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Inside The Marketbasket

9/1/2010

An unrelenting economic downturn that’s spawned a vast base of value-seeking shoppers hindered discernable gains for supermarkets, PG’s research found.

Supermarket sales reached $437 billion in 2009, adding $7 billion to the tally for the year, according to results of Progressive Grocer’s 63rd Annual Consumer Expenditures Study. This modest 1.6 percent comparative overall sales gain from 2008 represents the first time in five years that supermarkets failed to exceed the gain of the previous year, as a result of one the most challenging economic cycles in recent memory.

To be sure, the full brunt of the lingering downturn took a harsh toll on all sectors of the economy during a period when American consumers were reining in, tightening up and trading down in the quest for value at all turns. The dramatically altered purchase patterns have in turn given rise to a more calculated and resourceful grocery shopper who is clinging to discount strategies like coupons and promotions while carefully evaluating brands, specific products, stock-ups and pack sizes. Value-seeking consumers are also doing more cherry-picking, cooking more from scratch and substituting store brands while seeking to eliminate nonessentials and impulse expenditures.

A closer look at Nielsen Homescan data finds the average supermarket basket ring in 2009 at $41.44 per trip, up just 1 percent from $44.03 in 2008. Supermarkets weren’t alone in this downward trend, though, as supercenters, warehouse clubs and mass merchandisers also posted declines for the year.

On the other hand, the grocery channel fared better than some others during the tumultuous year, as losses for restaurants turned into gains for supermarkets, with trips to the grocery channel in 2009 maintaining their clout vs. opposing trends logged in 2008.

“For the last seven periods of 2008, grocery trips were off in five periods, but in 2009, grocery trips were up in 10 of 13 periods,” notes Todd Hale, SVP, consumer and shopper insights at the Nielsen Company, based in Schaumburg, ill. “Food matters most, and retailers are doing a great job of going after lost restaurant trips as more consumers eat their meals at home.”

Overall, total grocery sales, including food, nonfood and alcoholic beverages, gained 2 percent in sales to reach $162 billion for the year, good for 37 percent of total supermarket sales (about even with last year’s result). All three components of the segment — food, nonfood and alcoholic beverages — posted sales increases. Nonfoods in particular held their own, reversing two years of declines with a 2 percent increase in sales.

Interestingly, fresh food categories, which held steady at about 51 percent of total supermarket sales, faced a challenging year with sales of $225 billion — a slim 1 percent comparable increase. The dairy category in particular was especially hard hit after several years of double-digit percent gains from price inflation increases. Eggs posted a 15 percent decline in the CPI (consumer price index) in 2009, with a corresponding sales decline of 15.5 percent for the year. The story remained the same in the milk category, which dipped 5 percent after several years of prior price inflation.

On the bright side of the fresh food sector, packaged meats were on a roll, as was the fresh meats category, which increased by 4 percent to $55 billion.

The tracked side of the general merchandise category, which includes a wide range of UPC-coded products, from automotive to housewares to pet care, posted a second year of declines, falling by 7 percent to $6 billion in sales, while the nontracked segment, which includes the non-UPC-coded products in these same categories, struggled as well, posting an approximate 7 percent increase with sales of $16.9 billion — the first year of single-digit growth in many years.

Health and beauty care (HBC) also hit snags — a 1 percent decline with sales of $14 billion. Nearly every HBC category segment was down for the year, with vitamins as one of the few bright spots, gaining 9 percent to reach sales of $1.6 billion.

Finally, pharmacy reversed 2008’s decline in sales with an increase of 3.2 percent in 2009, attaining sales of $12.9 billion.

Inside the Marketbasket:

What Americans Are Buying by Household Size

In this year’s 63rd Annual Consumer Expenditures Study, we put buying trends by size of household under the magnifying glass for a closer look at the various purchasing preferences and patterns of various-sized domiciles. The index refers to how shopping volume compares among various household sizes, with 100 as the average.

SINGLE MEMBER HOUSEHOLDS

Liquor, Vitamins and Plenty of Cigars

Looking at the subtotals for the single-person household segment, purchase rates are below the average index of 100 for all categories measured. Single-member households track closest to the average mark for liquor (indexing at 98, with 26 percent of total supermarket sales), followed by vitamins and tobacco (each with an index of 88 and 23 percent of sales).

The highest-indexing single item for this group is cigars, at 160, which makes one-member households most likely to purchase these products compared with two-member households, at 105 and households with three or more people, at below 60. Not surprisingly, the smallest of our household breakouts account for 42 percent of cigar sales at supermarkets.

Rounding out the top five highest-indexed segments for single-member households is nuts, at 87, and medications and remedies, at 85.

TWO-MEMBER HOUSEHOLDS

Dynamic Duos: Wine & Floral, Canning & Freezing

This may be the most romantic profile among household sizes, as indicated by the higher-than-average volume purchasing of wine (indexed at 149), liquor (139), floral and gardening (130), and tobacco and accessories (124).

Straying from the incremental purchase trends of this group, canning and freezing supplies also factor heavily with the second-highest index among two-member households, at 142. However, the romance/ nonessentials theme returns when it comes to the highest-indexed purchase among this group: imported sweet dessert wine, with an index of 174 and 57 percent of total supermarket sales.

THREE-FOUR MEMBER HOUSEHOLDS

Oh Baby, What an Interesting Mix!

The effects of children in the domicile are evidenced in significant areas, with disposable diapers having as the highest index among three- to four-member households, at 187, accounting for 57 percent of supermarket sales. Not surprisingly, baby food factors next with an index of 178 and 55 percent of sales, followed by related baby care items, at 162 and 50 percent of sales, and — get this — children’s cologne, at 158 and 49 percent of sales.

A bit of irony is evidenced in the fifth top-ranked product category among three- to four-member households being family planning products, which index at 146 with 45 percent of sales.

In particular, junior baby food is the highest-indexing item among this group, at 208 with 64 percent of total sales.

FIVE-MEMBER HOUSEHOLDS AND UP

Diapers, Baby Food Juice Sales

No surprise here: the needs of children dominate the list of top-indexed categories for the largest households. As with the three-to four-member group, disposable diapers also tops the list for households with five members or more, with an index of 256 and 27 percent of sales.

Baby food ranks second, at 215 and 23 percent of sales, followed by children’s cologne, at 191 with 20 percent of sales, and prepared food (dry mixes), at 185 and 20 percent of sales.

Finally, something for the whole family: frozen juices and drinks, slotted in the fifth spot with an index of 176 and 19 percent of sales. A subsegment of this category, frozen apple juice, has the highest overall index of any product among households with five members or more, coming in at 288 with 31 percent of sales.

METHODOLOGY

The 63rd Annual Consumer Expenditures Study is based on data collected by The Nielsen Company for UPC-coded products, as well as sales estimates made by Progressive Grocer’s research department for nontracked categories in perishables and general merchandise.

Data in the summary table for total retail sales and share of market for supermarkets and mass supercenters is drawn from Nielsen Homescan, the industry’s only multioutlet panel that captures all consumer packaged goods purchase information, as well as non-UPC coded random-weight perishable products, based on consumer purchase information from 125,000 households nationally dispersed and projectable to total U.S. For more information on the Homescan Panel, visit http://nielsen.com.

Sales for U.S. supermarkets in the calendar year 2009, shown in millions of dollars, are based on data from Nielsen’s Strategic Planner database of UPC-scanned items, as well as on PG estimates for categories for which Nielsen doesn’t collect scan data.

Please note that some totals may not justify, due to rounding of percents or suppression of sales detail. Categories with sales of less than $10 million are subject to omission.

CES Category Spotlights

Data for the category spotlights is from the Nielsen Homescan Panel. Additional information, including top vendors and brands for a variety of categories provided by SymphonyIRI Group, a Chicago-based market research firm, is available in the expanded edition of Progressive Grocer’s 63rd Annual Consumer Expenditures Study, which can be found online at www.progressivegrocer.com.

WATER SOFTENERS & CONDITIONERS

Water softeners and conditioners hit sales of $7.6 million in 2009, with matching 1.6 percent declines in both sales and unit volume in 2009. Households with two members dominate the purchasing for the category, with an index of 131, while all other segments purchase at a below-average rate. Not surprisingly, the first name in salt — the Morton Salt Co. — dominates category sales at U.S. food outlets, with 58 percent of dollar share for the 52-week period ending June 2010.

CHOCOLATE

Despite the gloom of the recession that enveloped the nation last year, and whose impact is still being felt, U.S. consumers haven’t given up on chocolate, even as they cut back on other frills and took steps to curtail spending in virtually every way possible. Indeed, with household penetration at 90 percent, chocolate remains a popular supermarket purchase. Sales reached $1.8 billion at supermarkets in 2009, a 4.2 percent increase. The volume index among those with two or more household members is fairly close, with only a six-point gap, with two-member households ringing up highest sales for the category.

Continued innovation with flavors, flexibility and variety on the part of confectionery makers is providing consumers with new and inventive products to showcase, along with category mainstays that will drive purchasing over the next five years, according to the National Confectioners Association’s (NCA) “Confectionery Industry Trend Report 2009.” Even during economic uncertainty, the industry — valued globally at more than $145 billion — continues to post gains.

The desire by many consumers for an affordable special treat is also evident in the sales results of specialty and higher-end retailers. According to recent findings by the National Association for the Specialty Food Trade (NASFT), half of specialty food consumers purchase four categories of food — coffee, cheese, chocolate and olive oil — with taste and quality cited as primary purchase motivators.

GROUND AND WHOLE-BEAN COFFEE

As the U.S. economy slid deeper into recession during 2009, coffee marketers moved in the opposite direction, digging out of the trench of 2008 with a variety of strategies designed to capitalize on the fact that even upscale coffee is a relatively thrifty luxury that offers comfort during stressful times.

Evidence of this is revealed in results of Progressive Grocer’s 63rd Annual Consumer Expenditures Study, which found ground coffee ringing up sales of $2.4 billion at supermarkets in 2009, an increase of 3.4 percent. Meanwhile, whole-bean coffee tabbed $303 million in sales, increasing by 0.2 percent. Two-member households have a higher purchase index, at 120, than other groups, and also account for a majority of category sales, at 39 percent.

LIQUOR

Smaller household sizes spend more on liquor than their larger counterparts. Two-member households account for almost half of all liquor sales, at 45 percent, with a well-above-average index of 139. Single-member households ring up about one-quarter of liquor sales with an index just reaching the category average, at 98.

While the beverage alcohol industry is sometimes thought to be recession-proof, its performance over the past year can more accurately be described as recession-resistant. Consumers tend to drink alcoholic beverages in both good and bad economic times, but what and where they drink change with their confidence in their personal financial situations, and the economy in general.

Consumers have reprioritized what they consider necessary and discretionary items. Food and drink budgets are tighter, and while the beverage alcohol category is still holding up relatively well, Nielsen data shows consumers across all income levels are searching for deals in a quest for value. According to recent Nielsen beverage alcohol research, 31 percent of consumers make more price comparisons before buying, 24 percent wait more often for a sale before buying their favorite product, and 22 percent report purchasing less expensive products.

Beverage alcohol manufacturers and retailers have had to adapt their strategies for the lingering tenuous economic climate that has given impetus to stronger sales of boxed wines and domestic beers, which have seen sales increase and have more lower-price alternatives than their imported counterparts.

EXTRACTS

Extracts added flavor — and sales — at supermarkets, reaching $178 million in 2009, good for a 6.8 percent increase for the year. Five-member households have the highest index for the segment, while two-member households account for the highest sales volume, at 37 percent.

As consumers are more comfortable experimenting with new recipes and cooking techniques in tandem with more at-home eating and the spread of global cuisines, they’re increasingly expanding their kitchen pantries with new tastes and flavors. As such, they’re also willing to pay premium prices for nontraditional extract and spice products. A general interest in natural and organic products has also boosted interest in the category, as has increased consumer interest in bolder flavors and the convenience factor of flavoring this week’s chicken with a flick of the wrist, thereby infusing the simplest dishes with new flair.

CEREAL (READY-TO-EAT)

While the largest households have the highest volume index for the all-important ready-to-eat (RTE) cereal category, at 183, three- to four-member households generate the majority of dollar sales, at 37 percent. With sales just under $7 billion at supermarkets in 2009, the RTE cereal category eked out a 0.6 percent sales increase on flat volume growth for the year. For the 52-week period ending June 2010, category stalwart Kellogg Co. edged out General Mills as the top vendor, with dollar sales share at 32 percent vs. 30 percent, respectively.

Though “cereal” and “kids” go hand in hand, affinity for specific brands and products also extends to young adults and folks of all ages. Nearly everyone can identity a favorite breakfast cereal from their youth, and that preference often extends throughout their lives. In addition to serving as a quick and easy breakfast option, RTE cereals represent a great value for many households that view them as a wholesome choice for midday and bedtime snacks. Alongside a growing demand for products that deliver a wide range of benefits, manufacturers are aggressively striving to add innovation through healthier ingredients such as whole grains and fiber to improve the nutrition profile of their products, and this is making a difference to consumers.

PREPARED FOOD-DRY MIXES: ETHNIC SPECIALTIES

Ethnic populations continue to increase in the United States, and with this growth comes an expanding appetite for ethnic cuisines and food products. While single-member households fall under the average index for the ethnic specialty segment of the dry mix category, those with multiple members appear to be keeping pace in their preference for these products. In particular, households with two members and three to four members index at 114 and 116, respectively, with each of these groups responsible for just over one-third of segment sales.

The demand for ethnic products, along with their projected increase, is reflected in U.S. census reports that the fastest-growing populations in the United States continue to be Asian and Hispanic.

Mexican/Hispanic foods, in particular, represent the largest segment of the ethnic food market, and have in fact become so mainstream that they’re hardly considered ethnic anymore. In addition to the growing diverse population, a resurgence in cooking and product innovation is helping to drive sales in the category. Due to the economic downturn, the growing popularity of cooking shows, and a rise in international travel, more Americans are classifying themselves as “cooking enthusiasts,” and are having fun experimenting with new flavors and foods.

FRESH MEAT

The meat departments remained among the few bright spots in the perishables category, according to results of Progressive Grocer’s 63rd Annual Consumer Expenditures Study, which found fresh meat sales increasing by 4 percent to $55.3 billion in 2009. Private label is a strong driver in the meat category, accounting for 44 percent of sales for the 52-week period ending June 2010, according to SymphonyIRI Group. By household size, the three- to four-member group brings in 40 percent of sales, while those with five or more members have the highest volume index, at 167.

And though prices have always been an influential consideration for consumers when shopping the meat department, grocers are doing a commendable job of courting a more sophisticated breed of value-seeking consumers with aggressive promotions, prominent circular placement, deeper discounts and smaller pack sizes, all of which drove volume growth in the meat category largely at the expense of more pricey proteins

Trading down to less expensive cuts was another prevailing theme during the past year, which helped stoke consumers’ affinity for eating at home. Shoppers are also turning to family packs and bundled meat value packs to stretch their food budgets and keep freezers stocked for at-home meal needs.

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