Grocers and Brands Grew Despite Many Challenges in '05: IRI Report

CHICAGO -- Dollar sales of cosumer packaged goods grew just 1.6 percent in 2005, an extraordinarily challenging year marked by a devastating hurricane season and uneven economy. But while industry growth was disappointing, trends across specific channels and categories were encouraging, said Information Resources, Inc. (IRI), a provider of enterprise market solutions for the CPG, retail, and healthcare industries.

The firm offered a review of the year in its latest Times & Trends report, "2005 CPG Year in Review: A Remarkable Year of Challenges and Wins."

"Despite weak dollar sales growth, the CPG industry had a remarkable year," said IRI global c.m.o. Janet Eden-Harris. "Perhaps what is most extraordinary about this past year is that many categories, brands and retailers did grow within this challenging environment--largely through innovation."

The report is based analysis of consumer data from IRI InfoScan, IRI MarketInsight for Wal-Mart, and IRI Consumer Network, and highlights CPG trends from 2005.

The drug store channel had an exceptional year, according to the study. With total CPG sales growth at three times the industry average, the channel enjoyed growth across nearly all departments.

The grocery channel grew dollar sales only slightly; however, the increase was enough to maintain an all-outlet share, which is a potential turning point in grocer's long-term battle against share erosion from value channels. The study also reports that select categories, including sports drinks, bottled water, hand and body lotion, and cold/allergy/sinus tablets posted double-digit growth through innovation and alignment with consumer needs.

Across product segments, beverages were the growth leaders in 2005. Sports drinks, bottled waters, coffee, and wine -- which posted a 5.1 percent increase in sales -- led this segment. The healthcare segment benefited from growth in cold/allergy/sinus products, in which new product introductions, including Mucinex and pseudoephedrine-free Sudafed PE, contributed to growth. The long-standing decline across general merchandise categories continued, with the most significant dollar sales declines occurring within photography supplies, batteries, and kitchen storage.

At drug the largest gains occurred among the channel's less-developed food categories, such as frozen, bakery and dairy, which provides further evidence of the channel's evolving role as a convenient food and beverage outlet. Drug stores were also successful in gaining share within core healthcare and beauty/personal care segments.

"It appears as if the drug store channel's heavy focus on neighborhood merchandising, investment in destination departments and efforts to the link the front-end with the pharmacy are paying off," added Eden-Harris.

Top 10 CPG categories posted mixed results during the past year with the largest two, carbonated beverages and milk, experiencing flat sales. Total carbonated beverage demand continued to slide as consumers opted for alternatives, such as bottled water and sports drinks. Diet soft drink sales; however, continued solid growth. Milk dollar sales were impacted by lower price increases in addition to a slight reduction in volume.

Wine and spirits growth continued to negatively impact beer sales, but the category is poised for longer-term growth as the legal drinking age young adult market expands. According to the IRI report, the real stand-out category among the top 10 was frozen foods, with innovative new skillet and crock pot dinners leading the way.

A review of the top 10 growth categories highlights major growth drivers in 2005: health and wellness, enhanced performance, premium products, and price. The perceived benefits of sports drinks, water, and yogurt combined with innovative flavors and packaging propelled these categories onto the top 10 list. Refrigerated salad and coleslaw also benefited from a fresh, healthy positioning, as well as convenient new product offerings.

Channel migration was clearly evident in 2005, but at a slower pace than was seen in prior years. While supercenters accrued the largest gains, the channel appeared to take share from other value channels, including mass and club.

The grocery channel maintained share in 2005, following significant share loss in 2004. Industry efforts to differentiate grocery stores from value channels through new formats, fresh foods, private label, and natural/organic products appear to be resonating with consumers, according to the report.
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