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Trends Shaping the Future of grocery in New Zealand
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Trends Shaping the Future of grocery in New Zealand

The shopper and retailer landscape in New Zealand has seen some significant change over the past decade. Whilst the fundamentals of grocery shopping remain intact, shoppers are more sophisticated and expect great value and a pleasant shopping experience.

Here are five key areas we see as crucial over the coming years.

1.      LOOKING FOR GROWTH

Although consumer confidence is relatively high by developed markets standards, and net migration rates are at their highest levels for several years, they are doing little to stimulate growth. Supermarket growth is sitting at 1.9% in value and 0.6% in volume (units sold). Both major grocers undertook aggressive marketing in 2014, with a repeat of Foodstuffs’ Little Shop promotion, and the new DreamWorks promotion by Progressive. We can expect more of these innovative campaigns this year as the market looks to find new ways to drive growth outside of pure price based promotions.  

2.      CONVENIENT STORE LAYOUTS

Retailers have introduced new ways for shoppers to get in and out of stores as quickly as possible. Self-checkouts are now prevalent in most supermarkets. New layouts no longer force customers to walk through potentially irrelevant aisles, with ‘cut throughs’ to the checkout more common now. Even PAK’nSAVE, the bastion of large shopping baskets, has introduced smaller trolleys and trialled shopping baskets to get a bigger slice of the $3 billion top-up shop prize. The Convenience sector looks a strong bet longer term and most big retailers in developed markets are looking to take share from independent dairies and petrol convenience stores.

3.      PROMOTIONAL ACTIVITY REMAINS HIGH

The percentage of sales on promotion in New Zealand remains at 59%, one of the highest in the world. For every $100 spent on groceries, $59 is derived from products that were on promotion. Whilst there are benefits to consumers, there are also downsides. Price discounting can be effective at building short-term share, but the impact on brands long-term is questionable. If more funds are being allocated to price discounting, less is available for brand building and more importantly R&D. Without strong innovation pipelines, many suppliers will struggle to find a way out of the downward spiral. Take the bread category for example. Recent price reductions ($1 bread) have taken an estimated $30 million out of the category. Without strong innovation plans, it will be very difficult for suppliers to drive category growth.

4.      THE RISE OF PRIVATE LABEL

There has been a significant shift in perceptions of private label brands; they are no longer viewed simply as low-cost alternatives. In NZ, for every $100 spent on groceries, almost $14 is spent of private label brands such as Homebrand and Pams. Just like supplier owned brands, successful private label brands will be those that continue to invest in brand management activities and innovation. We predict private label growth to continue to outpace supplier brands in 2015.

5.      HONING IN ON ONLINE GROCERY

Online grocery retailing is still in a nascent phase in New Zealand, as less than one-in-ten shoppers regularly access grocery retail websites. Retailers see opportunity in online retailing and are investing in online strategies. Consequently, grocery retailers’ digital footprint will expand in the years ahead as they identify new ways to engage and sell profitably through online channels. The big challenge for grocery retailers in this space is price. Typically consumers are drawn to purchasing online because the price is favourable. Grocery retailers will need to find a commercial model that closes the price gap between bricks & mortar and online, otherwise they will be limited to those who are prepared to pay a premium for convenience. 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.