
 

How important are brands to today’s shoppers?

Ms. O’Connor: Private label sales appear to have slowed due in part to an improved economy. But interestingly, data shows that younger shoppers are more likely to purchase store brands to save money. At the same time, younger shoppers, namely millennials, believe that liking the brand is as important as liking the food. Complete transparency has become a key factor for building brand loyalty. Millennials are more likely to purchase brands that are socially responsible, support charitable organizations and are authentic to ethnic heritage.

What’s trending in retail packaged foods?

Ms. O’Connor: Almost 45% of millennials identify as ethnic or multicultural, making this generation the most diverse in U.S. history, with food purchasing decisions no longer based on their lineage or familial customs. Multiculturalism is growing and it’s changing the way food retailers and manufacturers look at consumer buying behaviors. The result is a blurring of lines separating ethnic consumer demographics. Retailers in tune with consumer shopping patterns can provide innovative solutions to appeal to the changing palates of today’s shoppers.

Consumers are attracted to brands that are socially responsible and support charitable organizations. It pays for a brand to be transparent.
Consumers are attracted to brands that are socially responsible and support charitable organizations. It pays for a brand to be transparent.
 

For example, research shows that the appeal of American cuisine, as well as Southern cooking, tapers with age. Younger generations find Indian and Southeast Asian cuisine especially appealing, and they don’t necessarily consider it to be ethnic or foreign, as older generations often do.

Food Business News: What else stands out about millennials, and their successor, Generation Z?

Ms. O’Connor: There are four generations — silent, boomers, X and millennials — in the aisle with a fifth — Z — close behind. If we see millennials as being multicultural, just wait with Gen Z. Research shows that very soon more than half of all U.S. households will be considered multicultural. With this comes a curiosity for adventurous cuisines, which they learn about from social media. Technology plays a vital role for Gen Z, even more so than millennials. The good news for retailers is that despite being the first generation not knowing a world without cellular phones, brick-and-mortar stores play an important role in Gen Z’s shopping habits, with about two-thirds shopping them most of the time. It’s all about the experience.

Retailers need to step up, however, as currently less than 20% are delivering the experience Gen Z wants. Retailers should also be aware that millennials are more likely than other generations to incorporate a customized eating approach, such as meal planning, adhering to paleo and other diets of the like, and purchasing local or environmentally friendly products. We expect Gen Z to be the same.

Consumers are going back to the basics when it comes to eating, with organics, natural and fresh increasingly important attributes. This is especially true for millennials, who are the biggest purchaser of organic products.
Consumers are going back to the basics when it comes to eating, with organics, natural and fresh increasingly important attributes. This is especially true for millennials, who are the biggest purchaser of organic products.
 

So they like the experience of brick-and-mortar stores, but what about online shopping? It seems every store these days touts its online, pick-up and delivery programs.

Ms. O’Connor: There’s no question that shopper demand is rising for convenience. Our research shows that 23% of households are purchasing food online, with 60% of these consumers expecting to spend 25% of their food dollars through an online channel by 2026. It’s the center-store categories that are migrating online. There’s not much of an experience with picking out a box of cereal or can of soup. Finding that perfect tomato or marbled steak requires a visit to the store. Fresh is a competitive weapon for traditional grocery retailers.

Where does health and wellness play into these shopping behaviors?

Ms. O’Connor: There’s a lot of data out there. Our report cites research showing that more than half of consumers will pay more for foods that promote health benefits. Consumers view health and wellness in two ways: fresh, less-processed (i.e., clean labeling, inherently nutrient-dense, organic); and “premiumization” (i.e., high-quality ingredients, storytelling, transparency). These are opportunities retailers can address throughout the perimeter of the store.

 

What are the top trends driving growth in the bakery, dairy and deli departments?

Ms. O’Connor: American households are now comprised of one to two people, who are less likely to purchase family-sized or larger-portioned products. Bakers have taken note of the growing interest in mini, single-serve and smaller-sized varieties of baked goods. Despite greater interest in healthier offerings, indulgence is still a factor in consumer purchases. Specialty cakes from in-store bakeries resonate strongly with higher-income young consumers.

Near the bakery is the deli, which is becoming a destination spot for shoppers. Operators are growing their offerings and trying to stay on trend with new products and flavors. They are reinventing the physical deli and trying to provide more culinary-inspired foods. Deli department sales totaled $25.1 billion in the 52-weeks ended July 1, 2017, representing 17% of total perishable sales, according to Nielsen Fresh. From 2012 to 2016, total deli dollar sales increased 27% and volume grew 21%, outpacing the 19% growth in total fresh dollar sales and 11% growth in volume.

 

Despite these booming numbers, just 12% of shoppers think of regularly visiting the deli as an alternative to cooking dinner. The deli is in a unique position to become the destination consumers crave for food and experiences. Deli meat trends include “clean” and “clear” labels; stories behind specialty meats; and merchandising through pairings and tastings. In addition to using local ingredients and sharing their story, delis need to appeal to resident audiences with menu items that are eaten locally and host community cultural and social elements.

When it comes to cheese, which is sold in both the deli and dairy departments, it appears Americans cannot get enough. Per capita cheese consumption in the U.S. continues to grow, reaching more than 35 lbs per year in 2015, double the amount consumed in 1975, but only about 60% of the cheese consumed in France. So we can eat more. There’s opportunity in new flavors and forms. After shoppers experience new cheese flavors in restaurants, they often look for the new cheeses at retail. Sampling events raise awareness and provide an experience you cannot get online.
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