For more than a decade, perimeter departments have been the hot topic within the grocery industry. Leading up to and during the Great Recession, the fresh foods departments won consumer dollars by offering premium experiences, healthy options and increasingly convenient ways to eat well.
In 2014, the fresh perimeter departments (meat, deli, bakery, seafood, produce and floral) grew 5 percent in dollar sales compared to 2013, a growth rate 3 percentage points higher than center-store food and beverages. In total, the fresh perimeter has added nearly $7 billion in sales in the last three years, with produce contributing 60 percent of that sales growth.
More recently, however, produce sales have wilted. In 2018, the fresh perimeter sales growth rate of 1 percent was actually lower than center-store food and beverages at 2 percent. In addition, produce only posted a 1 percent dollar sales growth rate and average units sold within the produce department was down 1 percent.
A host of factors contributed to this growth slow down within the grocery, mass, supercenter and club multi-outlet channels. Within the store, the frozen, beverages and refrigerated departments have rebloomed, offering consumers a wider variety of premium, convenient and health-forward options. Frozen vegetables have ended up into shopper baskets in increasing volumes. In 2018, a grocery store trip to buy fresh vegetables was three times more likely to also include frozen vegetables than the average trip.
Beyond the store, competition is heating up from all ends of the retail spectrum as more and more outlets identify the fertile ground in fresh foods. On the discount and limited assortment end, Aldi and Lidl have opened more stores especially in the eastern U.S.
While only 28 percent of households have bought fresh foods at an Aldi store, the discount grocer enjoyed a 6 percent increase in average trips annually per shopper in 2018.
On the premium and experiential end of the retail spectrum, the natural channel as well as Trader Joe’s and Whole Foods also benefitted from trip frequency increases. While these chains capture a relatively low percentage of households, when trips to these stores increase, they pull dollars from the traditional grocery, mass and club channels.
Where will the growth of the future lie? To answer this and related questions, IRI is partnering with FMI for the fourth year to produce the “Top Trends in Fresh,” a series of reports and webinars on trends in store perimeters, but with a new and unique spin.
The 2019 series theme is Balancing the Pendulum, uncovering new pockets of growth that might be overlooked in the constantly shifting and complex retail landscape. The first installment is on the Consumer Pendulum; identifying consumer segments that cumulatively are worth big dollars of opportunity if retailers can appeal to these shoppers’ unique needs. IRI debuted this research at the 2019 FMI Mid-Winter Conference and the 2019 NGA Show in February and will highlight it again at the IRI Growth Summit in March.
Retailers have abundant opportunities to reclaim these shoppers. In fact, even small grocers have the opportunity to gain up to $200 million incremental produce sales opportunity by appealing to these specific households. As with so much of CPG retail today, the key is understanding a retailer’s high-value shoppers and creating improved experiences for them at every touchpoint, ranging from ads and promotions to in-store experiences.
For example, one of the fastest-growing household types is the multi-generational upper income. These are millennials with or without children living with baby boomer parents typically in small cities and suburban enclaves. There is a projected 4 percent growth rate expected in these types of households, yet their average annual produce and total fresh foods spend is declining in traditional channels. These households seek experiences and are among the first to try mobile applications to ease their grocery shopping. Offering discounts online to drive them in for the experiential programs such as produce juice bars or cut-in-store fruits and veggies will appeal to them.
Another example rests with smaller households. In urban areas, single parent families with multiple children have been increasing their fresh foods spend in traditional grocery stores. They also make much more frequent trips, especially for products such as fresh produce greens, tangerines and avocados. Marketing vehicles like personalized mailers, paper, and digital coupons and ads that feature convenient meal and snack ideas can win their basket from other chains.
While the current growth rate has slowed, consumers remain highly interested in fresh foods. Seventy percent of consumers surveyed in IRI’s 2019 Fresh Foods Survey plan to spend more on the perimeter departments this year than in years past. However, to win with these shoppers, manufacturers and retailers must be strategic, data-driven and creative in their efforts. Gone are the days of “stack ‘em high and watch ‘em fly.”
There is a bumper crop of opportunity for those that deeply understand consumer wants and needs and activate new strategies before their competition.
For more information on IRI’s Top Trends in Fresh Series, visit www.iriworldwide.com/en-us/Insights/Publications/Top-Trends-in-Fresh-Foods or contact Jonna Parker at jonna.parker@iriworldwide.com.
