What Consumers Are Buying in an 'Amazon-ized' Grocery World: Consumer Expenditures Study

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What Consumers Are Buying in an 'Amazon-ized' Grocery World: Consumer Expenditures Study

By Progressive Grocer Staff - 07/23/2018
Download the 2018 Data
Data provided via Nielsen’s Total Food View, an inclusive data universe of UPC and non-UPC products (includes fresh random-weight retailer-assigned PLU and system 2 sales volume).

A year ago, the industry was quaking in its boots. Amazon had announced its plans to acquire Whole Foods Market, which, according to the din of punditry, spelled doom for supermarkets.

Well, here we are a year later, still waiting for the Armageddon that’s never going to come. While the Amazon-Whole Foods deal did put Amazon on Progressive Grocer's Super 50 list of top grocers in the United States, it more signaled the end of traditional retailing, not necessarily traditional retailers.

Fresh Factor: Ecommerce

According to Nielsen's latest Total Consumer Report, ecommerce is still maturing within food and beverage, but fresh perishables are an opportunity in stores today. In the past year, online food and beverage sales represented 13 percent of the overall dollar volume seen online.

“Marketers looking for growth opportunities today shouldn’t be blind to the opportunities living in the perimeter of the store,” Nielsen advises. “Fresh and perishable foods generated sales nearly 14 times as high as all online food and beverage sales this year.”

In fact, the union of ecommerce giant with organic grocer was a wake-up call for mainstream players — at least that’s how most of the analysts we spoke to described it — that if they haven’t already started changing the way they do business, they’d better start pronto or face extinction.

“For most of the past year, the impact of Amazon’s acquisition of Whole Foods has been more psychological than physical,” Ken Fenyo, head of consumer markets at McKinsey Fast Growth, told Progressive Grocer. “The deal has served as a pointed wake-up call to brick-and-mortar grocers that they could no longer ignore the threat of ecommerce generally, and Amazon specifically, to their businesses.”

The focus continues to be on how consumers want to shop more than on what they’re shopping for; traditional grocers are working to create a seamless experience that’s consistent across brick-and-mortar, online, click-and-collect, and delivery. Consumer feedback reliably confirms that folks still embrace a physical store but want it on their terms. Amazon knows this, or it wouldn’t have acquired a grocery chain or launched its own physical stores — Amazon Go — that will be expanding beyond the Seattle prototype to other U.S. cities.

“It seems like the big idea is to use the physical Whole Foods stores as a distribution depot for Amazon Prime,” analyst David Diamond, president of David Diamond Associates, told Progressive Grocer. “One year in, it seems more and more that the reason for the acquisition was not the Whole Foods business or its consumers, but the real estate footprint. The value of a store, with storage and refrigeration, very near many Amazon Prime customers, seems to be the driver of the acquisition.”

Bill Bishop, co-founder and chief architect of Brick Meets Click, added, “We now see that Amazon considers grocery to be only a stepping stone in their larger effort to build themselves into the lifestyle of more American households.”

Fresh Frenzy

Grocers seem to be heeding the call, and players from large chains to regionals to independents are waking up to the fact that they need to become their own disruptors and operate in continuous-innovation mode.

Is it paying off? Total supermarket dollar sales in 2017 reached $408 billion, a decrease of about 1.3 percent from the prior year, according to data from Nielsen. The pressures of deflation have subsided, replaced by heightened price competition driven by big boxes like Walmart; hard discounters like Aldi (and its nemesis Lidl, now rising, amid setbacks in its original ambitious expansion plans in the eastern United States); and Amazon, keeping traditional grocers from returning to pre-deflationary price levels.

Fresh Factor: On-the-Go Fresh Produce

According to Nielsen's latest Total Consumer Report, on-the-go fresh produce fails to keep pace with clean snacking. Although Americans would rank eating more fruits and vegetables as the top factor for healthy eating, shoppers aren’t flocking to on-the-go fresh produce offerings as much as they are to other snack options. Pre-cut produce declined by nearly 2 percent in dollars and 6 percent in unit volume over the past year, but sales of salty snacks grew nearly $1 billion year over year.

Indulgences can still be seen as “clean” to health-conscious consumers, however: “Clean-label products represented over one-third (35 percent) of salty snack dollars in the past year. Retailers and manufacturers that can demonstrate transparency through their labeling can capitalize on the wave of consumer interest around ‘responsible’ snacking. Consumers do have a sweet tooth, but the best way to capitalize on it is through the sweet spot of appealing to the smart snackers of today.”

Yet grocers remain confident in the future, expressing record-high levels of optimism in Progressive Grocer’s survey for its latest Annual Report.

And after a decade of decline, the supermarket’s role as the consumer’s primary store has stabilized, according to the Food Marketing Institute’s U.S. Grocery Shopper Trends 2018 Report. While down from 67 percent in 2005, the primary designation has leveled off around 50 percent since 2015.

Fresh and prepared foods still present the biggest opportunity for supermarkets, as Amazon continues to wrestle with the last-mile formula for perishables, which represent more than half of all supermarket sales, followed by grocery, at more than 40 percent, and nonfoods, in the single digits.To be sure, prepared foods showed the strongest growth for supermarkets last year, according to Nielsen, with a boost in dollar sales of nearly 140 percent. The latest Total Consumer Report from Nielsen, which leverages the company’s new Total Food View, shows that fresh categories within the United States are driving nearly 49 percent of all dollar growth across the fast-moving consumer goods (FMCG) brick-and-mortar landscape.  In fact, within the past year, fresh and perishable foods generated more than $177 billion in sales.

“Fresh plays a crucial role in driving consumer traffic and loyalty,” asserts John Tavolieri, Nielsen’s president of U.S. FMCG and retail, and chief technology and operations officer. “To win shoppers over, fresh has to be integral to a broader, more connected total-store approach that goes beyond category management.”

Fresh Factor: Frozen Burgers

According to Nielsen's latest Total Consumer Report, frozen burgers are still winning, but fresh is catching up and alternative protein growth remains strong. Frozen meat-based burgers have seen 2 percent dollar growth from last year, but this dynamic may be shifting. Fresh patties (up 8 percent) and prepared burgers from the deli section (up 15 percent) are both growing and asserting their importance to the future of the category.

Growth opportunities are prominent within the alternative-protein sector, and this could be a new area of focus to reinvigorate the frozen-burger space. Within the past year, alternative-protein burgers have experienced dollar sales growth of nearly 21 percent. Although representing just 6 percent of the overall burger category, frozen alternative-protein burgers grew 17 percent year over year, which highlights an area for potential expansion.

Marketers must capitalize on adjacencies, reveal unseen competition and make cross-category connections to uncover business blind spots, Tavolieri says, thereby “enabling the ability to better meet the demands of today’s highly selective and savvy consumers who are looking to lead healthier lives.”

Department Snapshot

Total supermarket sales across all grocery, perishable, general merchandise, and health and beauty categories topped $408 billion, according to Nielsen data.

Among the categories showing strongest sales growth, in addition to the aforementioned prepared foods and combo meals: diet and nutrition products, up nearly 65 percent; wraps and tortilla shells, up 45 percent; packaged coffee, up 33 percent; and yogurt, up 16 percent.

Among the laggards were frozen yogurt, down nearly 38 percent; toaster pastries, down 12 percent; and cheese, down more than 10 percent, along with a host of general merchandise categories.

This further supports the conventional wisdom that fresh is grocery’s strength, and that continued investment in perimeter departments to better deliver need-state solutions, along with experiential marketing to make store trips less of a chore, is crucial to the future of traditional supermarkets.

In other words, be less traditional and more disruptive.


Read our in-depth analysis of some of the better-performing categories in this year's study, including:

Methodology

For the 2018 Consumer Expenditures Study, data has been provided via Nielsen’s Total Food View, an inclusive data universe of UPC and non-UPC products (which includes fresh random-weight retailer-assigned PLU [price lookup code] and system 2 sales volume). This reflects the total U.S. food market, which encompasses all grocery stores with $2 million or more in annual all commodity value (ACV), and includes natural food retailers and discount grocers. References to “fresh” or “perishable” foods encompass the inclusive view of UPC-coded and non-UPC products found throughout the store, but most predominantly in the produce, bakery, deli, meat and seafood departments. Due to changes in reporting, there may not be direct comparisons to last year’s Consumer Expenditures Study.