By Steve Ramsey
When was the last time you picked up takeout from a favorite restaurant and ate it at home? How often have you picked up a side dish or salad from a grocery store for the sake of convenience?
Although 82 percent of meals are consumed at home, the majority of these meals are not made from scratch. Many of them are coming from the perimeter of the grocery store, which is growing twice as fast as total food and beverage.
There are multiple factors driving these changes, including evolving shopper behaviors, technology as an enabler and changing retail business fundamentals. Read on as I dive into each of these factors and focus on what retailers and manufacturers can do to stay ahead of their competition.
Convenience and Solutions
As consumers shift to eating more meals at home, how meals are being prepared is changing. There has been an increasing focus on recipes, and consumers are gravitating more toward value-added products – those items that are just one step away from preparation, such as pre-marinated meat. Many CPG manufacturers have begun addressing the need for convenience by reducing the steps and time involved in meal prep. These types of products are growing and have high additional headroom.
Meal kits and subscription services have also become more popular. While the market size is expected to grow to between $3 billion and $5 billion by 2022, these services are still having a difficult time retaining subscribers. However, this trend still offers an attractive growth pocket for both retailers and manufacturers to experiment.
Leaders in the retail space are also leveraging fresh prepared goods to compete with restaurants and specialty channels for consumers’ meal purchases, and these items continue to be a key driver of perimeter performance. A good fresh prepared department not only brings in new, loyal shoppers, it also create stronger relationships with those shoppers, creating additional store sales beyond the perimeter in the process.
E-Commerce and Personalization
Digital is currently influencing approximately 77 percent of retail sales. As more brick and mortars offer online purchasing options, consumers are taking convenience to a whole new level. While 76 percent of all shopping trips begin online, 96 percent of fresh buyers say they have not purchased online for valid reasons, including that they don’t have the ability to directly check the quality of the food before purchase.
The biggest game-changer in buying fresh online is Amazon’s recent acquisition of Whole Foods. Perishables have long been the most challenging aspect of online grocery, but Amazon’s mastery of e-commerce coupled with consumer impression of Whole Foods has retailers taking steps to reduce costs and offer new services to stay competitive. As e-commerce for fresh foods is still in its infancy, there are massive growth opportunities.
Overall, e-commerce has become a dominant source of growth in the industry and is redefining the customer experience with greater personalization, offering more efficient and effective marketing opportunities both in-store and online across categories.
Store Format Innovation
Over the past decade, the median store size has shrunk across the industry as the number of small-format stores has risen. Retailers are also changing their stores to have a greater focus on fresh to directly address consumer needs. Some retailers are adding bakery and food-to-go departments, undergoing aesthetic makeovers and/or expanding their fresh section beyond the perimeter. These innovations are meant to address various consumer needs, such as lower prices, healthier and more diverse food options and more convenient and enjoyable shopping experiences.
What’s next? Technology will accelerate its role in shaping consumers’ in-store experiences, and there will be more ways the store can engage with tech-savvy shoppers. This will be through new sensor capabilities, the use of AI and machine-learning algorithms and ways to digitally provide information on the origins of food items to provide the transparency that consumers continue to seek.
In an industry that traditionally sees little growth overall from year to year, manufacturers and retailers still have several opportunities to tap into to find it.
Interested in learning more about customization to the new consumer? Watch my webinar with FMI and reach out to me at Steve.Ramsey@IRIworldwide.com.