SPECIAL REPORT FRESH FOODS SURVEY 2017 For more information on Supermarket News, click here to contact us
GUARDING THE PERIMETER Food retailers are shoring up their food offerings with new product introductions, more specialty and space reallocation BY JULIE GALLAGHER Traditional food retailers face an onslaught of competitive pressure as they seek to aid consumers in their quest for, clean and convenient food, said respondents to Supermarket News third-annual Fresh Foods Survey. Nearly one-third (32%) of food retailers indicated that big-box stores such as Walmart are the fiercest competitors for supermarkets perimeter sales, followed by natural/organic retailers (25%), club stores (1), online retailers (10%), farmers markets/csa (7%), convenience stores (), dollar stores () and other competitors () with several mentioning rival discounters Aldi and Lidl in particular. Only of retailers felt there was no competition to supermarkets perimeter sales. One independent retailer offered this advice: Don t be afraid of the big guy down the street. You have your core customers. Use them as a base and find out what they want and then build from there. Word of mouth can often be the best type of advertising for these departments. Still, price is a big concern among retailers and was the most frequently cited by 47% when asked about the advantages that competitors have. Price was followed by selection (39%), convenience (3), service (2) and location (20%). Pressure has also come in the form of commodity price deflation with two-thirds of retailers agreeing that it has impacted retail prices and/or promotions in the perimeter. Produce and meat which retailers coincidentally ranked as their top signature departments have been most affected by deflation, retailers said, with many citing a negative impact to their bottom line. Cost deflation continues to erode profitability and therefore the ability of grocery companies to aggressively price against the competition, said one retailer respondent. Customers don t consume more product simply because of lower prices. One also noted the difficulty of striking a balance between pricing too low or too high. Competitive stores can be all over the board on pricing. It s hard to know if what you re doing is going to be competitive as well, the respondent said. One noted that its strategy of passing on savings to customers might be helping to improve consumers value perception. It s leading to more sales and experimentation, the respondent said. HOW WE DID IT: SN s third-annual Fresh Foods Survey was conducted online March 15-31. It was emailed to close to 40,000 Supermarket News subscribers and distributed by the National Grocers Association to its members. SN received 221 competed s, of which 27. were completed by manufacturers, 17.2% by chain food retailers, 15.8% by independent food retailers, 12.2% by food wholesalers, 8. by sales agencies and 18. by other respondents such as consultants. Which do you consider your signature department? Seafood Floral Bakery Deli/ prepared 25% Meat 30% Produce 38% SOURCE: SUPERMARKET NEWS FRESH FOODS SURVEY 2017. RESPONDENTS INCLUDED RETAILERS. PHOTO: URFINGUSS/THINKSTOCK
Compared with last year are you devoting more, less or the same space to these departments/categories? 0% KEY: MORE SAME LESS PREPARED FOODS 40% 60% BAKERY CHEESE 80% 59% 35% 20% MEAT/SEAFOOD 8 1 0% 45% PRODUCE 6 15% DELI FLORAL 6 DAIRY 9 55% 30% 19% SOURCE: SUPERMARKET NEWS FRESH FOODS SURVEY 2017. RESPONDENTS INCLUDED RETAILERS. Many food retailers are DEVOTING MORE SPACE to the various perimeter departments. Walmart accentuates at its new Myrtle Beach, S.C., store with wider aisles and updated signage. Despite these challenges, the majority of food retailers (69%) indicated that perimeter sales have increased in the last 12 months, with the average increase at nearly. Retailer respondents attributed the growth to a number of factors, such as enhanced natural, organic, clean label and convenience-oriented offerings that came in response to consumer demand for nutritious that fit into their hectic lifestyles. Close to three-quarters of retailers (7) project there will be an increase in perimeter sales in the coming year, with the average projection of a 5% increase. Two-thirds of retailers (6) endeavor to achieve that growth, in part, by switching up their perimeter assortment. We think we need to stay on top of what our customers are looking for. We do see a trend where they want to try something new, especially if they recognize the health and wellness benefits, said a retailer respondent. Among the specific strategies cited by respondents: More natural, organic, meat/dairy/deli, more riced and spiraled vegetables. I ll continue to drop the bottom [performing] 20% quarterly until I find an equilibrium. More Hispanic fruits, vegetables, breads, meats and cheeses. Offering more prepared, grab and go, er, clean label items. increase is the average perimeter sales change projection by retailers. Space considerations In addition to experimenting with new products, retailers are reshuffling the space they dedicate to departments. We ve already reworked the produce department, said one respondent. Next is deli/bakery, then meat. We re updating some equipment and adding in more ready-to-go ideas. Nearly three in five (59%) retailers prepared food departments are more spacious this year versus last. And more space is being dedicated to more than half (55%) of respondents produce departments. The majority of retailers (5) said that when adding space for perimeter departments, it came at the expense of center store, which seems to reflect a cultural shift in eating behavior. Consumers are moving towards in a big way; center store grocery space can be reduced to further support the growing food trends, noted a retailer respondent. One respondent suggested incorporating more perishable throughout the store versus segregating it to the perimeter. Customers want, less processed food, not food in boxes, said another respondent. PHOTO: WAL-MART STORES
Always be prepared Prepared meals FOR VEGETARIANS are said to give supermarkets one advantage over restaurants. Supermarkets are investing heavily in prepared at a time when meal planning and cooking skills have taken a backseat to the more pressing obligations of daily life. Having the items and programs that work for consumers from Millennial to Baby Boomers, especially snack items, is important, said a respondent. More than half of retailers (59%) are devoting more space to such offerings this year compared with last year, and about one-third (3) report that their sales margins on prepared have improved in the past year. Supermarkets are also focusing on these offerings in an effort to stave off the competitive threat of restaurants with fast casual or quick service posing the biggest competitive threat, according to more than half of retailers. Convenience (5), price (3) and location (32%) are the top three advantages retailers cited that rivals have over supermarkets, 58. of retailers are devoting more space to prepared compared with last year. followed by selection (30%), ness (30%), service (2) and quality (25%). But retailers are fighting back, with twothirds of supermarkets indicating that convenient, on-the-run snacks offer the best competitive advantage (6), followed by more space for prepared (47%), and gluten-free, vegetarian, organic and other specialty-type meals (4). About half of retailers polled said they were adding to their prepared offering in the next 12 months, with self-service bars (3), fast casual stations (29%), a deli counter (27%) and/or a full-service restaurant (7%). J.G. FAST CASUAL POSES BIGGEST THREAT Who is your biggest competitor for prepared food sales? No competitor to supermarkets prepared sales Dollar stores Club stores Online retailers Convenience stores Big-box stores Natural/organic retailers 10% Other (including meal kits) 8% Fast casual restaurants (e.g., Chipotle) 4 Quick service restaurants (e.g., McDonald s) GRAB AND GO THE WAY TO FIGHT BACK What are the best ways to fight competition for supermarkets prepared food sales? Grab-and-go snack selection More space for prepared Specialty meal selection* Promotions and specials Cleaner ingredient lists In-store seating to promote immediate consumption Home delivery/click-andcollect offerings Internationally inspired recipes Plant-based meat alternatives None of the above Other 6 47% 4 4 40% 38% 3 18% 15% 2% *e.g., gluten-free, vegetarian, organic PHOTO: VICUSCHKA/THINKSTOCK SOURCE: SUPERMARKET NEWS FRESH FOODS SURVEY 2017. RESPONDENTS INCLUDED RETAILERS.
Which prepared offerings do your stores currently have? 7 8 52% 62% 45% 4 KEY: 2016 2017 1 8% 9% More supermarkets have adopted prepared food options such as the FAST-CASUAL STATIONS open at the new Whole Foods Market in Midtown Manhattan. Few retailers are doing nothing in prepared. Deli counter Self-service bars Fast-casual stations Full-service restaurant None of these FULL SERVICE Full-service touchpoints are becoming more prevalent in the perimeter as retailers staff experts who can provide food prep advice as well as actual food preparation like produce butchers who are trained to slice and dice fruits and vegetables to consumer specifications (see story, p. 47). Which of the following service-focused employees do you have in-store? 7 RETAILERS BIGGEST FEAR Competition much like consumer expectations are at an all-time high as more channels vie for consumer share. A stress point amid these challenges is the effort to attract and train qualified employees a task that 32% of retailers indicated was their greatest fear in the perimeter. To have a good qualified employee in these departments, it demands higher pay, noted one retailer respondent. If you get trained, qualified people then a lot of the other risks get covered, observed another. What is your greatest fear in the perimeter? 40% 39% 3 Attracting/training qualified employees Food safety Competition Shrink 32% 1 2 2 Staffing costs Meat butcher Seafood expert/ fishmonger Scratch baker Produce butcher Cheesemonger Trained chef None of these Deflation Margins No fear in perimeter departments 10% 10% PHOTO: BECKY SCHILLING SOURCE: SUPERMARKET NEWS FRESH FOODS SURVEY 2017. RESPONDENTS INCLUDED RETAILERS.
SHIFTING SALES When asked about the change in sales margins in specific categories versus the previous year, retailers offered a mixed bag. KEY: IMPROVED REMAINED STEADY DECREASED N/A 22% PRODUCE 32% 0% MEAT/SEAFOOD 28% 2 Along with deli and prepared, produce remains a SALES GROWTH LEADER in. All perimeter categories are enjoying solid growth. 4 48% BAKERY 1 3 28% 29% DELI 39% 4 50% FLORAL CHEESE 1 18% 9% 12% DAIRY 5 4 PREPARED FOODS 1 3 2 GOING DIGITAL More retailers are offering online ordering and delivery of in the past three years. KEY: 2015 2016 2017 22% 19% 28% 8% 1 1 62% 6 5 QUALITY COUNTS What is most important to your shoppers in the perimeter? Ease of preparation Local Organic/ natural Convenience 9% None of the above Other Quality/ ness 7 5 6 Online ordering and delivery Delivery only Online only None of the above SOURCE: SUPERMARKET NEWS FRESH FOODS SURVEY 2017. RESPONDENTS INCLUDED RETAILERS. PHOTO: ALDI
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