Jeffrey S. Gregori, Vice President, Solutions Consulting, The Nielsen Company
SUMMARY: What a difference a year makes. Restaurant operators enjoyed a solid 2008, but by mid-year 2009, more than 4,000 had closed and the average guest check plunged more than 8%. Where did all the diners go? Grocery stores, supercenters and club stores—to pick up meat, seafood, produce, deli and bakery goods for a home-shared meal.
There is nothing like staying home for real comfort. – Jane Austen
Home. It’s our refuge when the world gets to be too much. The upside of a recession is that we come together around the kitchen table to share our meal and our day, taking comfort in the safe harbor of home. While that’s bad news for restaurants, from white table cloth to casual dining, it’s good news for retailers.
Through September 2009, Nielsen reported total store sales—which includes the Rx, perishables, center store grocery (UPC food & beverage), health & beauty care, and general merchandise departments—are expanding. The perishable department is growing faster than all retail sectors in the total market.
According to Nielsen, reported household deli spend for year ending September 2009 was $200—a 5% increase from last year. Bakery whipped up average annual household sales of $174 per year with a 3% increase. Fresh meat and seafood cooked up sales of $437 per year for a 4% gain, produce increased 3% based on annual average sales of $279 per household. Perishable departments are becoming one of the most productive departments at retail and channels outside of supermarkets are taking notice.
What the recession has wrought, among other things, is a transfer of dollars away from dining out toward spending more on prepared meals at retail. A 2009 Nielsen survey finds that 46% of American households say they are eating out less. And the sales data supports that statement as value-priced prepared meals at retail are posting double digit increases in supermarkets, supercenters and club stores. Other recessionary strategies include reducing unnecessary spending (27%), driving less (14%), shopping for bargains (13%), using coupons (12%), combining shopping trips (8%), going out less for entertainment (6%) and purchasing more private label goods (5%).
Supermarkets hold a dominant share position with perishables in the meat and seafood department with a 70% market share. More importantly, shoppers are spending more with grocers. Key factors fueling supermarket meat and seafood sales include promotions—51% of meat and seafood is purchased on sale—and prominent circular placement noted by 41% of shoppers.
Shoppers are trading down, up and side-ways as less expensive non-red-meat and seafood protein options such as turkey, chicken and pork sourced primarily from beef department sales. This trade down is occurring in both fresh and fully cooked product categories. Retailers should offer shoppers ideas to enhance the dinner menu with add-ons such as marinades, sauces and seasonings, which are posting double digit increases on both a dollar and unit basis.
Alternative channels are also making a strong push for this business. Supercenters have done a super job with new perishable formats, growing both the purchase size (up 2% to $11.80) and frequency of perishable purchases (from 18.4 to 18.7 trips per year). This holds true in particular for the meat and seafood departments, where supercenters snagged a 0.6 share point change.
Supermarkets hold an even stronger share of produce with more than 72% of the business and growing, posting a 0.3 share increase versus year ago. Supercenters are turning the competition green with envy capturing 12% of the market. Club stores are still underdeveloped in produce (7.9% share) versus comparable department share levels.
Retailers have a unique opportunity via their produce department to build their health and wellness equity and market position. The Natural Marketing Institute has identified 25% of the population as “Well Being” shoppers that are health and wellness focused, do the best job of eating right and use quality as their purchase barometer, not price or brand image. Indeed, the Nielsen sales data affirms these results as these shoppers buy 25% more produce than any other perishable sector and prefer random weight items at their freshness peak.
In deli, where supermarkets hold 50% of the business, all major departments are posting strong growth. Deli cold cuts and cheese are up 7% and prepared foods are up almost 5% versus year ago. Notably, supermarket dollar share erosion has been more severe than other perimeter sectors in this broad but expanding market. However, smaller formats (convenience stores, delicatessens, etc.) that offer shoppers “in and out” convenience are posing the biggest threat to supermarkets. Some of the hottest selling prepared deli items include turkey entrees, pot pies and chicken salad. At the service counter, shoppers are buying American as pre-sliced cheese is posting double-digit unit and dollar sales increases.
Retailers exploring ways to differentiate their brand should turn to the deli department, where service counts, personality shines and the area is generally underdeveloped as a driver of retail brand equity. Adopting an “alternative to eating out” strategy has paid off big time for retailers like Wegmans, which scored well in a 2009 study as a top choice for prepared meals, as well as for offering a wide range of fruits and vegetables, high-quality fresh food, well presented displays and a broad assortment of fresh meat and seafood.
Retailers should not forget to finish off their meal planning strategies with dessert options. The bakery department is posting the most significant growth of any perishable sector for grocers. And just as Clemenza famously says in The Godfather; “leave the gun, take the cannoli”, that is exactly what shoppers are doing as cannolis are posting strong growth within the cakes, cookies and specialty desserts department. Supercenters are the primary threat to grocery as they have almost 16% share of this market—more than any other perishable department. Similar to deli, club stores are not a major competitor in the service-driven bakery sector, capturing about 7% of the market.
Everybody cooks, but in today’s world, meal planning is maturing on both web-based resources for recipes and TV chefs for inspiration and technique. Nielsen discovered that more than one million viewers watched the Food Network during prime time in 2009—a 16% increase over full-year 2008. Furthermore, meal planning is one of the largest and fastest growing online activities, with the average browser spending roughly 10 minutes online planning meals. Retailers like Meijer have developed special iPhone applications that let shoppers check specials, locate recipes, consider wine pairings, even search from their smart phones for special needs like fat free, dairy free, gluten free and high fiber.
The lead position
What does it take to succeed with perishables? Retail perishable sales leaders share a set of characteristics including heavy penetration across one or more perimeter sectors. The average department penetration among the Top 25 retailers scored 83% for produce, 80% for bakery, 79% for meat and seafood and 65% for deli. Prepared foods represent an area of under-developed potential because of high-growth rates, strong drivers like working parents on tight schedules, and the fact that fewer than one-third of the Top 25 retailers’ customers currently buy prepared items.
Service remains key to succeeding in areas like deli and bakery, where sales outpace meat, seafood and produce. Across the store, the produce section affords the best climate for delivering health and wellness messaging. Even aside from absolute sales potential, prepared foods are unique in their ability to serve as an avenue for differentiating the retail banner. For a playbook on doing it right, turn to trend-setting retailers that have set both the delivery standard and consumer expectations for high-quality prepared meals and the multi-media formula for promoting them.