U.S. FMCG Dollars Aren’t Vanishing; They’re Shifting Across the Store

U.S. FMCG Dollars Aren’t Vanishing; They’re Shifting Across the Store

Daily headlines make it clear that the U.S. grocery landscape is in the midst of major change. With retail channels like food, drug and mass merchandise experiencing declines in the first-half of 2017, fast-moving consumer goods (FMCG) manufacturers and retailers need to look more closely across the aisles of the store to determine how dollars are shifting, because dollars are vanishing all together.  

Comparing the year ended July 1, 2017, to a year ago, the majority of fresh categories continue to drive strong growth, with the overall department dollar sales up 0.6% (despite a 1.2% dollar decline in the meat category). Dollar sales of center store edibles, on the other hand, declined 0.9% (a drop of $2 billion from 2016), despite flat packaged grocery sales.

After a slow first quarter of 2017, prices rebounded for most departments in the second quarter, though dairy continues to face deflationary pressures. While retailers frequently sell products on promotion to drive sales, trade promotion effectiveness has been on a steady decline over the last several years. That said, it’s unlikely that FMCG manufacturers can generate growth through trade promotions alone, so they’ll need to look elsewhere across the store to find growth.

Center Store Categories are Still Growing

Despite an uptick in second-quarter dollars, brick-and-mortar center store sales were still declining in the 52 weeks ended July 1, 2017. However, some categories are beating the odds. So what are the trends that manufacturers need to be tapping into? Ones that deliver on convenience (such as refrigerated quiche and frozen meal starters); personal health (like the many products seeing expanded focus on clean and sustainable practices); and category reinvention (expanding from tea bags to innovative new products like kombucha).

When looking at the top trending center store categories, volume growth outpaced dollar growth during the 52 weeks ended Aug. 26, 2017. This indicates that these particular categories are rebounding, even in the face of deflationary pressure, which is a clear indicator of growth.

As we mentioned above, the fresh perimeter of the store is leading in growth across the total store. But when we look across the five departments within fresh (meat, produce, deli, bakery and seafood), one is clearly in the lead: Deli. The deli department as a whole represents a $25 billion market, with both dollar sales and volume up 2% in the last year. But beyond deli meats and deli cheeses, ready-to-eat deli prepared meals and entrees represent 60% dollar share of the entire deli department.

As consumers change where they spend their food dollars—with more being spent away from home, according to 2016 U.S. Department of Agriculture (USDA) food expenditure data—retailers that can provide a variety of prepared foods will help ensure dollars stay in the grocery store. The deli department also provides an avenue where food and beverage manufacturers can create new in-store offerings and experiences, such as meal kits and grocerants.

For retailers, the lesson is hopefully clear. Fresh can lead to total store success and a more experiential retail experience that keeps consumers in the store. And while they’re walking through the center aisles, food and beverage manufacturers with products on the shelves should continue to tap into product innovation, showcasing better-for-you products that focus on health and wellness and the convenience factor.

What retailers need to keep in mind is that it’s the center of store and fresh perimeter are not in competition. Rather, retailers need to meet the lifestyle of today’s omni-shopper. The boundaries that the industry uses to organize the store don’t matter to consumers. For example, the organic consumer, maybe a new parent, is more likely to shop for organic baby food, but also organic produce, organic household care and maybe even organic cosmetics. Sustainable shoppers aren’t just looking for better packaging; they’re looking for brands with sustainable business practices.

And while this should be top of mind for retailers, manufacturers must also look across the store for growth. The next big opportunity (or threat) could be lingering outside the category. So honing in on consumer purchase preferences across the store could help to stay ahead of what’s next.