Even though consumers always will have to shop for groceries, the channels in which they visit continually change, and supermarkets now are feeling the pressures of these changes. According to a November 2015 report from Chicago-based Mintel titled “Grocery Retailing – US,” the supermarket channel might appear to be performing well, with 37% of consumers reporting this channel as their primary for grocery needs; however, the market research firm also notes that this is an 8% decrease from February 2014, when the report was last published.
“In particular, millennials under index on shopping at supermarkets compared to all respondents,” the report states. “Second, it’s important to note ‘where else’ people are shopping — Wal-Mart remains a top choice due to its low prices, but other channels such as warehouse clubs, drug stores and dollar stores are all gaining ground as consumers journey through the grocery landscape rather than pointedly go to one place repeatedly for all of their needs.
“Supermarkets are actually losing market share to these other [multi-outlet] (MULO) channels that now comprise the majority of MULO sales,” it continues. “This share gap is only expected to widen through 2020.”
Chicago-based Information Resources Inc.’s (IRI) Vice President of Thought Leadership Susan Viamari also notes the pressure supermarkets are under from their competition.
“The supermarket channel is facing significant pressure from competitors inside and outside the [consumer packaged goods] (CPG) marketplace (i.e. including restaurants — particularly quick-service) for share of the stomach,” she says. “Additionally, consumers are still quite frugal and looking to save money by shopping around to find the best deals and by buying needs over wants.”
Additionally, Jon Hauptman, a partner at Willard Bishop, Barrington, Ill., notes differentiation as one factor supermarkets should emphasize as they compete within the grocery landscape.
“The primary challenge supermarkets are facing is how to differentiate and drive growth in a retail environment with so many formats (traditional and non-traditional) selling the same or similar products,” Hauptman notes. “Supermarkets are overcoming this challenge by veering away from trying to be ‘all things to all people,’ and instead, focusing on successfully operating either ‘efficiently-driven/low-cost stores’ or ‘marketing-driven’ stores that offer something special that shoppers value, e.g. service, quality, freshness, etc.”
He stresses that supermarkets will need to differentiate to survive. “Supermarkets that can effectively differentiate from competitors will be winners in the future, while those that are not able to differentiate will find themselves in an increasingly steep decline,” Hauptman adds.
According to Viamari, grocery dollar sales increased 2.2% year-to-date during the 52 weeks ending Nov. 1, 2015. However, she notes that the non-alcohol beverage category increased 3.4% in dollar sales for the same time period, while the alcohol beverage category increased 3.2% in dollar sales. She adds that beverages (non-alcohol) account for 11% of total grocery dollar sales, while alcohol beverages account for 7%.
Sipping on sales
Although this channel has its share of challenges, beverages continue to perform well within it.
“Based on performance at leading chains, it appears that shelf-stable beverages have outperformed total supermarket performance by a factor of two,” Willard-Bishop’s Hauptman says. “I.e., beverages are growing at double the rate of the supermarket as a whole.”
According to Hauptman, shelf-stable beverages make up approximately 2% to 3% of SKUs in a supermarket. “… [It’s] among the largest segments in the store,” he says. “Other categories with similarly high SKU counts include candy and cosmetics.”
He says that bottled water and functional beverages, like enhanced waters, seem to be driving disproportionate growth within the channel and highlights the better-for-you shift in consumer preference as one aspect contributing to this growth.
IRI’s Viamari adds that the ready-to-drink tea and coffee category is the fastest growing beverage category within grocery with a dollar sales increase of 11.1% bringing it to $1.5 billion year-to-date for the 52 weeks ending Nov. 1, 2015.
“This category is benefiting from a healthier-for-you appeal and a flurry of innovation activity,” she says.
Also experiencing strong growth within this channel are energy drinks, with a 9.1% increase in dollar sales, and sports drinks, with a 6.2% increase in dollar sales year-to-date for the 52 weeks ending Nov. 1, 2015, according to Viamari. She notes that these increases also are capitalizing on the benefits around health and wellness and on-the-go energy and satiation.
Despite the increasing sales in health-and-wellness beverages, the carbonated soft drink (CSD) category is the largest within the grocery channel, but experienced flat dollar and unit sales during the past year, Viamari notes.
“The category sells more than 70% of its volume with merchandising support, but merchandising activity has slipped slightly during each of the past several years,” she says.
Hauptman also notes this strategy as well as the struggles beverage companies have faced securing this space, resulting in the decreased activity. “… [S]upermarket operators are taking greater control of their merchandising space and are reducing the number of endcaps they will ‘contract out’ to beverage companies, and they’re putting stipulations into what can be merchandised and at what prices/savings in those contracts they still permit,” he explains.
Viamari illustrates the impact of merchandising support on non-alcohol beverage sales within grocery and highlights that 38% of non-alcohol beverage volume is sold with merchandising support.
“Some categories, including carbonated beverages and sports drinks, move even more of their volume with merchandising support,” she says. “Among alcoholic beverages, an average of 30% of volume is sold with merchandising support within the grocery channel.”
To boost beverage sales, Viamari notes a few actions that grocers can take.
“Grocers can enhance visibility and engagement with beverage consumers by continuing to merchandise — but leverage merchandising programs that are tightly tied to the needs and wants of shoppers,” she says. “Unique needs and wants occur all the way down to the market level, so a one-size-fits-all strategy is not appropriate.
“Getting assortment is also critical — again, differences are seen all the way down to the market level,” she continues. “Beverage marketers must have an appropriate mix of immediate-consumption solutions as well as stock-up/larger packages for household replenishment needs. Additionally, assortment needs to reflect key trends within the marketplace (again, trends will vary across different banners and markets).”
Best New Beverages
The editors of BNP Media’s Beverage Industry (BI) analyzed the new beverage launches throughout 2015 and selected five brands they think are driving innovation — and energizing consumers — within the US beverage market. Following are BI selections for the “2015 Innovations of the Year,” published in December 2015.
PRODUCT: Dr. Jekyll’s Organic Craft Beers
Editors’ Description: Dr. Jekyll’s Organic Craft Beers, Altadena, Calif., developed three organic craft beers with superfood ingredients. The brewery teamed with biotechnology firm Virun, Walnut, Calif., to develop a process for brewing superfoods and essential nutrients into its beer. The line has been available at Whole Foods Market, Cost Plus World Market, Total Wine & More, other specialty retailers and select bars, pubs and restaurants in 12oz- and 22oz bottles in select markets and online. The line features three varieties that are all vegan and non-GMO: Bio Beer, Beer Attack and Beer Belly.
PRODUCT: Maxwell House Iced Coffee Concentrates
Editors’ Description: Although iced coffee has yet to make a notable impact on coffee sales, the trend still is garnering attention. After the success of its Mio water enhancers, Kraft Foods Group Inc., Northfield, Ill., took note of the on-the-go consumers’ need for a jolt of iced java. Last February, its Maxwell House brand released its Iced Coffee Concentrates. The concentrates are available in three flavors: House Blend, Caramel and Vanilla. Each 1.62oz bottle yields 10 servings. They are available in grocery and mass merchandise retail locations nationwide for a suggested retail price of $3.99.
PRODUCT: Silk Cashewmilk
Editors’ Description: The dairy and dairy alternative market continues to grow. As dairy alternatives continue to grab more market share, Silk, a brand of White Wave Foods, Broomfield, Colo., continues to innovate with new plant-based dairy alternatives. Noting the potential of non-traditional dairy alternatives, Silk launched a line of Cashewmilks, which are available in four flavors: Silk Original Cashewmilk, Silk Unsweetened Cashewmilk, Silk Vanilla Cashewmilk and Silk Chocolate Cashewmilk.
The cashew-based beverage is free of cholesterol, lactose, dairy, soy and gluten. According to the company, the launch represents the release of the first Cashewmilk in the refrigerated case and is a continuation of its commitment to bringing a variety of plant-based products to consumers. All four flavors are available in grocery stores nationwide in half-gallon sizes that have a suggested retail price of $3.49.
PRODUCT: Tio Gazpacho
Editors’ Description: Inspired by the gazpacho soup he tried while living in Spain, founder Austin Allan launched Tio Gazpacho, a brand of Tio Foods LLC, Miami. The line of gazpacho beverages features a traditional gazpacho recipe offering a creamy and savory texture and is offered in three varieties: Gazpacho Clasico, Gazpacho Verde and Gazpacho de Sol. Tio Gazpacho is available in 12oz PET bottles for a suggested retail price of $8.99 in more than 200 retailers in the northeastern United States. Expanded distribution within these regions and into the southeast United States is planned for spring 2016, with distribution to the West Coast by late 2016, Allan says. A new variety also is part of the brand’s future plans. Gazpacho Rosado, a watermelon gazpacho, will launch in early 2016. The new flavor includes watermelon, tomato, cucumber, cilantro and cayenne pepper.
PRODUCT: UV Sangria
Editors’ Description: Although some beverages add on-the-go convenience, spirits’ brands also have begun to offer an ease-of-use convenience that consumers want. Minneapolis-based Phillips Distilling Co.’s UV brand released UV Sangria, a Sangria-flavored vodka that offers the flavors of sangria, with the convenience of simple mixing. According to the company, the Sangria category has seen double-digit growth for the last several years as consumers have become more familiar with the Spanish drink. Distilled four times, UV Sangria offers a blend of citrus with a light zest in the background, finishing with an exotic character that lingers slightly on the palate, the company says. The vodka is 30% alcohol by volume and available nationally in 50ml and 750ml bottles for $0.99 and $12.99, respectively.
