At the Food Trends Forecast 2014 conference hosted by NSF GFTC, Carman Allison, VP Consumer Insights at Nielsen, shared the factors that are influencing CPG (consumer packaged goods) growth.
Canada’s economy continues to be fragile and consumers have remained cautious since the recession in 2009. CPG sales growth is struggling at 1.7% in dollars, driven by a 2% inflation rate, and 0.3% in units. (Nielsen MarketTrack – Total Tracked Sales, 52 wks ending 09/20/14).
Food categories, representing 66.6% of CPG sales, are stagnant at +2% in spite of frequent promotions.
Drug stores are emerging as “the new convenience store”, with food purchases rising to 19.6% of sales, an increase of 6%. The top four categories – chocolate, milk, soft drinks and snack food – represent $740 MM in sales and the fastest growing categories are eggs, R&G coffee and soft drinks. Expect drug store food sales to increase further if Loblaw expands their fresh offering in Shopper’s Drug Mart.
17% of households shopped at ethnic stores, driving growth to +20%. Health food stores also grew by +8%. Although online shopping grew at +43% and represents a 1.9% share of sales, grocery only accounts for 0.6%.
What shopping behaviours are affecting growth?
73% of Canadians are trying to reduce grocery spending. The number one tactic is to stock up during promotions. Although retailers benefit from bigger baskets, the negative impact is fewer shopping trips.
36% of 2014 sales as of Q3 were with a price cut (TPR), with the gap between regular retail and promo prices widening. Other consumer cost cutting measures include coupon use, price matching between retailers and changing stores in pursuit of lower prices. Evidence of this is the 7% share growth of dollar stores and the astounding size of the discount channel, which now represents 43.9% of grocery sales.
Unlike the U.S., Canadian dollar stores limit their food offering to dry grocery. Expect their share of sales to increase when they wake up to the opportunity of introducing fresh produce, frozen food, dairy and deli to the mix.
In an effort to drive sales, grocery retailers and packaged goods companies provided the impetus that turned Canada into a nation of value-seekers and bargain hunters. Shoppers have been trained to postpone purchases of frequently promoted items and wait for the sale. The result is lower margins for all.
What can retailers and brands do to recoup profits?
Carman Allison suggests smarter pricing and promotions. Analyze the impact of promotions not only on sales dollars and volume but also on gross margin dollars, because penny profit goes to the bank. Consider changing the depth and frequency of promotions to avoid leaving money on the table.
The balance of spending will shift by 2020 when millennials are expected to number 10 million and represent 26% of the population, surpassing baby boomers. Understanding their behaviour, offering value and products that cater to their needs and leveraging mobile and online shopping is a must for retailers and food brands.
© Birgit Blain & Associates Inc.