The Australian grocery industry is set to experience an increase of $10.6 billion in sales over the next five years. Almost two-thirds (64%) of this growth prize is expected to come from private-label products. That being said, there are still big opportunities for brands wanting to get their hands on a slice of this lucrative pie.
Strong presence and performance, both in-store and online, in the major grocery chains and discounters is key. A strategic focus on our digitally savvy Millennial consumers as well as international Australians is also critical. And underpinning all of this is innovation: Consumers demand and expect more choice than ever before.
Research from our Homescan Shopper Panel has revealed that 21.1% of all grocery is now sold as private label. When compared to Europe (around 40%), it's clear there is more room for private-label growth in Australia.
Consumer perception of private-label products has increased significantly over the past five years. They're no longer viewed simply as a low-cost alternative to name brands. Almost three-in-five (58%) Australian shoppers say the quality of private-label is "just as good as brands"–up from just 32% in 2011.
In order to remain strong in this environment, brands will need to tier effectively against private label offerings. Mainstream branded offerings must be more compelling than "basic" private label lines; while premium lines should be positioned as "best in category" above premium private label.
Millennials (aged 20-35) and international Australians represent a strong avenue for growth over the next five years. Supported by the right marketing efforts to engage them, we predict Millennials could generate an additional $6.1 billion in the next five years, while a strategic focus on ethnic consumers could deliver growth of $4.8 billion.
Millennials currently represent 7% share of the grocery market and is projected to account for 12% by the year 2021. These consumers are well-informed, globally connected, always on-the-go, value convenience, incredibly social and aspire to be healthy. They spend twice as much online as other generations and are fuelling the e-commerce transformation.
As this group gets older, retailers and manufacturers alike will need to account for their needs, buying and media preferences, increasing spending power and changing geographic locations.
Ethnic Australians currently spend an annual total of $14.6 billion on groceries. This is expected to rise by 33% to 19.4 billion in 2021. As a consumer group, their growth in grocery spending is four times faster than others.
Catering to the needs of international Australians is critical in driving growth. Taking Asian Australians as a specific example, our research reveals they are 30% more likely to spend more on fresh, are 55% more likely to spend more on health and beauty, and are 13% less likely to shop at major supermarkets.
Innovation matters. Consumers have a strong appetite for innovation. But success can be hard to come by.
A staggering 10,770 new grocery items were launched in 2014. Just 42 of these items were considered ‘breakthrough innovation’ i.e., a new value proposition (not minor product, packaging or size changes) with strong sales performance in its first year of launch and achieving at least 90% of year one sales in year two.
Understanding what drives consumer product choice is the key to innovation success. Around the world, we know that there is a strong consumer shift toward products that are sustainable, natural and functional.