Stimulating growth in the food market is difficult for retailers and brand owners alike, but anecdotally it’s more difficult for the latter. Recent research shows it is only going to get harder.
Although New Zealand consumers are more confident than a year ago, this confidence is not being translated into grocery spend. Current supermarket growth is sitting at 1.9% in value and even lower for branded products (1.6%). Combined with our country's slow population growth (0.9%) we're now operating in a low growth environment.
In-house food expenditure per capita Down Under is among the highest in the world – with Australia and New Zealand taking the third and fourth spots respectively behind Switzerland and Norway – leaving little room for expansion.
So while growth is always a business goal, there are a number of challenges to companies obtaining a bigger slice of the pie.There is increasing competition for consumers’ minds and wallets due to the rise of internet-connected devices, and a growing preference for eating out.
NEW ZEALAND’S APPETITE FOR IN-HOME FOOD
When looking at money spent on food for in-home consumption, New Zealand is a particular outlier. According to the United States Department of Agriculture (USDA) ERS Food Expenditure Series (2012), Kiwis spend US$3,300 per capita each year on food consumed in-home. This equates to approximately 14% of our total consumption expenditure – and indicates a barrier to significant increases.
Nielsen research shows there is a distinct relationship between food spend and market growth, and indicates that in developed economies there is a tipping point where food needs are met – so growth can only come from food wants. Correspondingly, there are faster rates of growth in emerging countries as the population looks to obtain basic food needs for all consumers.
However the amount New Zealand consumers spend on food, tobacco and alcohol significantly exceeds similar markets like the U.S. and U.K. While global comparisons between developing and developed nations point to a difference in how their populations consume food, comparing peer markets highlights an unusual situation.
U.S. and U.K. consumers spend a similar amount per capita on in-home food purchases – US$2,273 and US$2,213 each year respectively, compared to New Zealand’s US$3,300. The underlying cause relates to how and where we consume food, with New Zealand’s spending almost three times on in-home food purchases compared to eating out. In the US for example expenditure is roughly equal between in-home and out-of home expenditure.
But this is changing. Between 2007 and 2013, the amount New Zealanders spent each year in restaurants (including quick-serve restaurants), cafes and food services increased almost 40%. If this trend continues we can expect to see in-home food purchases either slow or decline. This is a worrying situation for the food retailers and brand owners who are reliant on such purchases of food. However brands with well-developed relationships with wholesale and 'eating out' food businesses have a significant opportunity to grow.
As expenditure builds in the 'eating out' food channels, some businesses will need to diversify. Companies who rely on at-home food purchases will need to optimise their efforts to attract customers and ensure their products get into trolleys, whether physically in-store or via virtual baskets online.
These insights were presented by Geoff Smith at the New Zealand Food and Grocery Council (FGC) Conference 2014 (November 5-7, Queenstown).