Report: Growth remains difficult in $760-billion CPG market
Grocery stores outperformed all other channels despite flat growth.
July 26, 2017
Despite fierce competition and thin profit margins, grocery sales outperformed other channels for sales of consumer packaged goods (CPG), new market research shows.
IRI, a Chicago-based research firm, last week published the “IRI Channel Performance Report,” which examines how consumers’ shopping patterns and marketing programs are influencing retail channel trends.
Susan Viamari, IRI v.p. of thought leadership, said it’s becoming more difficult to find growth opportunities in the $760-billion CPG marketplace.
“Shoppers are becoming increasingly demanding and embracing an omnichannel environment. And they are funneling their spending to channels and retail banners that best deliver on their expectations,” she said. “That’s why it is imperative for retailers and manufacturers alike to have a clear perspective on which channels and departments are performing well, so they can figure out which white-space opportunities will lead to growth.”
Despite seeing just 1.6 percent growth in sales between 2013 and 2016, the grocery channel still outperformed other channels in overall sales over the last year, IRI reported. Grocery accounted for 41 percent of dollar sales ($314.4 billion) and 51 percent of unit sales (122.7 billion). Club retailers pulled in just over $83 billion, down half a percent from a year ago. Mass/supercenter retailers pulled in $32 billion, down 3 percent from a year ago.
During the past three years, overall trips to grocery declined 1.7 percent. But, in calendar year 2016, trips to grocery climbed 1.3 percent. Trips to club and dollar channels rose slightly over the last year, while mass/super and drug channels are suffering multi-year declines.
Quick trips account for more than half of all shopping trips, which has remained the case over the past several years. However, retailers have been experimenting with smaller store formats, and click-and-collect and subscription-based e-commerce programs are increasingly prevalent. The rise of the younger, more ethnically-diverse generations, particularly Millennials, is also contributing to change.
E-commerce making its mark
The e-commerce share of CPG sales is hovering in the single-digit range — right around 8 percent. However, growth has been fast and furious, causing brick-and-mortar retailers to scramble to protect and grow their share of a CPG pie that is not getting much larger.
Across channels, retailers are sharpening their competitive skills and building out high-traffic aisles and departments, including snacks, beverages and frozen foods. As retailers continue to tinker with new formats and programs, the metamorphosis is expected to continue in the coming years.
Where different generations shop
No two shoppers are alike, but generational differences are often significant. Millennials and Generation X, for instance, prefer shopping the mass market/supercenter channel and spend 44 percent and 16 percent more of their CPG dollars in this channel, respectively, than the average shopper. Younger Baby Boomers show above-average spending in the convenience channel, while seniors and retirees spend more heavily at drugstores.
Limited-selection discounter Aldi has gained momentum across all generations, and value retailer Dollar Tree has traction with Boomers and seniors.
Retailers attracting shoppers with new store formats and personalization programs
Since growth has slowed at big-box stores, many retailers are downsizing and shifting toward smaller formats. These small-footprint stores — under 50,000 sq. ft., compared to 110,000-plus sq. ft. — allow retailers to move into more densely populated and underserved areas and combat online competition in areas like convenience, turnaround time and delivery.
Retailers are investing in personalization programs aimed at attracting and retaining key shoppers. They are using loyalty programs, social media and mobile apps to know more about their customers than ever before and tailor their offerings to specific tastes and behaviors. For instance, one store may find that many of its current shoppers are “foodies,” so it offers more gourmet and ethnic options that cater to these needs. With some changes in presentation and targeted marketing campaigns, a store can gain many new loyal customers.
“The pace of change in the CPG industry is quickening on a seemingly day-to-day basis,” Viamari says. “Personalization has become a key to breaking through the marketplace noise. Shoppers demand to be recognized as individuals — with unique needs and wants — and they will vote with their wallets to reward CPGs that deliver solutions and marketing stories that resonate in their world.”