Bright Holiday Ahead for Food and Drink

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Bright Holiday Ahead for Food and Drink

While analysts are anticipating a difficult holiday season, the forecast for sales of food and drink is looking merry. The category is expected to see the most growth this year compared with other categories researched by Santa Monica, Calif.-based IBISWorld.

Consumers aren’t expected to change their spending patterns drastically from last year. However, Christmas sales are estimated to grow 0.19 percent to $128.1 billion across four traditional categories: food and drink, gifts, decorations and other (flowers, postage, etc.). IBISWorld predicts food and drink sales will increase 11.65 percent this year to $27.23 million from $24.84 last year. The gift channel isn’t facing as much cheer, with a continued decline of 2.61 percent, finishing the season at $81.91 million, according ti IBISWorld.

“The recession has caused people to go back to family values as opposed to simply buying presents,” explained Toon van Beeck, senior analyst with IBISWorld. “Consumers just don’t have the money to fork out on unnecessary gifts and luxuries such as traveling. Instead, they’ll cherish time spent with close family and friends.”

He continued: “Inventory is going to be one of the key factors for retailers. If retailers manage their inventory, they won’t need to discount like they did last year. Last year, consumers were focused on the problems facing them, and retailers [were] heavily discounting their products from clothes to food to kitchenware. But this year, consumers and retailers are more prepared and they know … there is a light at the end of the tunnel.”

Consumer focus on entertaining at home, home cooking and celebrating family values will be central to growth of food and beverage sales, IBISWorld’s research found.

“We definitely feel that the 2009 holiday season will be a good year for the food industry and grocery,” van Beeck said. “There are a lot more consumers looking toward health, well-being and environmental concerns — these concerns all come into play in the gourmet food market. We feel gourmet product and specialty food stores are in a better position and will have growth this holiday season.”

While specialty stores will gain some traction this year, with consumers focused on shopping locally, van Beeck said large chains and discounters will also reap the benefit of food and beverage sales.

“Big supermarket chains and big-box retailers continue to increase their shelf space of luxury foods and goods, so a lot of consumers will be looking in those areas as well as [in] specialty channels,” he explained. “There will be growth in both areas.”

This year’s Thanksgiving sales are expected to grow 3.0 percent from 2008, reaching $29.9 billion. Although this is positive for the retail industry, sales are still below the robust $30.69 billion logged in 2007.

Of total 2009 Thanksgiving sales, 92.5 percent, or $27.64 billion, will be spent on food and drinks alone. Turkey is the single biggest purchase, with 47.1 million birds expected to be consumed this holiday — up from last year’s level of 45.3 million birds. In fact, turkey consumption during Thanksgiving will account for nearly 19 percent of all turkeys produced in the United States during 2009.

Black Friday
Total retail sales during the traditional Black Friday weekend are expected to increase 2.8 percent from last year, totaling $42.9 billion. With 76.9 million people estimated to swarm into retail stores on Black Friday alone, shoppers are expected to take advantage of this day to ensure they get all of the items they want to buy for friends and loved ones.

“Consumers have become accustomed to sales and deep discounts during the past year, but retailers have low inventory levels this season and will try to keep prices high,” said van Beeck. “Shoppers will need to purchase before the stores run out if they have specific items on their gift lists.”

Yet, if retailers try to avoid discounting key goods for too long, it could spell disaster. People don’t have the disposable income and will look elsewhere for their gifts, making the competition fierce and pricing crucial this year.

“Retailers will look to generate sales in any way possible, with more emphasis on Black Friday, mid-December sales and a strong online presence offering free shipping,” added van Beeck. “It’s all about exposure as shoppers look to snatch bargains, while still getting what they want.”

2010 Outlook
IBISWorld estimates that overall, Christmas sales will rise 6.7 percent to $136.7 billion in 2010 as the U.S. economy slowly climbs out of a deep two-year recession, the worst in more than four decades. Gift sales are expected to increase a substantial 9.0 percent, but will still be $17 billion shy of 2007’s solid levels, while decorations will increase 14 percent as people make up for the lack of spending in the past couple of years.

“A few years ago, the consumer mindset in the food segment was on convenience, delivery and prepared foods. But people have cut back on their spending, and this trend has faded with the present economy. People are back [in] the kitchen,” van Beeck continued. “We definitely believe there will be a trend toward buying products to use in the kitchen and entertain at home — quality goods that consumers will actually use. Whether it will be long-lived or not, there will be a shift for at least another year.”

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