CPG Growth "Anemic" as Consumer Preference Changes

POSTED BY Greg Keating ON Dec 18, 2017 8:00:00 AM

Euromonitor International estimates that retail sales of packaged foods in the United States will increase by a rather feeble 1.2 percent in 2017. During the past five years, CPG trends were up by more like 1.7 percent, and before the recession that began in 2008, growth was over 3 percent. By comparison, this makes 2017’s 1.2 percent seem especially weak.

sad businessman falling price graphCPG brands are seeing weaker supermarket sales as consumer preferences change.

This uninspiring example of 2017 CPG trends is believed to be due to changing consumer preferences, as well as improving economic conditions and rising employment, which allow consumers a bit more latitude in how they spend their food dollars (such as by dining out). One of the categories that appears to be hit hardest is dairy, where sales are expected to grow by only one-half of one percent as consumers choose plant-based alternatives. Here are some takeaways from Euromonitor International’s latest report.

Increasing Preferences for Fresh, Natural, and Organic Products

Consumers increasingly want natural, organic, and fresh foods, and are thus spending more time shopping in the perimeter of their stores, while spending less time in center aisles where typical shelf-stable foods in cans and jars are found. Stores are reporting better sales of fresh produce, fresh seafood, and fresh meats, and stores with in-store artisan bakeries are reporting strength there too. People are generally less satisfied with many of their “usual” CPG brands, with only a minority of larger food and beverage companies scoring higher on the most recent American Customer Satisfaction Index for non-durable goods. 

People Dine Away from Home More Too

Foodservice spending now represents more than half of all food sales in the US as people spend more of their money on dining out. Among CPG trends, this one has been on the horizon for a long time. People are more likely to eat alone, and more likely to eat “on demand,” as traditional work schedules and structured meal habits become less common. Moreover, people are willing to pay a premium for the convenience. 

Part of the trend is generational too, with the average Millennial eating out an astounding five times a week. Younger adults tend to prioritize “experience” over products, and they are especially fond of buying coffee out and going to bars, which they do an average of at least once per week. 

Savory Snacks and Confections Still Strong

Savory snacks, led by high-end premium brands, and meat snacks are still doing well in supermarkets, however. These sales are expected to be up by 2.1 percent in 2017. Alternatives to potato chips, such as ready-to-eat popcorn and vegetable chips are popular, as are bean-based chips and tortilla chips. Confectionary sales are surprisingly strong too, with stronger than average growth expected in packaged cakes and packaged pastries.

cakes on conveyor beltPre-packaged cakes and pastries have had surprisingly strong growth in supermarkets. 

As well, younger consumers snack more times per day than the population as a whole, with Millennials more likely than other generations to snack four times per day. However, it is not necessarily junk food they are after. Snackers today are particularly interested in less-processed, preferably organic savory snacks, and if they contain added vitamins or other nutrients, so much the better. 

Meal Kits Another Promising Category

Study of CPG trends in packaged foods would not be complete without a look at the rise of the meal kit. Meal kits, which are often ordered online (sometimes on a subscription basis), allow today’s consumer the convenience of avoiding preliminary prep work while enjoying making a home-cooked meal. Meal kits are a growing, $2.2 billion industry, which is expected to grow by 25 to 30 percent over the next five years. Meal kits are also appreciated by people with strict diets, such as vegans and people who want non-GMO products. 

What CPG Brands Can Do

Higher prices alone will not be enough to protect CPG brands from changing consumer preferences. Possibilities for growth may come from product innovation and development of on-trend products, like meal kits in supermarkets. Indeed, Kroger is rolling out its own meal kits with pre-measured ingredients at some of its stores in Cincinnati. Moreover, the “grocerant” trend, where supermarkets sell prepared, restaurant-style food to order, is already worth $10 billion in sales. 

Consumer CPG trends are different than they were a decade ago. Supermarkets are fighting back by emphasizing the fresh foods that typically line store perimeters, by offering their own meal kits to compete with those ordered online, and by offering restaurant-quality prepared foods alongside their traditional grocery offerings. That is a strong indication that nobody expects things to go back to the way they used to be. 

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