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Supermarket supremacy continues to slip in food retailing

5/26/2008

LAS VEGAS —Long-term and recent trends are shaking up food retailing to the extent that the market could be going through its most significant realignment since the supermarket’s invention more than half a century ago. The FMI Show, held May 4 to 7 at the Mandalay Bay Convention Center in Las Vegas demonstrated that the edibles business has come under even more pressure over the past year because of the economy, a factor that could accelerate the already frantic pace of change.

Trouble in the housing, credit and fuel sectors was exacerbated by increasing food-at-home inflation that rose 4.2% in 2008, a year that ended for purposes of the Food Marketing Institute’s U.S. Grocery Shopper Trends study, in January 2008. Even worse, prices of key commodities such as milk, bread, eggs and meat suffered even more pronounced increases. The result has been a consumer focus on value and finding the right balance of price and satisfaction.

While that may be a challenge to food retailers, it presents an opportunity as well, because even a store focusing on gourmet products can benefit if it can pace trends in cuisine and maintain a quality level that makes it an alternative to dining out. In fact, even though economic and fuel woes have been growing for months, grocery spending went up, reaching an average of $97.80 this year, versus $93.20 last year.

Consumers have embraced the range of choice food retailing offers them today as they’ve sought value. Among Trends survey respondents, 86% said they had shopped at least one supermarket for food in the prior 30 days. However, at one time, that proportion was close to 100% and was 93% as late as 2005. Full-service supermarkets continue to be the place 60% of consumers make their primary food purchases, but that’s also down from 67% in 2005. Supercenters are benefiting, with 45% of respondents saying they had recently shopped one, up from 35% in 2005. As a primary purchasing destination, supercenters and warehouse clubs are tied at 5%, suggesting they have established themselves with a significant proportion of consumers and also that they continue to have abundant opportunity.

As for why consumers pick a store, value has become more important, with 37% saying it’s the overriding factor, versus 31% in 2007. Convenience remained as important, with 13% citing it as most important factor, as did sales at 9%, fruit and vegetable quality at 7%, friendly employees at 3% and fast checkout at 1%. Store cleanliness was of primary importance to fewer consumers, 6% versus 10% last year, as was meat quality, 4% versus 6%. The importance of organic and natural products also slipped, mattering most to 2% of consumers, compared with 4% a year ago.

While macroeconomic trends are certainly influencing consumer preferences, the reason for the slip in organic product preference may be more complex. Laurie Demeritt, president of market research firm The Hartman Group, told the FMI Show “Sustainability in Action” seminar that organics and sustainability had, for the mainstream consumer, become part of one overriding issue along with general health concerns that can best be defined as wellness. “The mainstream consumer has a value system that is starting to change,” she said, something that presents a challenge because some parties are misreading that change.

The food industry, activists and regulators often view organics, sustainability and health as separate issues, but most consumers don’t. Even with a hot-button issue like sustainability, a disconnect exists. Hartman Group research indicated only about 54% of consumers say they have any familiarity with the word and only 5% can name, unaided, companies that are leading sustainability efforts. The food industry, environmentalists and regulators might more closely associate terms such as authenticity and transparency with sustainability, but mainstream consumers associate words such as health, support of local institutions and simplicity with the concept.

Wellness was a defining trend at the latest FMI Show. Kraft unveiled probiotic granola bars under its LiveActive label, while Nestle distributed a smaller version of its Haagen-Dazs premium ice cream pops, sized to address portion control priorities at under 200 calories per serving.

Flavor still remains critical in all studies of consumer food and beverage preferences. Anheuser-Busch provided evidence of flavor’s importance by featuring Bud Light Lime at the show. Coca-Cola served up a new version of its Simply Orange juices that featured a splash of either pineapple as a change of pace.

As traditional discount store retailers have gotten into edibles, licensing has become more prevalent in food and drink, a trend that continued as Garden Fresh introduced Margaritaville, a line of salsas, hummus, dips, guacamole and chips that already is rolling out in Wal-Mart and hits Target next month, a company spokesman stated.

Making life easier for mom also has been a trend in food retailing and vendor Betty Lou’s has kept the tendency going with new Organic Harmony bars in Happy Apple and Cranberry Crave varieties. They provide 11 grams and 16 grams of whole grains, respectively, and use brown rice as a sweetener for those moms who are particularly wellness conscious.

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