In the last decade, the Australian grocery market has grown by $10 billion in retail sales. However, most of that growth was five years ago, with the last five years' growth well below inflation. Around half of this market growth was shared between private label and smaller manufacturers. So, for the most part, large and medium suppliers have not been the winners in dollar growth, despite their growing market share.
As an industry, we have invested over $5billion in above-the-line advertising spend, billions in trade spend and tens of millions in targeted loyalty campaigns. Yet, despite these efforts to pry open the purse strings of consumers, we have very little to show for this investment; with grocery spending remaining relatively flat.
Our research tells us that growth is out there to be had, but it is uneven. We predict the next five years will offer the market a $6 billion growth prize. But if the past decade has taught us one thing it is that change is inevitable. As an industry, a shift in mindset needs to occur if we are to realise ‘real’ new opportunities for growth.
In retail there are effectively four ways in which to find growth in the next five years:
Banking on growth opportunities above consumer price index (CPI) in grocery is risky if history is anything to go by. Shoppers’ basket value has not kept up with inflation and the number of items in the basket has diminished, with the exception of ALDI.
The reality is, without considerable innovation, trying to find growth in the segments you already play in is dangerous as the market is unlikely to change dramatically.
That being said, depending on what side of the fence you sit on, winning share on your home turf is not impossible. Private label brands will continue to perform. In fact, we expect half of the market’s growth to come from these brands in the next five years. ALDI’s Lacura brand is breaking all the rules with presence in 16% of all households across the Eastern Seaboard and growing at 23% year on year.
This growth strategy is about looking at how you can drive organic growth where you already play in addition to optimising the performance on your home ground.
One thing our research tells us is that the more promotions shoppers are exposed to, the more ‘immune’ or ‘numb’ they are becoming. Price is not the lever it once was with just under half (49%) of shoppers now stating they need to switch to cheaper grocery brands to save (compared to 62% in 2008).
Milk is an example of how this strategy has played out in a positive way. In the past decade, milk manufacturers have pushed the once niche flavoured milk category into huge growth – it is now valued at $47 million.
Waiting for ‘organic’ growth, however, is as game of chance with the odds stacked against you, so looking beyond your borders for growth is a must.
Moving into new segments comes with its challenges, but if executed correctly can reap big rewards. We looked at a few examples where segments are experiencing growth between 24 – 101%. The common thread across all these categories is ‘differentiation’ – they’re less commoditised and provide a unique experience and/or consumer benefit, and people notice.
Vegetables are an example of redefining the scope of the segment you play in to drive growth. Combined sales for canned and frozen vegetables is down versus five years ago, but fresh pre-prepared vegetables have seen unprecedented growth – a response to increased consumer demand for fresh options that are still convenient.
We have seen many recent examples of acquisition; Kirin acquiring Lion Nathan, PZ Cussons acquiring Rafferty’s Garden and five:am, and Unilever acquiring T2 – just to name a few.
The common thread here is familiarity and the complementary nature of these acquisitions. When PZ Cussions bought yoghurt manufacturer five:am, it captured new consumers and a brand with strong engagement – it boosted their business into real growth, up 4% in 2014.
In all of these cases, success is difficult to analyse as results cannot be measured in sales growth alone. What we can say is they are all driving their own futures, not waiting for organic growth or the return to a more inflationary environment.
As our research of retail trends in the past decade has revealed, there is definitely growth to be had, despite it being uneven. The market will grow by $6 billion in the next five years, with growth coming from share steal, category growth and new segments. Older and younger couples without children also represent a lucrative growth target in the immediate future - contrary to the market's current big focus on families.
We predict that discounters, coupled with increasingly polarised shopper groups (established couples and young transitionals with no children), and a rapidly growing e-commerce channel will be the engine of growth and will shape our industry over the next 5-10 years.
This research was presented by Kosta Conomos at the Australian Food and Grocery Council’s (AFGC) Highlands Senior Executive Forum in Brisbane on 28th May. The Forum provides an opportunity each year for the CEOs and senior executives of Australasian food, beverage and grocery manufacturer and supply companies to discuss topical issues for the industry. The theme for the 2015 Forum is Competitive Pathways in a Disruptive Market.