2019 What's In Store for IDDBA by Cricket Design Works

33RD EDITION

$399

WHAT’S IN STORE 2019 DAIRY | DELI | BAKERY | CHEESE

TRENDS REPORT

Updated and expanded data available at What’s in Store Online iddba.org/wisdata User Name: iddbaWIS33 Password: Data@2019 No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, or otherwise, without the express written permission of the International Dairy Deli Bakery Association. The information presented in this report has been compiled from sources believed to be reliable. However, the accuracy of the information is not guaranteed, nor is any responsibility assumed or implied by IDDBA. Please refer to original sources for additional information. © 2018 International Dairy Deli Bakery Association

ACKNOWLEDGEMENTS Published by

Managing Editor

Contributing Editors

Publication Design

International Dairy Deli Bakery Association™ 636 Science Drive Madison, WI 53711-1073

Jeremy Johnson

Abrielle Backhaus Angela Bozo Alan Hiebert Eric Richard Jonathan Whalley

Kristin Girvin Redman and Tracy Harris, Cricket Design Works

Thank you to the industry leaders who contributed to What’s in Store: Sherri Allen ACS CCP Artisanal Touch Events

Matt Lally Associate Director Nielsen Fresh

Sarah Schmansky Vice President Nielsen Growth & Strategy

Scott Allmendinger Director of Consulting Culinary Institute of America

Eric Le Blanc Director of Marketing Tyson Foods

Kokil Singh Principal Insights, Team Lead IRI

Donna Berry Owner Dairy and Food Communications Inc.

Jamie Liebich Director, Demand Midwest Dairy Association

Neil Stern Senior Partner McMillanDoolittle LLP

Claire Conaghan Syndicated Group Ganager Datassential

Daniel Lucht Global Research Director ResearchFarm

John Crawford Vice President Client Insights-Dairy IRI

Alyssa Mitchell Managing Editor Cheese Market News

Colin Stewart Senior Vice President, Business Intelligence Acosta Sales and Marketing

Martha Gibbons Senior Analyst Dairy Management Inc.

Tim O’Connor Managing Partner Retail Performance Solutions LLC

Michelle Grant Head of Retailing Euromonitor International

Jonna Parker Principal, Fresh Center of Excellence IRI

Tim Grzebinksi Client Insights Principal IRI

Billy Roberts Senior Food and Drink Analyst Mintel

Brian Kilcourse Managing Partner Retail Systems Research

Elley Symmes Senior Analyst Kantar Retail Americas Market Insights Jill Tomeny Senior Manager Fresh Daymon Worldwide Mark Van Iwaarden Marketing Director Legendary Baking Tom Vierhile Innovation Insights Director GlobalData and Canadean

Chapter 1

THE ECONOMY AND RETAIL TRENDS Chapter 2

CHANNELS AND COMPETITION Chapter 3

CONSUMER LIFESTYLES Chapter 4

65 EATING TRENDS

Chapter 5

89 BAKERY SALES

AND RETAIL TRENDS Chapter 6

109 CHEESE SALES

AND RETAIL TRENDS Chapter 7

125 DAIRY SALES

AND RETAIL TRENDS Chapter 8

149 DELI SALES

AND RETAIL TRENDS 177 / Key Word Index

179 / Notes

of shoppers purchase “green” items, a 5% increase from 2016.

Chapter 1

THE ECONOMY AND RETAIL TRENDS 3 / Retail Food Outlook

9 / Retail Product Trends 14 / Food Regulations

16 / Food Technology and Innovation

WHAT’S IN STORE | 2019

IDDBA Trends Through its What’s in Store research, IDDBA has identified two key retail trends, when, when analyzed separately and together could provide direction and solutions for retailers to see growth in a diverse retail and economic environment. 1. PRIVATE LABEL products continue to be a source of interest for consumers. Boosted by the expansion of Aldi and Lidl (deep discounters who rely heavily on private label products on their shelves), today’s consumers are increasingly feeling confident about private label and open to abandoning national brands. According to Daymon Worldwide, 81% of consumers purchase private label products almost every shopping trip, with 85% stating they trust private brands as much as national brands. As interest arises, so does opportunity as retailers should look to the perimeter or fresh sections of their stores to increase private label offerings. 2. There continues to be an increase in shoppers across generations that are interested in ALTERNATE VALUE PROPOSITIONS. Sometimes called the “conscious consumer” these shoppers value food origin, sourcing, company missions and clean labeling over price. Additionally, these shoppers are increasing looking at environmental impact when making purchasing decisions and considering ecology as part of what they associate with overall health. Retailers and manufactures should continue to refine their messaging to appeal to this consumerfocusing on product attributes and key ingredients when applicable.

Both consumer segments continue to be interested in storytelling around products. As SKU counts grow and consumers are forced to make multiple decisions in every aisle, retailers and manufactures can leverage signage, social media and employee interactions to help customers navigate their stores. Fresh continues to be an area where products can benefit from any additional differentiation. Both consumer segments also unite around trust being a major factor in purchasing decisions. As personal beliefs and preferences continue to inform shopping habits, retailers should recognize and build trust with their shoppers- both as a brand and by increasing transparency around products within the store. These messages can be as simple as quality or delicious. Retail should continue to help consumer decisions by dedicating space or clearly labelling items with known shopped for attributes including, but not limited to, organic and natural.

The Economy and Retail Trends

Michelle Grant, head of retailing research, Euromonitor International, told IDDBA that the economic outlook is brighter in 2018 than in 2017, having gained speed in the third quarter of 2017 and expanding by 3.9% year-on-year. The growth that many economies experienced in 2017 is forecast to carry through 2018. “This is due to continuing improvement in consumer and business sentiment, recovery in international trade, supportive global monetary policy stance and reviving investments,” she said.1

THE US ECONOMY Neil Stern, senior partner, McMillanDoolittle LLP, told IDDBA that the macro outlook for retail is strong, driven generally by good global economic growth. E-commerce, however, is impacting the type of growth we’re seeing. “When you peel back the layers… there is very uneven growth as e-commerce creates significant disruption in category after category,” he said. “And, there is uneven growth among incomes, with wealth disparity growing.”2 Stern said consumer confidence is at almost prerecession highs, and he expects to see that continue as tax reform kicks in and consumers have more money in their pockets. “Lots can change fast,” he cautioned, “as volatility is also at an all-time high, but we would expect to see confidence increase.”3 Brian Kilcourse, managing partner, RSR Research, told IDDBA that the economic outlook will remain favorable through 2018 particularly in the United States. “The economy is healthy, the tax cuts in the short-term will probably create a lot of discretionary cash for consumers to spend, unemployment is low, and inflation is low,” he said.4 He added that the biggest impact on the retail sector is how the government reacts to existing workplace regulations, rather than newly implemented ones. “We’re not in a period of aggressive regulations; the bigger issue is how the US government handles regulations as they relate to workers, such as © 2018 International Dairy Deli Bakery Association

Neil Stern, senior partner, McMillanDoolittle, on the impact of e-commerce on the retail economy

figure 1.1

Ecommerce Grabbing Larger Share of Retail Sales $ $ $

12 10 8 6 4 2

Percent of total retail sales excluding automotive

THE GLOBAL ECONOMY

“When you peel back the layers, there is very uneven growth as e-commerce creates significant disruption in category after category.”

Sales (billions)

RETAIL FOOD OUTLOOK

0 2015

2016

2017

Source: U.S. Census, Estimated Quarterly U.S. Retail Sales, U.S. Census Bureau, Retail Trade and Food Services excluding Auto, 2010–2017, not seasonally adjusted

WHAT’S IN STORE | 2019 minimum wages and healthcare,” he said. “We’re moving from an administration that believed in heavier regulations to an administration that doesn’t believe in much regulation at all. That’s where confusion will arise in the short-term.”5 Tim O’Connor, managing partner, Retail Performance Solutions, told IDDBA the consumer retail sector will grow faster than the overall economy in 2018. He expects real economic growth in the United States to be in the 2.4% to 2.6% range; inflation will rise as well. In addition to new tariffs on steel and aluminum, underlying factors like debt will contribute to the rise in inflation. “That said, retailers do well with a reasonable amount of inflation,” O’Connor continued. “They don’t do well when there’s no inflation, as they have no means of passing legitimate cost increases to the consumer.” He added that the dollar will probably fall, which will not only drive inflation, but pressure the federal government to raise interest rates.6 Changes to the North American Free Trade Agreement (NAFTA) will impact the food industry, O’Connor continued. “Canada purchases a lot of food and food products from American manufacturers,” he said. “If Canada loses its appeal as a marketplace for companies to compete, they’ll start competing more aggressively in the United States, which will impact pricing. Mexico is a major supplier of fresh produce to the United States, and any actions impacting this supply—combined with environmental implications like drought—could create problems.”7 O’Connor said the overall mood of US retailers is varied. “Some retailers are optimistic, due in large part to changes they’ve made to their stores’ overall operations and services to help them compete better,” he said. “For many, this includes digitaloriented consumer investments, including delivery, whether through their own company or third-party service providers. They believe they are making progress, and they feel good about it. Their mindset is ‘good things are happening, let’s keep doing it.’ They understand consumer needs and help solve them. The stores that don’t address the fundamentals are getting left behind.”8

Elley Symmes, senior analyst, grocery, Kantar Consulting, told IDDBA food retailers should focus on the 2018 tax changes, which could lift consumer spending by as much as 2.2% by the first half of 2019. Gains will be skewed to upper-income households thus benefiting luxury, soft-goods categories and supermarkets. “Given the bigger tax cut for middleincome households relative to lower-income households, big-box mass is likely to benefit more than discounters,” she said.9 Symmes said consumer confidence continues to increase, while spending intentions remain flat. She expects consumer confidence to continue its upward trajectory as unemployment rates fall, disposable income growth reaches the highest rate since 2006 due to tax reform and a tighter job market, and job gains sustain a solid pace.10 She said the rise of shopper empowerment and fragmentation has created a new type of shopper, Kantar Consulting calls, the Epicurean, whereby self-gratification is the motive that informs decisions about where, when, and how to shop. For these shoppers, simplicity is key, and the self is the reference point. Symmes said these individuals will shape the future of shopping in three ways: continued on pg 6

“Given the bigger tax cut for middle-income households relative to lower-income households, big-box mass is likely to benefit more than discounters.” Elley Symmes, senior analyst, grocery, Kantar Retail, on the impact of 2018 US tax cuts © 2018 International Dairy Deli Bakery Association

The Economy and Retail Trends

Key Insight UNITED STATES, GLOBAL RETAIL SALES POISED FOR GROWTH GLOBALLY

UNITED STATES

Global growth is poised for a stronger year in 2018 if rising trade barriers can be overcome. Pockets of opportunity are still in the outlook as global confidence improves.

Prepare for higher food inflation in 2018, which will further pressure the budgets of low- to middleincome shoppers.

• Inflation will be higher on average, led by rising oil prices. • Food price increases will be only moderately higher, and even more subdued in markets with stronger currencies. • Shopper confidence will improve as global investment fuels job growth. Downside threats are still present as most major markets face major policy decisions (Brexit, North American Free Trade Agreement [NAFTA], US tariffs, economic reforms in China). • Category demand for consumables will slow a bit after adjusting for higher inflation in food a nd gasoline. • Luxury categories and durable goods are better positioned for growth, given global wealth gains. • Suppliers should plan for rising production costs, especially of commodity inputs, and an unfavorable trade environment. • Retailers should plan for a more value-focused, consumables-shopper as prices increase in most markets.

• Shoppers will find some relief as gasoline inflation levels off. • Expect improved growth in 2018 on a nominal basis. • Stimulus from tax cuts will be needed to keep unit-demand growth from slowing. • Capitalize on outsized growth in the healthcare and home goods categories. Build loyalty with shoppers through growing services. • Helping shoppers manage healthcare costs is paramount. • Expect inflation to hurt small-ticket apparel and consumables, especially on a unit-demand basis. • Plan for older “Haves” (those making $60,000 or over per year) to drive 2018 spending, given their wealth gains. Older “Have Nots” may grow cautious if talk of Social Security cuts grows louder. The financial situation of Young Have Nots has improved, but they remain vulnerable to rising prices. • Expect stronger, but insufficient, income growth to drive improved demand growth in 2018 (excluding tax cuts). • Sustained job growth will keep unit demand from pulling back sharply as prices squeeze incomes more in 2018. Expect demand to be strongest in Texas and the Southeast. The Midwest will lag with auto sales leveling off.

Source: Elley Symmes, senior analyst, Kantar Consulting

WHAT’S IN STORE | 2019 1

VALUE DIFFUSION where the definition of value to shoppers becomes less price-focused and incorporates other aspects, such as time savings.

2 ROUTINE RECONSIDERATION whereby shopping routines that are not gratifying or do not simplify the shoppers’ lives enough risk elimination.

3 SELF-REFLECTIVE SHOPPING defined by how we shop, where we shop, and what we buy are all reflections of who the shopper is.11

THE EUROPEAN ECONOMY Daniel Lucht, global research director, Research Farm, told IDDBA the overall mood among food retailers on continental Europe is generally positive, as “things are on the up again” across most of the region. He said the biggest concern is the expansion of Amazon Fresh in Europe, which has mobilized many retailers to take steps to remain competitive. “Amazon is viewed among European retailers as a real threat, even before announcement of the Whole Foods purchase,” he said. “They’ve seen how Amazon has impacted other non-food sectors.”12

Some retailers, particularly in France and Germany, are gearing up for the new competition by adding massive warehouses and robotic automation to their sales and logistics processes for fulfilling orders, according to Lucht. This method is quicker than human pickers, Lucht said, but as these buildings are typically located on the outskirts of town, drive times can be quite long, depending on where a shopper lives. “This can be a problem, as shoppers have become accustomed to super-fast delivery times,” he said. In France, many retailers are teaming up with third-party or non-food online marketplaces. “France, which has been known as the country where the ‘Drive’ concept has been so successful, may now see delivery become more prevalent, because of the continued expansion of Amazon Fresh,” he said.13 Lucht said discounters appear to be the only brickand-mortar operators that are expanding and investing in Europe, whereas traditional supermarkets are entrenching themselves. “The out-of-town, hypermarket concept just isn’t working,” he said. “People aren’t driving out to these locations, and online players do a better job with nonfood items.”14

figure 1.2

Sales (trillions)

2017 US Retail Sales Reach $4.6 Trillion

2.1

1997

Growth Rate

2.3

1999

5.0%

2.6

2001

2.8

2003

3.2

2005

4.1%

3.5

2007

3.4

2009

1.2%

3.8

2011

4.0

2013

4.3

2015

4.6

2017

4.4%

U.S. Census Bureau, McMillanDoolittle LLP Source: Elley Symmes, senior analyst,ofKantar Consulting US Census Bureau Estimates Monthly Retail and Food Services Sales

The Economy and Retail Trends

“They (retailers) believe they are making progress, and they feel good about it. Their mindset is ‘good things are happening, let’s keep doing it.’ They understand consumer needs and help solve them. The stores that don’t address the fundamentals are getting left behind.” Tim O’Connor, managing partner, Retail Performance Solutions, on the overall mood of US retailers

WHAT’S IN STORE | 2019

Key Insight THE IMPACT OF BREXIT ON THE UK RETAIL FOOD SECTOR Brexit is still a major concern in the United Kingdom (UK). We’ve seen a lot of job cuts at food retailers, especially in middle management. Automation is playing its part in the uneasy climate, but it’s primarily businesses preparing for Brexit repercussions. It’s no exaggeration to say that the mood is terrible. Union labor at non-UK companies have already begun leaving the country, while European migrant workers have stayed away from employment opportunities. Crops are not being picked; the UK government is now looking at seasonal visas for foreign workers. There are severe labor shortages.

There are worries on how food will get in and out of the country, given that drivers’ licenses won’t be valid anymore once they cross the channel in either direction. Ireland is a major agricultural exporter, with most of its exports going through the United Kingdom en route to European Union (EU) countries. Now, Ireland will have to ship directly to EU countries. From a food retailer’s perspective, 2018 should still be okay, as the United Kingdom is still a member of the European Union. The break happens in 2019, barring any interim period or delay. Discounters may actually expand their market share once Brexit happens. There’s been an interest (among manufacturers) in possibly working with Amazon or other online retailers in having them handling customs regulations on products shipped from the United Kingdom to European Union countries.

The Netherlands, France, and Ireland will be most impacted by Brexit, because of the amount of agricultural trade with the United Kingdom. New quality control and customs processes as well as additional customs officers will be necessary. Source: Daniel Lucht, global research director, ResearchFarm

figure 1.3

Retail Growth Rate Up, Still Lower Than 2006

6.2%

4.4%

4.1%

3.8

2.2%

2006

2008

2010

2012

4.2%

2014

3.0%

2016

2017

Source: US Census Bureau Estimates of Monthly Retail and Food Services Sales

The Economy and Retail Trends

RETAIL PRODUCT TRENDS PRIVATE LABEL Stern, McMillanDoolittle LLP, said he expects to see private label growth as a ripple effect driven by the growth—and reaction to the growth—of privatelabel-driven discounters. “Aldi and Lidl will pressure others to improve their offerings,” he said.15 A Daymon Worldwide study found that 81% of consumers purchase private-brand products almost every shopping trip. Additionally, 85% state they trust private brands as much as national brands. These shopping preferences are impacting overall private label sales, which are up 4% more than national brand sales.16 Other findings in the Daymon report are: 65% of retailers lost 10% or more in private label sales to discounters like Aldi and Lidl; and 60% of consumers want to see more private brand options in fresh departments.17

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Symmes, Kantar Consulting, told IDDBA that private label expansion remains a top priority for food retailers, demonstrated by major chains increasing their investment and focus to private label as shoppers become increasingly brand agnostic. Natural and organic private labels in particular are a way that mainstream retailers gain brand equity. Building tiered private labels (open price point to premium) will remain a top initiative, and thus increase price and space pressure on brands across retail.18 Jill Tomeny, senior manager, fresh, Daymon Worldwide, told IDDBA that over the last year, private brand sales grew 4%, compared to less than 0.5% for branded products. Up to 53% of shoppers say they would specifically shop at a store because of its private brands. “Consumers are looking for distinctive and differentiated private brand solutions, and retailers that deliver on that desire will both continue to thrive and survive the challenges that the new face of retail presents,” she said. “In addition, private brands give consumers a sense that they’re getting a deal or at least not paying a premium for the name on the packaging, which is why private brands are growing so much.” She anticipates private label

figure 1.4

US confidence continues to rise, unemployment continues decline

99.7%

100

Confidence %

8 80

UNEMPLOYMENT

4.1

60 40

Unemployment %

CONSUMER CONFIDENCE

4 January 2010

February 2018

Source: Federal Reserve Data, University of Michigan

WHAT’S IN STORE | 2019

figure 1.5

Job Growth Has Been Above 2 Million Annually Since 2011 Job gains and losses (millions) AVG. GROWTH

AVG. GROWTH

2.8M

2.8

3.4

2.1M

3.0 3.2 2.0

2.0

2.5

2.1 2.1 2.3

2.1 1.1

3.0 2.7

2.2 2.1

1.1

0.1 1996 1997 1998 1999 2000

0.5

2003 2004 2005 2006 2007

2010 2011 2012 2013 2014 2015 2016 2017

1.7

3.6 Source: US Bureau of Labor Statistics

growth in cheese, value-added meats, deli entrees, deli dips, and deli sides, along with bakery cookies.19

SOCIAL RESPONSIBILITY AND TRANSPARENCY Stern, McMillanDoolittle LLP, said trends like transparency and authenticity are long-term as the next generation of consumers (Gen Z) demand it. “Local is still a big trend, but it has created concerns around food safety,” he said. “We're going to see continued growth in plant-based proteins as consumer dietary trends change and product innovation improves. We are going to see continued growth in healthier-for-you products, as well as small brands continuing to grow much faster than big brands.”20 (See Eating Trends) Symmes, Kantar Consulting, said shoppers are increasingly becoming “conscious consumers” who care where their food comes from, how it’s made, and its environmental impact. “As this conscious consumer behavior grows, we are seeing increased penetration in the percent of shoppers who purchase 10

5.1

DOWNLOAD ANY FIGURE ONLINE ‘green’ versions of edible grocery items,” she said. “Green” includes organic, fair trade, and free range. Symmes said that in 2017, 46% of shoppers purchased green items, a 5% increase from 2016. These numbers highlight the substantial penetration gains these types of products are experiencing. “Retailers are investing accordingly to speak to shoppers with increased investment in clean labels such as organic and non-GMO,” she said. “These better-for-you products are purchased across income levels.”21 (See Eating Trends) Tomeny, Daymon Worldwide, concurred, telling IDDBA the story behind food—encompassing transparency, social responsibility, local sourcing— will become increasingly important in fresh foods. “Online shopping continues to grow, but fresh departments in grocery can be left behind,” she said. “Consumers want to pick out their own steak, loaf of bread, or apples.” She said online consumers have a © 2018 International Dairy Deli Bakery Association

The Economy and Retail Trends

figure 1.6

Big Box Captures the Most Sales, Digital Growing Fastest

32%

Sales Compound Annual Growth Rate 2018E–2021E

Share of 2017 Sales

14.1%

14.9%

14.2% 3.0%

Big Box

Small Box

Digital

Big Box

4.1% Small Box

Digital

Source: RetailNet Group LLC

figure 1.7

Interest in Private Brands Strong

86%

61%

81%

85%

of consumers say private brand quality is at least as good compared to the national brand

of consumers purchase more private brands than two years ago

of consumers purchase private-brand products almost every shopping trip

of consumers state they trust private brands as much as national brands

Source: Daymon, Private Brand Intelligence Report 2018

WHAT’S IN STORE | 2019

figure 1.8

Younger Shoppers Buy More Private Label Asked to rate: Buying more store brands to save money (% Shoppers indicating the statement: describes me perfectly/describes me very well)

46%

53%

57% 48% 37%

Total US Shoppers

Gen Z Shoppers (18–21)

Millennial Shoppers (22–36)

Gen X Shoppers (37–52)

Boomer Shoppers (53–71)

30%

Silent Shoppers (72+)

Source: Acosta, The Why? Behind the Buy, 2018

higher tendency to make extra trips to butcher shops, community supported agriculture (CSA), and local bakeries for their fresh products, as these are outlets that specialize in stories. She continued, “Traditional retailers need to build and tell stories around their own fresh foods to keep those customer dollars.”22 Symmes also predicts more links to reusing food waste to create new food. “This is a (percolating) trend that will become mainstream over the coming years,” she said. “There are numerous food startups right now whose whole purpose is to create new food via food waste.”23

CONSUMER PERCEPTION OF HEALTHY Grant, Euromonitor International, said consumer perceptions of “healthy” foods and beverages continue to evolve in the United States, with consumers less interested in “diet” foods with fewer calories or reduced fat and instead seeking whole foods with a short list of natural and recognizable ingredients. “’Natural’ became increasingly 12

synonymous with ‘healthy,’ and highly-processed foods are losing amongst consumers,” she said. “As a result, the free-from, organic and naturally healthy segments are the fastest growing segments when it comes to popularity with consumers.”24 Grant said this perception has led consumers away from the center aisles of grocery stores—which are typically dominated by highly processed packaged food products containing artificial ingredients—and toward the perimeter, where items like fresh meats and produce are prevalent. These changing health priorities are resulting in a decline in demand for many packaged food products, thus resulting in a decline in sales for many companies. “In the face of these challenges, packaged food companies have increasingly sought to reformulate the ingredients and nutritional makeup of their products in an effort to win back previously loyal and enthusiastic consumers,” she said.25

The Economy and Retail Trends

Private Label by the Numbers

166 + 6.5

BILLION

in private brand sales

in revenue for 2017

32 17 % vs

Best-in-class private brand share average

Private brand sales increased

TIMES

more than National Brand Sales

Private brand has contributed an estimated

which has grown

BILLION

in margin

since 2016

Industry average

Source: Daymon, Private Brand Intelligence Report 2018

figure 1.9

Purchasing Private Label Versus National Brand Products

Label by the Numbers 10 17 22% Private 31 19 27 26 Private brand has

166 in private brand sales

BILLION

Private brand sales increased

Do you purchase private label products? BILLION

+$6.5 in revenue for 2017

8 more than National73 69

TIMES

Brand Sales

32 Best-in-class private %

brand share average, vs %

74%

Industry average

contributed an estimated

50 in margin, which has90 grown 83 $2 since 2016 $

BILLION

78% YES

Age 18–20

Age 21–29

Age 30–39

Age 40–49

Age 50–59

Age 60+

Source: Market Track Shopper Insight Survey, 2017

WHAT’S IN STORE | 2019

figure 1.10

Private Label Performance, Store Brands Accelerate Growth Trajectory 574.2 571.4 544.8 553.1 567.3

116

2013

119.2 112.2

2014

2015

121.8 125.2

2016

2017

PRIVATE LABEL

+3.0% +2.0% vs a year ago

(4-year CAGR)

2013

2014

2015

2016

2017

BRANDED PRODUCTS

-0.5% +1.2% vs a year ago

(4-year CAGR)

Source: Nielsen Retail Measurement Services, Core syndicated hierarchy, Total US excluding convenience store, 52 weeks ended Dec. 30, 2017 vss yearago, UPC-coded

Clean labeling is continuing as an important trend at a very large level, but it has splintered in various ways, according to Scott Allmendinger, director of consulting, Culinary Institute of America. “It began as things you didn’t want to eat, such as ingredients a consumer couldn’t pronounce,” he said. “Now, it’s ingredients believed to be bad. Depending on diet, consumers could be scrutinizing dairy, meat, and ingredients that are food allergens. Telling your story through your label—whether good or bad—is really huge right now.”26

jumping to 42% in 2016, according to Steve French, managing partner, Natural Marketing Institute Solutions. Driving this trend is the belief held by 73% of consumers that a “healthy body and a healthy environment go hand-in-hand.” French added, 54% of Millennials and 45% of Gen Xers considered the environment when making a purchase.27

The percentage of individuals in the United States who factor in health and sustainability when making a purchase has increased by 31% since 2006,

FOOD SAFETY MODERNIZATION ACT

Source: The Hartman Group, Health + Wellness 2017 report

The Economy and Retail Trends

What does “Clean Label” Mean? WHEN SHOPPING:

of consumers say they look for food and beverages that have the shortest list of ingredients

of consumers say they look for food and beverages that contain only ingredients I recognize

HOW CONSUMERS EVALUATE WHETHER A PRODUCT IS "CLEAN"

Consumers evaluate multiple attributes to determine if a product meets their criteria for "clean label."

CLEAN

AUTHENTIC

FRESH SIMPLE

REAL These terms are often used interchangeably by consumers. They look to a number of cues to determine whether a product encompasses these ideals:

WHAT’S IN STORE | 2019

“We're going to see continued growth in plant-based proteins as consumer dietary trends change and product innovation improves.” Neil Stern, senior partner, McMillanDoolittle is designed to ensure a safe food supply in the United States by shifting the focus from responding to food contamination to preventing food contamination. Act provisions impact food production, delivery, handling, storage, and other facets of the retail food logistics chain. Specific provisions of the act took effect in 2016, with others becoming effective in 2018, and beyond. Visit iddba.org for FSMA compliance information.

MENU CALORIE LABELING REQUIREMENTS IN SUPERMARKETS The menu calorie labeling provision of the Affordable Care Act took effect May 7, 2018. As written, the provision is applicable to supermarket deli, bakery, and prepared-food departments that are part of a chain of 20 stores or more operating under the same name. For compliance information, including recorded FDA webinars conducted for IDDBA, visit iddba.org.

FDA NATURAL DEFINITION ON THE HORIZON On March 29, 2018, the FDA signaled its intent to provide a clear definition of what constitutes “natural” and “healthy.” Part of the FDA response is attributed to numerous lawsuits over using the label “natural” on food packaging. Most of those suits have focused on ingredients so experts believe that ingredients will be key to the forthcoming definition.

While the timeline has yet to be officially announced, it is worth consideration. In the past, FDA definitions have increased sales of specifically labelled products, e.g. the shift away from trans fats in 2006. Julie Caswell, economist at University of Massachusetts Amherst, studied the sales of “trans fat free” items and found a large initial drop in those products.28

FOOD TECHNOLOGY AND INNOVATION PACKAGING Mintel identified the following packaging trends for 2018: • Will be a key player in the drive to reduce food and product waste worldwide. • Modernized packaging from online brands will enhance consumer’s e-commerce experience. • Clear and simple packaging will be rewarded, given consumers’ preference for minimalism. • Center-store will assume contemporary packaging.29

NEW PRODUCTS Lynn Dornblaser, director, innovation and insight, Mintel, told IDDBA fresh continues to be the key focus area in new product development and retail store offerings, driven by consumer demand on where the food they purchase comes from and what ingredients it contains. Retailers with a robust prepared-food program have an advantage, as they’re able to tell a fresher story than center store. She cited “factory fear” as a current trend impacting consumer purchasing behavior, as 71% of consumers think there are more excess or harmful ingredients in food than manufacturers are telling them. “From a consumer prospective, there are things in products that don’t need to be there,” she said. “Consumers are also concerned about 'hot-button' ingredients that they think are harmful to them, such as artificial colors and flavors, and high fructose corn syrup. And on top of that, it’s all of the ingredients listed that consumers don’t understand.” She cited as

The Economy and Retail Trends

"These products oftentimes have long, scary ingredient lists. This creates a huge opportunity for the dairy industry. These products have the cleanest and simplest ingredient statements." Lynn Dornblaser, director, innovation and insight, Mintel, on customer perception of food alternatives

WHAT’S IN STORE | 2019

figure 1.11

Shoppers Are Looking for Responsible Companies

of Americans said it is important that companies implement programs to improve the environment

of Americans will prioritize healthy or socially-conscious food purchases in 2018

of Americans will change their consumption habits to reduce their impact on the environment

Source: Nielsen, Label Insight Blog & Survey, Neilsen Global Sustainability Survey, 2017

Key Insight

THE FOOD FATS PENDULUM

PLANT-BASED PROTEINS HAVE STAYING POWER

It feels like we’re having another little bit of a shift when it comes to low-fat foods. It’s a two-way spectrum. On the low-fat end, it comes down to two words: Halo Top. And this means complete transparency on the label in terms of fat, calories, the amount of sugars, and other traits. We’re seeing more focus on that, in terms of low-fat and low-sugar. It seems like we’re slowly seeing a greater consumer interest in reducing sugar. Sugar is the bad ingredient in the spotlight right now. The flip side is increased activity in full-fat. Up until recently, many consumers in the United States had never experienced full-fat yogurt. In Europe, virtually all yogurts were full-fat until recently. This ties back into taste and experience. (See Eating Trends)

Plant-based proteins are here to stay. Consumers in general are willing to try new things, and the products themselves are better in terms of taste, quality, and variety. Just look are dairy alternative beverages, which have come a long way from soy milk in terms of taste and flavors. The most important factor driving this is today’s youngest consumers, the iGeneration (Gen Z). This consumer group is the one that is most focused on the environment, most likely to be vegetarian, and much more altruistic and focused on the greater good, more so than Millennials. But we don’t know how these beliefs will change as they age, enter the workforce, start families, and other lifechanging events occur. (See Eating Trends)

Source: Lynn Dornblaser, director, innovation and insight, Mintel

The Economy and Retail Trends

IDDBA 18, Show & Sell, New Orleans, LA

an example lecithin, a soy product that binds food together but a term many consumers are unfamiliar with.30 Dornblaser said while the trend in new product development is for more natural and healthy ingredients, there are exceptions when it comes to consumer demand. “While product ingredients are important to consumers with higher than average disposable income, the same is not true about consumers with less disposable incomes, as their main priority is having enough money to feed their family,” she said. “Additionally, so many consumers are concerned about so many ingredients, but that focus will oftentimes go out the window when it comes to products that taste good and are of extremely good food value.”31 Dornblaser said that lab-cultured meat may be down the road, but is generating buzz, along with meat alternatives. Even meat manufacturers are staking a claim to this trend, with more companies that manufacture these products talking less about vegetarianism and more about sustainability.

“They’re stating that these products have less of an environmental impact,” she said.32 The trend toward authenticity and transparency, does conflict with many food alternatives. Dornblaser continued. “These products oftentimes have long, scary ingredient lists,” she said. “This creates a huge opportunity for the dairy industry. These products have the cleanest and simplest ingredient statements.”33 (See Dairy) "In terms of future product barriers, proliferation and too many options can create customer confusion,” Dornblaser said. “It feels like this issue of choice could become a bigger issue. Additionally, there seems to be more a move toward unique products and choices. On the other end, there’s still a market for the basics and value products. Middle-ofthe-road products are in a tough spot right now.”34

Sales of online meal kits reached

4.7%

$ a

210

BILLION

increase from 2016

Chapter 2

CHANNELS AND COMPETITION 23 / Retail Channel Dynamics

29 / Supermarkets

36 / Specialty Stores 36 / Online 42 / Meal Kits

36 / Convenience Stores

WHAT’S IN STORE | 2019

IDDBA Trends Competing and Winning in a Highly Competitive Space Through its What’s in Store research, IDDBA has identified three key trends impacting the retail food channels, which, when analyzed separately and together, could provide innovative solutions to retailers looking to capitalize on the shifting retail landscape. 1. Retailers can no longer rely on traditional department layouts for attracting and retaining shoppers.

CONSUMERS VIEW RETAILERS IN TERMS OF MEAL SOLUTIONS, services, and the experience a physical store provides. A store’s layout and offerings should reflect this trend. Store design and department segregation should accommodate shopper experience. Shoppers are shifting their retail expectation and desire physical stores to be set up in terms of meal solutions.

2. ONLINE SERVICES—including grocery shopping, click-and-collect, and delivery options—are no longer viewed as optional services, but a requirement for all retailers. Amazon’s purchase of Whole Foods has pushed online food purchasing to the forefront, and shoppers are now expecting these services from the physical stores they shop. 3. Busy consumers want CONVENIENCE. Many simply do not have the time or desire to shop for and prepare meals from scratch at home. They’re looking for ideas and suggestions. And they’re looking at all types of channels to provide those, from restaurants to convenience stores to traditional supermarkets.

What Does This Mean for Retailers? Retailers must be vigilant of the changes in consumer shopping patterns and think outside the box when it comes to their stores. The traditional approach to brickand-mortar food retail is losing market-share and can put stores at a competitive disadvantage. Ways to engage today’s consumer: • Retailers should look to boost their online service offerings, either on their own in-house or through a third-party vendor. Don’t consider information technology costs as just an expense, but rather an investment for the future. This also includes mobile and social media applications, which can help boost the overall consumer experience both in-store and away from the store.

• Continued focus on the fresh perimeter, which gives stores an advantage over online competitors as consumers generally want to see, feel, and personally select their perishables. • New build and store redesigns with a focus on the perimeter, curated inventories, and space allotted for in-store experiences. • Use existing store layouts and facilities to your advantage. Integrate departments and offer prepared food in multiple spots around the store; add perishable shelf space within aisles. Transform your store with the “third place” strategy in mind (a place between home and work) to bolster the consumer experience: couches, games nights, etc.

• Develop in-store amenities and programs—grocerant concepts, meal kit options, staffed dieticians and nutritionists, demos and classes. Convenience is key. Provide shoppers with a variety of fully or partially prepared meal options.

Channels & Competition figure 2.1

Value Channels Grabbing Shopping Trips from Grocery

Trips per household

22 25

23 10

14 11

2002 2017 Mass Merchandise

Convenience/ Gas**

Drug Stores

10 12

12 13

Warehouse

Dollar Stores

The grocery channel still leads all channels in shopping trips by significant margin. While trip frequency has remained virtually unchanged year over year, it’s still down from 70 trips in 2002 to 52 trips in 2017. With conversion of many regular mass merchandiser store formats to supercenters and the closure of many regular mass chains formats, shopping

Supercenters*

Grocery

frequency within the mass channel is also on the decline over the long term, but holding steady over the past few years. Although new store openings may be holding down shopping frequency in supercenters, average shopping frequency within this channel is relatively low, but growing nicely.

Source: Nielsen Homescan * Includes Kmart, Target and Walmart **Conv/Gas channel behaviors understated because of the high level of gasoline-only buys and purchases of immediate consumables

RETAIL CHANNEL DYNAMICS Brian Kilcourse, managing partners, RSR Research, shared two social trends impacting the retail food sector today: the rise of Millennial shoppers and population shifts to urban areas. “They (Millennials) have very different attitudes than Boomers do,” he said. “Statistically, both Millennials and Boomers are moving into urban areas—where there are a lot of services—at a faster rate.” Kilcourse added that it’s clear from that statistic that there’s a lot of pressure on urban and suburban retailers to maintain a healthy business. “Consumers are shopping more

frequently and purchasing more prepared foods,” he said. “This is where delivery begins to play a big part at the retailer level. This trend has also given rise to grocerants, which can be a significant part of a retailer’s business.”1

RETAIL CHANNELS BECOMING ‘SOLUTIONS’ Elley Symmes, senior analyst, Kantar Consulting, said that beyond traditional retail, foodservice will continue to steal share from retailers in food consumption, she continued. Brick-and-mortar supermarkets are responding to this elevated level continued on pg 24

WHAT’S IN STORE | 2019

Key Insight WHERE WILL THE GROCERY INDUSTRY BE IN FIVE YEARS? In five years, most grocers will have been forced to reimagine the store and create experiences for shoppers. Retailers must remember that shopping is a form of entertainment, even for some of the most basic of products. Generally speaking, people like to shop. It’s how they shop that’s being questioned. To make shopping entertaining again, grocers must look at how people entertain themselves and must make that part of their store. For example, drug stores will have to evolve from a place where you go when you’re sick, to a place where you go to maintain your healthy lifestyle. A

grocery store must shift from a place offering the lowest priced milk and eggs, to a place where people can get affordable, tasty, and healthy food. Convenience stores are ahead of the curve in many ways, as you look at their fresh and prepared food choices, as well as mini grocerants. The store must be reimagined in the context of a selling environment that’s 24-7 and enabled by information in the digital space. You’re going to see more automation of non-selling functions, along with a much richer shopping environment.

Source: Brian Kilcourse, managing partner, RSR Research

WHAT’S IN STORE FOR THE GROCERY INDUSTRY IN THE NEXT 10 YEARS? The retail food industry will see four core shifts in the next 10 years: 1. 30% of shoppers’ purchases will be automated through artificial intelligence or smart home devices. These purchases will be your staple products such as milk, toilet paper, and bread. 2 Space allocated to the center store will decrease as retailers prioritize the perimeter to differentiate themselves. Those items in the center store will face increased pressure to rationalize their space on the shelf. Shoppers increasingly will only shop the perimeter, especially as staple purchases become more automated.

3 Click-and-collect will be in 100% of food retailers’ brick & mortar stores. This will be a mainstream service that shoppers expect. Retailers will execute specific click-and-collect pricing and promotion strategies to improve profitability and supplier support for these added services. 4 Pricing will be more dynamic and highly personalized. Similar to how Amazon does their brick-and-mortar pricing, there are no price tags in-store. Instead, price is based on whether the shopper is a Prime member or not. From there, Amazon can also provide a more personalized price if it chooses.

Source: Elley Symmes, senior analyst, grocery, Kantar Consulting

Channels & Competition figure 2.2

Store Growth Driven by Convenience and Value 154,958

US Store Counts

132,424

39,331 43,169

31,192 34,178

30,873 15,538 1,789

2002 2017 Convenience Stores

Drug Stores

Grocery $2MM

Dollar Stores

Convenience and dollar store formats registered most growth in 2017, while mass merchandisers showed decline. Since December 2016, all retail formats (except drug store and mass merchandisers) experienced an expansion in number of stores. Continuing the trend of greater growth in non-traditional channels, convenience stores and dollar stores were the top two channels in store growth.

4,393

Supercenters

5,250

3,254

Mass Merchandise

972

1,387

Warehouse Clubs

Supermarkets have grown by 2,588 stores since 2005; 88% of the store growth has come from low- and high-end niche retailers such as Aldi, Save-A-Lot, Lidl, Trader Joe’s, Whole Foods, Sprouts, Fresh Thyme Farmers Market, The Fresh Market, and Natural Grocers.

Source: Nielsen TDLinx

“Consumers are shopping more frequently and purchasing more prepared foods. This is where delivery begins to play a big part at the retailer level. This trend has also given rise to grocerants, which can be a significant part of a retailer’s business.” Brian Kilcourse, managing partner, RSR Research © 2018 International Dairy Deli Bakery Association

WHAT’S IN STORE | 2019

Divided Shopper Loyalties Despite claims of being time-starved, consumers do not seem to want a one-stop shop

of consumers shopped between 2 and 10 retail channels for groceries in the past 30 days.

Primary shoppers visited an average of

of consumers shopped between 3 and 6 retail channels for groceries in the past 30 days.

4.4

in the past 30 days.

CHANNELS

Source: Food Shopping in America 2017, The Hartman Group

of competition by investing in store remodels and e-commerce. “By focusing on store remodels, grocery retailers are able to make the store experience more relevant for the changing consumer,” she said. “This includes enhanced food service, pharmacy services, and upgraded center store departments. Retailers are beginning to organize the store based on shopper need, rather than traditional store aisle departments. For example, bringing a refrigerator into the cereal aisle with milk and yogurt in it to create shopper solutions and ease the shopping trip.”2 Kilcourse said consumers, especially younger ones, don’t see channels at all. They see solutions. “Retailers are organizing the channels because it’s convenient for them, not younger shoppers,” he said. He added that consumers will take retailers to task 26

if they don’t provide total accuracy when it comes to product inventory and services, especially in the online environment. “Consumers are now less likely to forgive a retailer who lists products online that are different from what is found in the physical store or not available,” he said. “Consumers see a shopping environment. It’s not confined by four walls. The traditional definition of the store being where supply and demand meet is under a lot of pressure.”3 Kilcourse said shoppers are now using the physical and digital selling environments together to execute a single transaction. Retailers are learning that they must bridge these two.4 What motivates shoppers to visit more than one retailer weekly? According to Acosta Sales &

Channels & Competition figure 2.3

Consumers Who Shop Online

68%

76%

27%

of consumers who purchase groceries online also shop the physical store, where

of consumers who’ve purchased groceries online had them delivered

of shoppers expect to increase their online grocery shopping over the next five years.

75%

39%

make a purchase

used click-and collect

Source: National Grocers Association, National Grocery Shoppers Survey, 2018

Key Insight POPULATION MOVES IMPACTING RETAIL FOOD INDUSTRY Urbanization will reshape the US retail landscape. Between 2017 and 2030, urban households in the United States are projected to grow. This shift will create food deserts in small rural towns as supermarkets close in shrinking areas that become too small to support a large-format grocer. As convenience stores shift their product mix to include more packaged food and healthy fare, they will gain share in towns where residents would otherwise be forced to drive long distances to buy groceries. This trend is already evident in several states, as c-stores have expanded their packaged food offerings to become vital food retailers in many rural communities. Continued urbanization will only exacerbate this shift. Source: Michelle Grant, head of retailing research, Euromonitor International

WHAT’S IN STORE | 2019 figure 2.4

The Evolving Food Retail Landscape Food retail formats, channels and services, 5-year forecast

26%

E-COMMERCE

6.4%

Limited Assortment

Fresh Format

Military

-5%

TRADITIONAL GROCERY

Super Warehouse

2.6%

Other(Small Grocery)

.5%

Traditional Supermarkets

Dollar

Wholesale Club

3.1%

Wholesale Club Supercenter

Drug

Mass

NON-TRADITIONAL GROCERY

-1% -2.5%

Convenience Store w/o Gas

Conveniencde Store w/Gas

2% 1.3%

CONVENIENCE STORES

Source: Inmar Analytics, Future of Food Retailing, 2018 otals may vary slightly due to rounding

Channels & Competition Marketing, 60% of shoppers said price, followed by food quality (41%); food availability (33%); and convenience (23%).5 Despite inroads made by online shopping options, more than 80% of independent shoppers prefer their local store to online options, with 64% saying they are very/extremely satisfied with their local supermarket, according to findings from the National Grocers Association. Other discoveries in the third annual National Grocery Shoppers Survey include: • Sixty-three percent of shoppers anticipate store assistance in pursuing healthier lifestyles, through cooking instructions (28%); assistance with understanding ingredients and nutritional claims on labels (25%); and general guidance on nutritional value for the purchase price (23%).

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• Sixty-seven percent of shoppers do not plan to switch from their preferred independent store.6

TRIPS AND GROWTH Fresh food is a key driver of supermarket shopping trips, with 37% of consumers making multiple trips weekly to purchase fresh food items. Fruit represents 31% of the total dollar growth in fresh departments, while 29% is generated from deli prepared foods and 11% comes from sales of fresh vegetables.7

SUPERMARKETS Progressive Grocer reported total supermarket sales (from stores generating $2 million or more annually) of $683 billion in 2017, up from $669 billion in 2016. Conventional supermarket formats accounted for 63.1% of all supermarket sales, down slightly from

figure 2.5

Market Share and Store Count Forecasts (Grocery and Consumables) 2016 Dollar Share

2021 Dollar Share

2021 Number of Stores

2021 Annual Sales (millions)

2021 Number of Stores

2021 Annual Sales (millions)

Traditional Supermarkets Fresh Format Limited-Assortment Super Warehouse Other (Small Grocery)

35.90%

32.60%

-3.30%

25,243

24,572

-2.70%

2.40%

3.00%

0.60%

1,634

2,144

31.30%

3.20%

4.20%

4,178

4,628

10.80%

2.00%

2.10%

0.10%

751

865

15.20%

1.10%

1.20%

0.10%

8,773

8,902

1.50%

Total Traditional Grocery

44.60%

43.10%

-1.50%

40,579

41,111

1.30%

Convenience (w/gas) Convenience (w/o gas)

13.60%

13.40%

-0.20%

131,113

132,918

1.40%

2.30%

2.40%

0.10%

30,380

30,798

1.40%

Total C-Store

15.90%

15.70%

-0.20%

161,493

163,716

1.40%

9.00%

9.60%

0.60%

1,424

1,613

13.30%

19%

20.80%

1.80%

4,151

4,560

9.80%

Wholesale Club Supercenter Dollar Drug Mass Military Total Non-Traditional Grocery Total All Formats

2.90%

3.70%

0.80%

32,169

37,964

18%

4.90%

4.20%

-0.70%

23,499

34,202

3.40%

2.70%

-0.70%

2,483

1,904

-23.30%

0.30%

0.20%

-0.10%

176

164

-7%

39.50%

41.20%

1.60%

63,901

70,407

10.20%

100%

265,974

275,234

3.50%

Source: Inmar Analytics, Future of Food Retailing, 2018 *Does not include gasoline sales Totals may vary slightly due to rounding

WHAT’S IN STORE | 2019 figure 2.6

Channel Sales Estimates for North America Sales (billions)

Share of Sales

Sales CAGR

Sales Added (billions)

Share of All Retail Sales

2017

2021E

2017

2021E

2014–2017

18E-21E

2017

2021E

2014–2017

18E-21E

Hyper/Super & Mass

$676

$875

22.4%

24.4%

4.8%

5.3%

$142

$199

30.6%

35.0%

Grocery

$481

$542

15.9%

15.1%

2.1%

2.4%

$48

$60

10.4%

10.6%

Home Specialists

$290

$350

9.6%

9.8%

4.9%

3.8%

$62

$60

13.3%

10.6%

Health & Beauty

$260

$287

8.6%

8.0%

3.7%

1.9%

$44

$26

9.4%

4.6%

Food Service/QSR

$208

$241

6.9%

6.7%

2.8%

2.9%

$27

$33

5.8%

5.7%

Cash & Carry/Club

$205

$255

6.8%

7.1%

3.5%

4.5%

$33

$50

7.1%

8.9%

Department Stores

$168

$184

5.6%

5.1%

0.5%

1.8%

$16

0.8%

2.7%

Consumer Electronics

$154

$183

5.1%

3.9%

3.5%

$27

$29

5.7%

5.1%

Other Category Specialists

$150

$168

4.9%

4.7%

2.4%

$17

$19

3.7%

3.3%

Apparel Specialists

$145

$168

4.8%

4.7%

2.3%

3.1%

$16

$24

3.4%

4.2%

Discounters

$124

$149

4.1%

4.2%

3.7%

$23

$25

5.0%

4.4%

Convenience

$91

$105

3.0%

2.9%

3.4%

2.9%

$14

3.1%

2.5%

Leisure

$68

$81

2.3%

2.4%

3.6%

$13

1.6%

2.3%

$3,021

$3,588

100.0%

3.4%

3.5%

$464

$567

100.0%

Total Source: RetailNet Group LLC

63.4% in 2016. Supermarkets with sales of $2 million or more increased to 38,571 stores, compared to 38,441 stores in 2016.8

TOP TRENDS John Karolefski, supermarket analyst and purveyor, GroceryStories.com, offers his top-five trends for grocery stores in 2018: • More ways for consumers to shop: in-store, online for store pickup, online for curbside pickup, and online for home delivery. • More checkout options, including through smartphones, Apple Pay/Android Pay. • More in-store eating and drinking choices, including wine bars, cafes, restaurants, and full-sized bars. 30

“Retailers are beginning to organize the store based on shopper need, rather than traditional store aisle departments.” Elley Symmes, senior analyst, Kantar Consulting

Channels & Competition

Key Insight IN-STORE EXPERIENCES, ACTIVITIES WILL ELEVATE SUPERMARKET POSITIONING In a time of peak store saturation, grocery retailers must extract more out of their existing assets. To do so, they continue adding new services to drive new revenue streams and differentiate the customer experience. In 2018, we expect to see: • Expanded prepared food sections, including meal kits and grab-and-go offerings, to capture a larger share of shoppers’ growing food-awayfrom-home spend. • Continued innovative partnerships with unique restaurant franchises and fitness companies to enhance store exclusivity. • Elevated health and wellness services especially for shoppers’ self-care goals/regimes, with dietitians and nutritionists becoming key ambassadors to drive shopper loyalty. Amazon Whole Foods continue to elevate the omni grocery experience, linking Amazon specific services with the Whole Foods experience.

This includes Amazon Prime member exclusive deals, free Prime Now delivery, and seasonal specials. Beyond Amazon, Whole Foods continues to execute unique store events such as wine tastings and cooking classes to create in-store excitement and boost new trip drivers. Last year, Whole Foods tested a speed dating night in one of its Boston Suburb stores that turned out to be one of the most successful events the retailer has ever held. It will be events and experiences like this beyond just adding a hot bar that will elevate the store experience and drive loyalty with shoppers. This year Hy-Vee in the midwest began adding Mark Wahlberg’s burger and workout franchises to its stores: Wahlburgers and Orange Theory. These new in-store activities bring excitement to the store and help create a unique one-stop shop that goes beyond just getting groceries. Stores are instead becoming social gathering places.

Source: Elley Symmes, senior analyst, grocery, Kantar Consulting

• More meal kit options developed by the retailers themselves. • More access to product information, as consumer demand information on product ingredients.9

Symmes, Kantar Consulting, said between now and 2020, conventional retail food channels will capture only half of the $80 billion in growth in the food-athome market. Club, discount, and online channels, as well as the fragmented urban/ethnic trade, are playing a role in this shift.10 Despite impactful events in the supermarket sector in 2018—Amazon’s acquisition of Whole Foods; consolidation, mergers, and bankruptcies; and the continued expansion of discounters—51% grocers are more confident about the current retail climate, © 2018 International Dairy Deli Bakery Association

the highest percentage since 2011, according to Progressive Grocer’s 85th Annual Report of the Grocery Industry. This optimism is generated from elevated consumer confidence and greater acknowledgement of the threats and opportunities in the industry. Supermarkets are staying relevant in a changing retail landscape by focusing on fresh departments—especially prepared food—and enhancing fresh perimeters, a sector that online grocers struggle with. The top-three issues of concern were labor (recruitment, retention, diversity, training), competitive threats, and keeping up with advancements in technology.11

WHAT’S IN STORE | 2019 figure 2.7

% rating each strategy as extremely/very important

Fresh Departments are Critical to Successful Food Retail

73.2% 72.6% 67.9% 65.5% 60.7% 54%

Prepared Foods

Signature Products

Locally Sourced Products

Private Label

FRESH

CrossStore-Withinmerchandising Store Specialty Departments*

40.2% 36.3% 33.9% 31% Free Wi-Fi

In-Store Pharmacies

BOGOs

Cooking/Meal Prep Stations

Percent of respondents rating each strategy as extreemely/very important

figure 2.8

Community Involvement, Special Events, and Sampling Are Important Customer Interaction Strategies

73.2%

59.8%

55.4% 31.3%

Community Involvement

Seasonal Special Events

Sampling/Demos

Wellness Events/Counseling

24.1%

21.4%

Health Screenings

Healthy-Eating Store Tours

17% In-Store Restaurant

9.8% Cooking Classes

figure 2.9

What omnichannel services do you offer?

Nearly One-Third of Retailers Offer No Omnichannel Services

54.2%

Mobile Shopping Apps

32.7%

31.8%

30.8%

28%

24.3%

None

Click-andCollect

Third-Party Vendor Home Delivery (e.g. Instacart, MyWebGrocer, etc.)

Drive-Up Collection Sites

Store-Supported Home Delivery

In-Store Mobile Product Scanning

16.8% Ordering Kiosks

Source: Progressive Grocer, 85th Annual Report of the Grocery Industry, 2018 *(i.e. organic, gluten-free, specialty cheese, housewares, etc.) "Progressive Grocer’s 85th Annual Report of the Grocery Industry is based primarily on an exclusive survey conducted among executives at supermarket chain and independent operators across the United States. Among this year’s 144 retail executive participants: 38% classify themselves as independent retailers, while 62 percent are self-distributing chains. Of the total respondents, 44 percent operate fewer than 50 stores, while 56 percent operate 50 stores or more. Additional store count and sales data are provided by Nielsen TDLinx, which maintains a national database of supermarket and other retail format locations."

Channels & Competition COMPETING WITH SMALL-BOX FORMATS Tim O’Connor, managing partner, Retail Performance Solutions, told IDDBA retailers who can build enough scale and in the right locations with a smallbox format that’s clean and well-curated with their assortment of products—which is what discounters do—are at an advantage. However, this approach can be challenging, as some traditional retailers have opened small-box stores with oftentimes less-thanstellar results. Instead, stores are finding success in competing with discounters through delivery and especially curbside pickup options, according to O’Connor. “This trend, however, is challenging for in-store fresh departments and brands, because the control over selection is more easily influenced by the retailer than a consumer physically shopping at the store,” he continued. Overall, product inventories at retailers will continue to become more curated and more manageable. “Less is more,” he said.12

CUSTOMER EXPERIENCE GENERATES INTEREST Michelle Grant, head of retailing research, Euromonitor International, explained that the dramatic expansion of discounters and Internet retailing is a major challenge, as those channels offer low prices and convenience that are difficult for some grocery retailers, especially supermarkets, to match. To remain relevant, retailers are innovating with store formats that make shopping more enjoyable.

OMNICHANNEL A digitally powered progression of retail that delivers a consistent, seamless experience to shoppers across all sales channels and communications touchpoints. It provides retailers with a valuable source of information on the preferences and behavior of individual customers, multiple opportunities to communicate with shoppers and personalize offers and many options for fulfilling shopper purchase intent.

Key Insight RETAIL ESSENTIALS What’s essential these days for retailers are curbside pickup (not just delivery), a good, curated assortment of products and prices. Traditional retailers in the middle of the spectrum—with online on one side and discounters and specialty stores on the other— face the most challenges and continue to lose the most share of food spend. That’s what makes these types of services necessary. Source: Tim O’Connor, managing partner, Retail Performance Solutions

“The more a store appears as a place to be—as opposed to place to get in and get out of—the more that store becomes distinct, especially in urban and suburban markets.” Tim O’Connor, managing partner, Retail Performance Solutions, on the importance of providing an “experience” for shoppers.

WHAT’S IN STORE | 2019 “Stores now feature in-store eateries and bars with a store perimeter packed with freshly prepared foods,” she said. “Some stores allow shoppers to enjoy wine and live classical music while shopping. With this, supermarkets will evolve into destinations that offer customers significant value.”13 O’Connor, Retail Performance Solutions, said the experience a store provides to shoppers is key for long-term success. “Having the ability to sell beer and fill growlers in the store or providing sit-down dining options offers not just an experience for customers, but also a convenience,” he said. “It makes sense for retailers to do that because if they’re being efficient and curating their products in center-store, they’re freeing up space, and it’s a good redistribution of that space. The more a store appears as a place to be—as opposed to place to get in and get out of—the more that store becomes distinct, especially in urban and suburban markets.”14

STRENGTHENING YOUR OMNICHANNEL PRESENCE Grant said while home delivery may have seen most of the headlines in 2017, other convenience services, such as click-and-collect and curbside pick-up, also gained ground. “Both these services reflect the greater trend across retail related to the need for an omnichannel presence,” she said. “These services can provide advantages over home delivery, such as lower costs and faster speed, given that consumers can order from work or home and pick-up at their convenience. For retailers, consumers are more likely to buy additional products if they enter the store to pick up their order than if they use home delivery.15 Jill Tomeny, senior manager, fresh, Daymon Worldwide, told IDDBA stores need to look and behave differently, reimagine the face they present to their customers. This includes exploring key strategies to create these next generation stores. “Retailers need to find new ways to connect with their shoppers and deepen engagement,” she said. “They need to find ways to invest in personalization and customize both product and experience for their shoppers.”16

figure 2.10

Top 10 Retailers The world’s Top 10 retailers continue to compose a bigger share of industry sales, capturing 30.7 percent of the overall Top 250’s retail revenue in FY2016. The five largest retailers maintained their positions on the industry’s leader board in FY2016, but a combination of organic growth, acquisitions, and exchange rate volatility shuffled the rest of the Top 10. FY2016 Retail Revenue

FY2016 Retail Revenue Growth

Walmart

3,021,482

3,150,640

Costco

2,239,097

2,353,616

Kroger

1,920,797

2,209,901

Schwarz Group

392,397

427,572

Walgreens

165,324

173,852

Amazon

64,416

77,805

Home Depot

70,168

76,045

Aldi

65,962

71,843

Carrefour

70,168

76,045

CVS Health

65,962

71,843

1,355,656

4.50%

Top 10

Source: Deloitte, Global Powers of Retailing 2018, Top 10 Highlights

DOWNLOAD FIGURES ONLINE Retailers also need to take a holistic approach to fresh as a platform within the store, according to Tomeny. “The fresh-food experience is critically important and a key driver of shopper loyalty, with 60% of shoppers noting that fresh categories drive store choices,” she said. “As shoppers also like to choose their own fresh products, strong programs can also mitigate loss to online shopping.”17

Channels & Competition figure 2.11

Global Food Selling Channels Sales Summary Sales (billions)

Estimated Sales (billions)

Sales CAGR

Stores CAGR

2017

2018

2019E

2020E

2021E

14-17

18E-21E

14-17

18E-21E

North America

3,021,482

3,150,640

3,296,746

3,444,070

3,588,185

3.4%

3.5%

0.9%

0.7%

Europe

2,239,097

2,353,616

2,468,801

2,583,031

2,696,855

3.5%

3.8%

2.4%

1.5%

Asia

1,920,797

2,209,901

2,509,919

2,775,975

3,033,337

10.5%

9.6%

4.1%

2.2%

Latin America

392,397

427,572

464,475

502,635

541,839

8.1%

6.7%

3.6%

1.9%

Asia/Pacific

165,324

173,852

182,655

191,859

200,894

3.9%

4.0%

1.1%

1.0%

Central Asia

64,416

77,805

92,384

106,813

121,449

25.7%

13.5%

9.6%

3.1%

Middle East

70,168

76,045

81,652

87,158

92,490

7.9%

5.7%

5.8%

2.8%

Africa

65,962

71,843

77,888

83,947

90,272

7.6%

6.5%

2.9%

1.8%

7,939,643

8,541,274

9,174,520

9,775,489

10,365,321

5.3%

5.5%

2.5%

1.5%

Grand Total

Source: RetailNet Group LLC

figure 2.12

European Channel Sales Sales (billions)

Share of Sales

Sales CAGR

2017

2021E

2017

2021E

2014–17

18E–21E

Grocery

$723

$835

32.3%

31.0%

2.0%

Hyper/Super & Mass

$351

$433

15.7%

16.1%

Discounters

$325

$412

14.5%

Consumer Electronics

$153

$185

Home Specialists

$150

Apparel Specialists Health & Beauty

Sales Added (billions)

Share of Sales Added

2017

2021E

2014–17

18E–21E

2.9%

$70

$112

19.8%

24.5%

4.8%

4.3%

$73

$83

20.9%

18.0%

15.3%

5.1%

4.8%

$72

$87

20.4%

19.0%

6.8%

6.9%

3.2%

3.9%

$22

$32

6.3%

7.0%

$180

6.7%

3.1%

3.6%

$21

$29

6.1%

6.4%

$124

$153

5.5%

5.7%

4.8%

4.4%

$26

$29

7.4%

6.4%

$101

$124

4.5%

4.6%

4.3%

$20

$23

5.8%

5.1%

Department Stores

$67

$80

3.0%

3.1%

3.5%

$10

$13

2.7%

Cash & Carry/Club

$63

$73

2.8%

2.7%

1.3%

2.9%

$10

1.2%

2.1%

Convenience

$49

$56

2.2%

2.1%

2.5%

2.6%

1.6%

1.5%

Food Service/QSR

$45

$55

2.0%

2.1%

5.5%

4.4%

$11

3.0%

2.3%

Other Category Specialists

$45

$57

2.0%

2.1%

4.5%

5.0%

$12

2.5%

2.7%

Leisure

$44

$54

2.0%

4.2%

$10

2.3%

2.2%

$2,239

$2,697

100.0%

3.5%

3.8%

$351

$458

100.0%

Total

Source: RetailNet Group LLC

WHAT’S IN STORE | 2019 figure 2.13

Sales Growth Rate Steady at Around 2% Sales per store (millions)

17.08

17.70

17.39

2015

2016

2017

Source: Progressive Grocer Market Research, 2018

CONVENIENCE STORES Foodservice is the top reason (excluding motor fuel) consumers shop at convenience stores, as store dining increasing 13% over the past five years, according to an AlixPartners survey. Additionally, healthier items can help drive store traffic, given that 45.6% of respondents said “better-for-you” food options are important. Other report findings include: • Snacking is the most common convenience store meal (42%). • Mobile loyalty programs, self-checkout, and mobile coupons were the most important technologies. • Seventy percent would like a delivery option; 46% would prefer to order directly and 37.6% in advance.18

Grant, Euromonitor International, said convenience stores are in the process of changing their image to appeal to a more health-conscious generation of millennial consumers. Traditional highly processed snacks are giving way to a new set of cleaner label offerings, with claims such as “gluten-free,” “grassfed,” or “organic.” Products such as snack bars, drinking yogurt and meat snacks are gaining share, while traditional “big food” brands are losing share to artisanal, craft, or small-batch offerings with a gourmet or premium positioning. “While portability and grab-and-go convenience remain critical, Millennial dietary habits stand to revolutionize a 36

channel that has been anything but health-conscious in the past,” she said.19

SPECIALTY STORES O’Connor, Retail Performance Solutions, said there are a number of markets where the specialty store format is making a comeback, especially in dense suburban areas. “In some cases, they’re the types of stores we haven’t seen in 50 years, such as butcher shops,” he said. He said the challenge for these stores lies in breaking people out of their habit of shopping the same store as part of their routine, which many have been doing for most of their lives. “Amazon and other large retailers haven’t penetrated the mindset of all consumers around food and ordering food online,” he said. “So, there’s still room for a good service retailer in the right market.”20

ONLINE Forrester Research projects global online grocery sales to reach $334 billion in the next five years, double its 2017 total.21 Symmes, Kantar Consulting, said that shoppers are increasingly using online for key planning activities © 2018 International Dairy Deli Bakery Association

Channels & Competition around grocery shopping. “For example, over 50% of all shoppers use their mobile devices to build baskets, and 45% search for coupons online before making their final purchase,” she said. “These activities create new opportunities for both retailers and brands to intersect the shopper on this evolved path to purchase.”22 She said e-commerce remains a top investment with supermarkets, especially click-and-collect and thirdparty delivery services. “At this point, online grocery services are no longer a fringe capability, and even discounter operators Aldi and Lidl have launched pilot online grocery delivery via third party players such as Instacart and Shipt,” Symmes said.23 Online grocery sales are expected to more than triple in the next four years to equal $66 billion dollars by 2022, according to Symmes. “Similar to private label, omnichannel and digital are top investment priorities across food retailers to capitalize on changing shopper expectations and keep up with competition,” she said. Click-and-collect and online grocery delivery via third parties are the favored models for mainstream grocery retailers such as Kroger and Albertson’s. “The landscape remains very fragmented from a shopper loyalty perspective,” she said. “Most online grocery shoppers use multiple online grocery services, suggesting that competitive dynamics are just as, if not, more complex than traditional grocery shopping.”24 Grant, Euromonitor International, said as e-commerce continues to reshape the retail landscape, hypermarket operators are likely to slow their pace of store expansion. Outlet growth since 2014 has been significantly below historic trends, and future store growth will continue to be hampered by the expansion of internet retailing. At the same time, the average store size is expected to shrink, as retailers promote click-and-collect or ship-fromstore programs that require less sales area and more room for inventory. “Moving forward, hypermarket retailers will remain cautious with new store openings and feature smaller stores than in the past,” she said.25

Key Insight DISCOUNTER PUSHING FRESHNESS TO FOREFRONT Lidl’s entry has pushed other retailers— most notably Aldi—to up their game in fresh foods. We’re seeing increased discount presence in categories such as specialty cheese, imported deli meats, and fresh snack items. The biggest impact we’re seeing is in bakery. Lidl’s signature fresh wall of baked goods—creating an experience within the store—is something we’re seeing other retailers move to emulate. It’s also a tactic that Lidl has successfully used in Europe to create a complete shopping experience for higher income customers. Fresh bakery is a segment many grocers have stayed away from due to labors costs, and they may need to reevaluate that stance. Source: Jill Tomeny, senior manager, fresh, Daymon Worldwide

IMPACT OF ONLINE SHOPPING Neil Stern, senior partner, McMillan Doolittle LLP, told IDDBA there has been a huge impact on traditional supermarkets from online and discounters, even as the growth of specialty stores has slowed some. “Online is both a direct threat through home delivery as well as an indirect threat through subscription services,” he said. He added that while it's hard to measure the impact of the online channel directly—it still represents less than 2% of total grocery sales—it will have an enormous impact on total shopping trips.26

WHO’S SHOPPING ONLINE O’Connor, Retail Performance Solutions, told IDDBA continued on pg 38

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39

Walmart Supercenters The Kroger Co. Costco Wholesale Corp. Albertson's, LLC Ahold-Delhaize Safeway Inc. Sam's Club Publix Super Markets Inc. H-E-B Whole Foods Market Inc. Trader Joe's Co. Walmart Neighborhood Market Southeastern Grocers Meijer Inc. Aldi, Inc. BJ's Wholesale Club Inc. Giant Eagle, Inc. Hy-Vee Inc. Wegmans Food Markets Inc. Winn-Dixie Stores Inc. WinCo Foods LLC SuperTarget Harris Teeter Inc. DeMoulas Supermarkets Inc. The Save Mart Companies SUPERVALU Inc. Smart & Final Stores LLC Sprouts Farmers Markets Roundy's Supermarkets Inc. Golub Corporation Stater Bros. Holdings Inc. Ingles Markets Inc. Raley's Family of Fine Stores Weis Markets Inc. IGA Inc. Schnuck Markets Inc. Tops Markets LLC Houchens Industries Inc. K-VA-T Food Stores Inc.

STORE NAME

RANK1

3,552 3,576 746 2,323 2,063 1,269 660 1,167 378 465 474 701 734 235 1,752 215 434 266 95 518 119 251 245 79 207 217 316 285 161 136 171 199 135 207 1,036 100 178 428 132

160,430 968,945 71,918 59,700 42,946 37,000 35,233 34,000 21,101 16,030 12,860 11,649 10,976 10,468 9,512 9,262 9,180 9,121 8,490 7,340 6,980 5,601 5,420 4,740 4,620 4,593 4,342 4,046 4,035 4,030 3,950 3,862 3,320 3,137 3,100 2,578 2,319 2,298 2,266

TOTAL UNITS grocery, supermarket, supercenter, club, gourmet1

GROCERY SALES 20161 (millions)

As reported by Chain Store Guide (CSG) E

3,552 2,519 746 2,323 708 1,269 597 1,167 378 465 0 701 734 235 0 215 218 265 95 518 119 251 245 79 207 191 0 285 161 136 171 199 0 207 0 100 178 98 78

# SERVICE DELIS1

$6,161 $37,207 $2,762 $2,292 $1,649 $1,421 $1,353 $1,306 $810 $616 $494 $447 $421 $402 $365 $356 $353 $350 $326 $282 $268 $215 $208 $182 $177 $176 $167 $155 $155 $155 $152 $148 $127 $120 $119 $99 $89 $88 $87

C x 3.84%

FULL-SERVICE DELI SALES (3.84% of total)4 (millions)

$2,150 $12,984 $964 $800 $575 $496 $472 $456 $283 $215 $172 $156 $147 $140 $127 $124 $123 $122 $114 $98 $94 $75 $73 $64 $62 $62 $58 $54 $54 $54 $53 $52 $44 $42 $42 $35 $31 $31 $30

C x 1.34% $8,310 $50,191 $3,725 $3,092 $2,225 $1,917 $1,825 $1,761 $1,093 $830 $666 $603 $569 $542 $493 $480 $476 $472 $440 $380 $362 $290 $281 $246 $239 $238 $225 $210 $209 $209 $205 $200 $172 $162 $161 $134 $120 $119 $117

F+G

TOTAL SELF-SERVICE DELI SALES DELI SALES (1.34% of total)5 (5.18% of total)3

$8,310 $39,194 $3,725 $3,092 $1,141 $1,917 $1,696 $1,761 $1,093 $830 $172 $603 $569 $542 $127 $480 $300 $471 $440 $380 $362 $290 $281 $246 $239 $217 $58 $210 $209 $209 $205 $200 $179 $162 $42 $134 $120 $51 $82

J+G

ADJUSTED TOTAL DELI SALES2 (millions)

$6,161 $26,210 $2,762 $2,292 $566 $1,421 $1,224 $1,306 $810 $616 $0 $447 $421 $402 $0 $356 $177 $349 $326 $282 $268 $215 $208 $182 $177 $155 $0 $155 $155 $155 $152 $148 $135 $120 $0 $99 $89 $20 $51

(E/D) x F

ADJUSTED FULL-SERVICE DELI SALES2 (millions)

3,552 1,307 746 2,323 1,990 1,269 597 1,167 200 465 0 0 734 235 0 215 218 265 95 518 119 251 245 46 207 217 0 285 161 136 89 199 100 207 177 100 178 92 90

TOTAL IN-STORE BAKERIES1

$3,433 $20,735 $1,539 $1,278 $919 $792 $754 $728 $452 $343 $275 $249 $235 $224 $204 $198 $196 $195 $182 $157 $149 $120 $116 $101 $99 $98 $93 $87 $86 $86 $85 $83 $71 $67 $66 $55 $50 $49 $48

C x 2.14%

IN-STORE BAKERY SALES (2.14% of total)6 (millions)

$3,433 $7,579 $1,539 $1,278 $887 $792 $682 $728 $239 $343 $0 $0 $235 $224 $0 $198 $99 $194 $182 $157 $149 $120 $116 $59 $99 $98 $0 $87 $86 $86 $44 $83 $53 $67 $11 $55 $50 $11 $33

(K/D) x L

ADJUSTED TOTAL BAKERY SALES2 (millions)

$13,925 $84,104 $6,242 $5,182 $3,728 $3,212 $3,058 $2,951 $1,832 $1,391 $1,116 $1,011 $953 $909 $826 $804 $797 $792 $737 $637 $606 $486 $470 $411 $401 $399 $377 $351 $350 $350 $343 $335 $288 $272 $269 $224 $201 $199 $197

C x 8.68%

DAIRY SALES (8.68% of total)7 (millions)

CSG’s unit and total sales multiplied by avg. % of store sales per dept. as reported by Progressive Grocer

Dairy, Deli, and Bakery Estimated Sales for Top 75 Supermarket and Grocery Chains, 2017

figure 2.14

WHAT’S IN STORE | 2019

SpartanNash Company Brookshire Grocery Co. Saker ShopRite Inc. Grocery Outlet Inc. ShopRite Supermarkets Inc. The Fresh Market Inc. Big Y Foods Inc. The United Family Bashas' Inc. Gordon Food Service Store Village Supermarket Inc. Bodega Latina Corp. Fareway Stores Inc. Fiesta Mart, LLC Inserra Supermarkets Inc. Cardenas Markets LLC Lowes Foods Inc. Woodman's Food Markets Inc. Marc Glassman Inc. Coborn's Inc. Price Rite Supermarkets Northgate Gonzalez Market Inc. Super Center Concepts Inc. Lowes Pay and Save Inc. Rouses Enterprises LLC Festival Foods Redner's Markets Inc. Jerry's Enterprises Inc. Brookshire Brothers Ltd. Associated Retail Stores H Mart Vallarta Supermarkets Fairway Group Holdings Corp Lewis Food Town Inc. Dierbergs Markets Inc. Niemann Foods Inc. TOTALS

150 178 30 274 34 176 78 127 123 174 29 58 118 70 23 45 98 16 58 88 65 40 45 98 55 31 65 41 119 43 59 50 15 32 25 87 29,042

2,081 2,025 1,862 1,827 1,824 1,815 1,801 1,800 1,765 1,627 1,600 1,547 1,380 1,375 1,314 1,295 1,239 1,148 1,141 1,094 1,073 1,069 1,038 1,239 1,018 1,015 986 933 920 840 823 813 810 794 765 754 1,667,848

TOTAL UNITS grocery, supermarket, supercenter, club, gourmet1

GROCERY SALES 20161 (millions)

150 178 30 0 34 176 70 66 123 0 29 58 118 30 23 38 98 0 58 51 65 40 45 98 55 31 44 41 56 43 59 50 15 0 25 60 21,467

# SERVICE DELIS1

$80 $78 $72 $70 $70 $70 $69 $69 $68 $62 $61 $59 $53 $53 $50 $50 $48 $44 $44 $42 $41 $41 $40 $48 $39 $39 $38 $36 $35 $32 $32 $31 $31 $30 $29 $29 64,045

C x 3.84%

FULL-SERVICE DELI SALES (3.84% of total)4 (millions)

$28 $27 $25 $24 $24 $24 $24 $24 $24 $22 $21 $21 $18 $18 $18 $17 $17 $15 $15 $15 $14 $14 $14 $17 $14 $14 $13 $13 $12 $11 $11 $11 $11 $11 $10 $10 22,349

C x 1.34% $108 $105 $96 $95 $94 $94 $93 $93 $91 $84 $83 $80 $71 $71 $68 $67 $64 $59 $59 $57 $56 $55 $54 $64 $53 $53 $51 $48 $48 $44 $43 $42 $42 $41 $40 $39 86,395

F+G

SELF-SERVICE TOTAL DELI SALES DELI SALES (1.34% of total)5 (5.18% of total)3

$108 $105 $96 $24 $94 $94 $86 $60 $91 $22 $83 $80 $71 $41 $68 $59 $64 $15 $59 $39 $56 $55 $54 $64 $53 $53 $39 $48 $29 $44 $43 $42 $42 $11 $40 $30 72,403

J+G

ADJUSTED TOTAL DELI SALES2 (millions)

$80 $78 $72 $0 $70 $70 $62 $36 $68 $0 $61 $59 $53 $23 $50 $42 $48 $0 $44 $24 $41 $41 $40 $48 $39 $39 $26 $36 $17 $32 $32 $31 $31 $0 $29 $20 50,053

(E/D) x F

ADJUSTED FULL-SERVICE DELI SALES2 (millions)

150 148 30 62 34 99 72 92 123 0 5 58 0 34 23 45 98 16 0 15 0 40 45 98 55 31 39 26 56 43 11 50 15 0 25 35 20,468

TOTAL IN-STORE BAKERIES1

$45 $43 $40 $39 $39 $39 $39 $39 $38 $35 $34 $33 $30 $29 $28 $28 $27 $25 $24 $23 $23 $23 $22 $27 $22 $22 $21 $20 $20 $18 $18 $17 $17 $17 $16 $16 35,692

C x 2.14%

IN-STORE BAKERY SALES (2.14% of total)6 (millions)

$45 $36 $40 $9 $39 $22 $36 $28 $38 $0 $6 $33 $0 $14 $28 $28 $27 $25 $0 $4 $0 $23 $22 $27 $22 $22 $13 $13 $9 $18 $3 $17 $17 $0 $16 $6 20,778

(K/D) x L

ADJUSTED TOTAL BAKERY SALES2 (millions)

$181 $176 $162 $159 $158 $158 $156 $156 $153 $141 $139 $134 $120 $119 $114 $112 $108 $100 $99 $95 $93 $93 $90 $108 $88 $88 $86 $81 $80 $73 $71 $71 $70 $69 $66 $65 144,769

C x 8.68%

DAIRY SALES (8.68% of total)7 (millions)

CSG’s unit and total sales multiplied by avg. % of store sales per dept. as reported by Progressive Grocer

Directory of Supermarket, Grocery & Convenience Store Chains,Chain Store Guide, 2017 All Adjusted Sales figures are prorated based on the ratio of stores with service departments to total stores. Total deli sales based on Progressive Grocer’s 70th Annual Consumer Expenditures Study – full-service deli sales 3.84% + self-service deli sales 1.34% = 5.18% of total supermarket sales. 4 Full-service deli sales based on Progressive Grocer’s 70th Annual Consumer Expenditures Study – 3.84% of total supermarket sales. 5 Self-service deli sales based on Progressive Grocer’s 70th Annual Consumer Expenditures Study – 1.34% of total supermarket sales. 6 In-store bakery sales based on Progressive Grocer’s 70th Annual Consumer Expenditures Study – 2.14% of total supermarket sales. 7 Dairy sales based on Progressive Grocer’s 70th Annual Consumer Expenditures Study – 8.68% of total supermarket sales.

40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75

STORE NAME

RANK1

As reported by Chain Store Guide (CSG)

Channels & Competition

WHAT’S IN STORE | 2019 figure 2.15

Fresh Continues to Show Growth Produce

3.3

2.1

Deli Prepared

2.6

Bakery

1.9

Deli Meat

1.7

Deli Cheese

$66,082,076,172

2017

Meat

Seafood

$63,960,358,740

2016

$48,643,344,707

$49,644,509,978

$11,433,400,776

$11,732,563,424

$6,476,922,359

$6,602,520,042

$6,354,699,303

2.2% 0.9%

$6,462,368,359

$4,707,827,012 $4,810,260,155

$2,813,396,181 $2,839,904,344

Source: IRI/FreshLook Marketing, 52wks ending 12/31/2017

Channels & Competition

“Individuals are choosing to do other things with their time. That doesn’t mean that all consumers have no interest in food or preparing it; they just want to source it through alternative channels.” Scott Allmendinger, director of consulting, Culinary Institute of America it’s not only shoppers with higher incomes who are making purchases online and having them delivered. “More consumers with lower incomes are using it, as they may not have transportation to take them to the store, require mass transit, or have physical limitations,” he said. “In most instances, the delivery fee is nominal, which makes this type of service appealing to all shoppers, regardless of their income level.”27 An IRI study shows an upward trend in online shopping trips, driven by increased frequency from Millennial shoppers. In fourth quarter 2017, 28% of consumers said they purchased groceries online, up from 23% in first quarter of 2016. Other report findings include: • Thirty percent of Millennials and 26% of Gen Xers shop online for lower-priced food and beverages, compared to 20% of overall consumers.

Key Insight ECONOMICS PLAY BIG ROLE IN E-COMMERCE ADOPTION There is a huge press to drive adoption of e-commerce, but there is an underlying economics issue of the last mile. We’re seeing lots of efforts to drive more efficiency by services like Instacart and Shipt, as well as getting customers to pick up in store though click and collect technology. But, the battle is now for immediacy--how do I get products to customers faster. We will also see services like scan-and-go and mobile checkout become more ubiquitous. Source: Neil Stern, senior partner, McMillanDoolittle

Key Insight WHAT DRIVES ONLINE SHOPPING? Product assortment is a major factor in the success of an online shopping program. The group found that only around 65% of in-store product assortment is available online, while certain product categories— such as frozen waffles and beer—are better represented than others, like nuts and seeds. Additionally, availability of manufacturers’ products may be smaller than private label. Source: Brick Meets Click

• More than half of Millennials and Gen Xers said in-store pickup provides more convenience without the added delivery fee (compared to 36% of Boomers and 25% of seniors).

WHAT’S IN STORE | 2019

Online Grocery Shopping: The Fresh Factor Online grocery sales have been increasing since 2012, but they do not seem to be replacing trips to brick-and-mortar stores.

Among primary shoppers, only

Among consumers with no online orders in the past 3 months,

Among online shoppers, only

say they don’t want to buy fresh produce, meat or seafood online.

say that online grocery shopping is better for selection of fresh products.

8 33 7 %

shopped for groceries online in the past 7 days.

Source: Food Shopping in American 2017, The Hartman Group

• Sixty-three percent of Millennials and 61% of Gen Xers said they would switch brands if they read favorable reviews of them (compared to 40% of Boomers and 30% of seniors). • 58% of Millennials said online purchasing with free delivery is important when selecting a channel to shop; 45% of Millennials cited online ordering with fast delivery.28

Four in 10 online customers shop at more than one online grocery, while more than 60% of Americans who currently to do not shop for groceries online said they were open to it, according to new research from RichRelevance. Other findings include: • Amazon remains the top online grocer, attracting twice as many shoppers as traditional supermarkets and big box retailers and four times as many as wholesale clubs. • More than half of Americans have yet to shop online for any grocery product. • Sixty-two percent of consumers spend less online than in the physical store, and 39% said fewer impulse purchases was the biggest advantage of shopping online. • Top online features that would push more purchases include: frequently-bought items (56%), favorites (56%), alternatives to complete a meal (50%), and personalized apps/pages (37%).29 42

MEAL KITS Citing Packaged Facts data, Jill Tomeny, senior manager of fresh category, Daymon Worldwide, told attendees at the 2018 Annual Meat Conference that sales of online meal kits reached $4.7 billion in 2017, a 210% increase from 2016. Sales potentially could reach $25 billion by 2026, assuming an attainable 20% increase, according to Tomeny. She added that meal-kit subscribers are more likely to buy antibiotic-free meat and poultry (97% versus 70% of all shoppers) and grass-fed products (97% versus 64% of all shoppers). This is indicative of meal kits’ appeal to consumers who proactively read labels and who purchase high quality products.30 However, Scott Allmendinger, director of consulting, Culinary Institute of America, has a different view. He feels that the meal kit trend has peaked or will soon peak, as it has limited upside in terms of price, the amount of trash it produces, and the amount of cooking and clean-up.31 He went on to say, however, that the trend toward prepared food options and alternative dining choices will continue to grow, as consumer lifestyle patterns continue to evolve.32 © 2018 International Dairy Deli Bakery Association

Channels & Competition

“Over 50% of all shoppers use their mobile devices to build baskets, and 45% search for coupons online before making their final purchase. These activities create new opportunities for both retailers and brands to intersect the shopper on this evolved path to purchase.” Elley Symmes,senior analyst, grocery, Kantar Consulting

LOWER INTEREST IN COOKING DRIVING ALTERNATIVE MEAL OPTIONS figure 2.16

Online Meal Kit Sales Up 210%

4.70 BILLION

A recent Nielsen report found despite the notion that Millennials are always the first to embrace new innovations, that it’s not always true when it comes to emerging food and beverage options. In terms of meal kit sales, 11% of 18-34-year-olds purchased a meal kit in the past six months, compared to 51% of Generation X (aged 35-54) consumers.34

1.50 BILLION

2016

“One factor driving this trend is that generations are no longer being taught how to cook. Some don’t have time to cook, and some don’t have an interest in cooking,” he said. “Individuals are choosing to do other things with their time. That doesn’t mean that all consumers have no interest in food or preparing it; they just want to source it through alternative channels. Millennials and Gen Z are spending a greater share of their disposable income on food that past generations.”33

2017

Source: Packaged Facts

WHAT’S IN STORE | 2019 figure 2.17

Gen X Consumers Accounted for 51% of Meal Kit Spending in 2017 All age groups are experimenting with new ways to purchase food consumed at home DIGITAL MEAL ORDER & DELIVERY

E-GROCERY

MEAL KIT PROVIDERS

46%

33%

35%

Gen X 35–54

43%

52%

51%

Boomers 55+

12%

14%

Millennials 18–34

Source: Nielsen Buyer Insights; average US monthly share of total category credit and debit card spending from April 2016-March 2017 to account for seasonality. Percentages may not total 100% due to rounding.

Channels & Competition

Key Insight ‘DINING IN IS THE NEW DINING OUT’ One of the trends that could have a tremendous impact on the industry is “dining in is the new dining out.” Movement. In essence, individuals being able to enjoy a restaurant meal in their own home when they want to. This segment includes restaurant delivery, including services that will deliver on behalf of restaurants; meal kits; and prepared foods at retail. This trend coincides with the population movement from the suburbs and rural areas back to the center of cities. It’s spurring continued growth of ready-to-eat, ready-to-heat, or ready-to-assemble types of food. It’s probably a $100 billion segment right now. It’s a trend that’s headed in the retail direction, and there’s tremendous potential to capitalize on it. Source: Scott Allmendinger, director of consulting, Culinary Institute of America

WHAT’S IN STORE | 2019

Gen X has the highest level of brand loyalty

70 % 48 %

with

being passionate about their favorite

grocery brands according to Acosta.

Chapter 3

CONSUMER LIFESTYLES 50 / Modern Family

52 / Generations

57 / Demographics

WHAT’S IN STORE | 2019

IDDBA Trends Through it’s What’s In Store research, IDDBA has identified three key trends impacting consumer shopping and purchasing, which, when analyzed separately and together, could provide innovative solutions to retailers looking to capitalize on the changing demographics of today’s shopper. 1. GROWING MULTICULTURAL DIVERSITY in today’s society. Almost 45% of Millennials identify as ethnic or multicultural, making the generation the most diverse in US history. Represented by an even larger percentage of individuals (over 50%) who identify as ethnic or multicultural is Gen Z, who is projected to make up almost 25% of the population by 2020. The result is a blurring of the lines separating ethnic consumer demographics, with food purchasing decisions no longer based on their lineage or familial customs. While certain cuisine, tastes, and flavors may originate from the culinary traditions of specific cultures, they’re much less likely to be viewed in those terms. For example, today’s consumers are less likely to say they’re going out or cooking a certain style of food (Mexican, Thai, Chinese) and instead refer to the specific dish (tacos, Pad Thai, Kung Pao chicken).

2. HOUSEHOLD SIZE On one hand, households with only one or two residents represent two-thirds of all US households. However, the Hispanic-American population continues to grow, and this demographic tends to shop more frequently (and more likely to shop with family and friends) and are more likely to eat dinners at home, compared to non-Hispanics. 3. SIMILARITIES BETWEEN OLDER

MILLENNIALS AND OTHER GENERATIONS, revealing that despite different buying and eating habits, this generation is showing traits similar to other generations once they enter a new life stage, such as getting married and having children. Just like generations before them, older Millennials are preparing more meals at home and are purchasing brands and products that their parents bought; health and wellness is also becoming more important to older Millennials, as it is for Boomer and Generation X. Life stage, rather than generation, appears to play as important of a role in consumer shopping patterns.

What does this mean for retailers? When retailers consider their product assortment and marketing messaging, both household size and multiculturalism will play a larger role in defining the target shopper. There is an opportunity here to tailor messaging for multiple generations and multiple shoppers within a single household. Leveraging current omnichannel capacities to experiment with driving different kinds of traffic will also increase opportunity to appeal to a wider segment of shoppers across retail brands and banners.

Additionally, looking beyond single demographic measures is imperative. To that end, we have identified three consumer groups to consider at the end of this chapter. It is by no means a comprehensive list but will start to frame the conversation in a way that takes into account multiple factors but still traditionally defines a shopping segment. .

Consumer Lifestyles figure 3.1

Food Expenditures as a Share of Disposable Personal Income (total income minus taxes)

19.0%

TRILLION DISPOSABLE INCOME

Between 1954 and 2014, disposable personal income in the US (total income minus taxes) has increased. At the same time, the proportion spent on food has decreased—both at home (5.48%) and away from home (4.26%).

SPENT ON FOOD

12.9

264

BILLION DISPOSABLE INCOME

9.7%

SPENT ON FOOD 1954

2014

Source: USDA Economic Research Service

figure 3.2

figure 3.3

Expenditures for Food, 2007–2016

At Home Food Expenditures Per Household, 2011–2016

EXPENDITURES (billions)

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

2011

% OF TOTAL

Total Food

Food-at-Home

Food-Awayfrom-Home

Home

Away

$737.01

$416.39

$320.62

55.9%

44.1%

$778.12

$452.16

$325.84

56.5%

43.5%

$770.04

$453.54

$316.50

58.1%

41.9%

$742.26

$438.89

$303.37

58.9%

41.1%

$789.73

$469.34

$320.39

59.4%

40.6%

$821.02

$487.84

$333.19

59.4%

40.6%

$829.67

$499.79

$329.88

60.2%

39.8%

$858.43

$504.34

$353.97

58.8%

41.2%

$902.01

$515.67

$386.34

57.2%

42.8%

$933.14

$524.54

$408.60

56.2%

43.8%

2016

At-Home % of At-Home % of Total At-Home Total Total At-Home Total Other food at home Meats, poultry, fish, and eggs Fruits and vegetables Cereals and bakery products Dairy products Food-at-home expenditures per household per year Food-away-from-home expenditures per household per year

$1,353

21.0%

$1,442

20.0%

$832

12.9%

$890

12.4%

$715

11.1%

$783

10.9%

$531

8.2%

$524

7.3%

$407

6.3%

$410

5.7%

$3,838

$4,049

$2,620

$3,154

Source: Consumer Expenditure Survey, Bureau of Labor Statistics

WHAT’S IN STORE | 2019

MODERN FAMILY Citing data from the US Census Bureau, Colin Stewart, senior vice president, Acosta Sales & Marketing, told IDDBA there are two key areas of demographic shifts happening in the United States: • The configuration of US households. In 1970, single-person households comprised 17% of the population; in 2016, that number was 41%. Driving these demographic shifts are declines in birth rates and the aging Baby Boomer population. • The changing racial and cultural diversity of the US population. The Silent Generation is 80% White/ Caucasian, compared to the US population under age 18 where only about half of this population is White/ Caucasian. Driving this shift are Americans who identify as Hispanic (25% of the US population under age 18) and multi-racial (6% of those under age 18).1

YOUNGER GENERATIONS MORE DIVERSE Supporting the notion that it’s increasingly important for retailers to look beyond demographics, 46% of Gen Z shoppers (ages 18-21) are non-white, compared to 21% of shoppers ages 75 and older, as reported in Acosta Sales & Marketing The Why Behind the Buy 14th Edition. This trend is most reflected in overall

figure 3.4

Per Capita Food Expenditures At Home 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Away From Home

Total

$1,853

$1,716

$3,569

$1,894

$1,814

$3,709

$1,972

$1,892

$3,864

$2,046

$1,928

$3,974

$2,022

$1,896

$3,918

$2,060

$1,944

$4,004

$2,148

$2,038

$4,186

$2,206

$2,130

$4,336

$2,242

$2,204

$4,446

$2,282

$2,293

$4,575

Source: USDA Economic Research Service

population growth in the United States, as non-white individuals will represent 89% of new population between 2010 and 2020.2

HOUSEHOLD SIZE DICTATES SHOPPER PREFERENCES Matt Lally, Nielsen Fresh, told IDDBA that many simultaneous changes are impacting the who, what, where, and how Americans shop today. In terms of households, he recommends focusing on the core shopper within a household. “It’s important that both retailers and manufacturers assess where the greatest opportunity exists with their particular shopper base,” he said. “For example, in urban centers with a higher density of young, smaller households who place a high value on convenience, retailers are implementing grocerants to attract these shoppers with high-quality prepared foods. More recently, the growing demand for pre-portioned meal kits has inspired retailers across the board to develop their own offerings in-store.”3 He added that smaller households and convenience are also blending together in product innovation. “Items such as individually wrapped cheese chunks are perfect for on-the-go, or for the single-person household,” he continued. Lally also noted that even though the in-store bakery often specializes in special occasions and gatherings, there is a continuing trend toward smaller portions there, too. “In the bakery,” he said, “items such as half loaves of breads are lining shelves to complement the bulk bins.”4 In addition to considering urban versus suburban, 2016 marked the tipping point year where more households are sharing the grocery shopping responsibility rather than having one singular, primary shopper- six of 10 households (58%) identify themselves as co-shopper households. Going further, one-third of co-shopping households define themselves as having an even 50/50 split of grocery shopping duties. With millennials more strongly identifying as co-shoppers compared with older generations, the shared shopping trend is most likely here to stay. Interestingly, the increase in © 2018 International Dairy Deli Bakery Association

Consumer Lifestyles

Key Insight FIVE GENERATIONS OF CONSUMERS WHO SHOP THE FRESH PERIMETER GEN Z (AGES 18-21) • Tech-savvy, 95% own smartphones. • The most multicultural generation, with a desire to experience authentic global food. • They don’t do the shopping yet; 33% do half or less of the grocery shopping for their households. • They think about their food choices, with more than one-third of their basket containing organic products. • They have the smallest spend of any generation, as 45% of them are students. MILLENNIALS (AGES 22-36) • Less loyal, with 48% stating they will switch brands when they find better deals; 45% like telling family and friends about their experiences with brands. • Price matters, as 57% compare the price-perounce on tags; 61% select products to create more meals for the lowest cost.

• Despite growing up before the Internet, they have embraced digital grocery marketing while continuing to use traditional marketing like coupons. • They’re adventurous, with 60% checking out new items in the store. • They spend more on natural and free-from products. BABY BOOMERS (AGES 53-71) • Despite dependence on traditional media and preference for shopping in brick-and-mortar stores, they are technology-capable. • They’re downsizing their homes but continuing to spend big on groceries. • Like Gen X, they’re brand loyal, with 82% purchasing the same brands as last year. • They want to “feel young” and need the support of a healthful diet. • They’re adding pets to their empty nests.

• Transparency, health, and freshness is important, with six in 10 stating that they usually look at a product label or packaging before buying; 48% consume healthy foods even if they cost more.

• As a generation, they spend the most per person on monthly groceries.

• Speed and convenience drive purchasing behavior, with 58% trying to do their shopping as quickly as possible.

• Good value is an important consideration, as this generation focuses on value and subscribes to a “waste not, want not” philosophy.

• Millennial parents spend an average of $360 per month on groceries, over $100 more than Millennials without children.

• Assistance from in-store associates is important to this generation.

GEN X (AGES 37-52) • They spend more, accounting for 31% of consumer spending and averaging $380 monthly on groceries. • They have the highest brand loyalty (70%), with 48% being passionate about their favorite grocery brands.

SILENT SHOPPERS (AGES 72+)

• Easier-to-read signage and better aisle navigation within stores are important. • Packaging modifications could benefit them, such as smaller count options and more legible typefaces. Source: Acosta Sales & Marketing, The Why Behind the Buy, 14th Edition

WHAT’S IN STORE | 2019 figure 3.5

Price Is Biggest Motivator For Shoppers

PRICE

of shoppers visit more than one retailer for groceries each week.

QUALITY

AVAILABILITY

CONVENIENCE

Some products are priced lower at certain retailers

Some retailers carry better quality products in certain categories

Not all products/brands are available at the one retailer

I vary where I shop by where I am (ex. On the way home from work)

60%

41%

33%

23%

Source: Acosta Custom Survey, Fall 2017

number of people contributing to the shopping also increases overall grocery spending by household.5

DOWNLOAD FIGURES ONLINE

INCOMES NOT KEEPING PACE

SILENT GENERATION

While household income rose for the second year in a row in 2016, income levels have not returned to pre-2007 levels, as reported in Fortune. 2016 median household income in the United States stood at $59,039, lower than in 2007 ($59,992) and 2000 ($60,399). Income gains the past two years are mostly attributable to rising employment levels and more combined paychecks in each household, rather than earnings growth.6

Although the Silent Generation is decreasing in size, they are still spending an average $287 per month on groceries, which is the highest amount per month when looking at individual costs of any generation. They also spend the least amount going out to eat at restaurants and so rely on grocery for more of their food needs. They tend to be highly engaged with more traditional coupon channels with 9 out of 10 reporting coupon usage when asked about their purchases in a month’s time.

GENERATIONS

BABY BOOMERS

For the first time in history, the United States has five generations of shoppers sharing buying power at the grocery store.

Comprising 50% of all consumption in the United States, Baby Boomers are the fastest growing consumer segment and have the highest level of discretionary income, according to Marshal Cohen, chief industry analyst, The NPD Group. Boomers are Continued on p. 55

Consumer Lifestyles figure 3.6

Diverse Shopping Patterns Across Generations Shopping trips per household

Basket ring $ per household

100 123 146 149

Millennials Gen X Boomers Greatest Gen

Basket ring $ per trip

% Dollars on deal*

$57 $55 $46 $40

$5,720 $6,750 $6,769 $6,023

20% 22% 24% 23%

Source: Nielsen Homescan, Total U.S. 52 weeks ending 12/30/2017, excludes gas only or Rx only trips UPC-coded & non-UPC-coded items *% Dollars on Deal is UPC only

figure 3.7

Strong Beliefs and Preferences Among Consumers Aged 20-29 59% 54% 44% 38%

16%

13%

Age 20-29 All Respondents

I feel I can make a difference to the world through my choices and actions

I prefer to spend my money on experiences, rather than things

I prefer food that does not contain animal products

I like to spend time with parents

Source: Euromonitor International Global Consumer Trends Survey 2017

WHAT’S IN STORE | 2019 figure 3.8

Percent of At-Home Food Expenditures Devoted to Prepared Foods, Pasta, and Sugar and Candies

13.6%

Millennials (born between 1981-1996)

12.4%

11.5%

Gen Xers (born between 1965-1980

Baby Boomers (born between 1946-1964)

11.2%

Traditionalists (born before 1946)

Source: Annemarie Kuhns and Michelle Saksena of USDA Economic Research Service, "Millennials Devote Larger Shares of Their Grocery Spending to Prepared Foods, Pasta, and Sugar and Sweets Than Other Generations," Executive Summary, Dec. 29, 2017, https://www.ers.usda.gov/amber-waves/ Souce: US Census Bureau

Key Insight XENNIALS: THE ‘IN-BETWEEN’ GENERATION Wedged between Generation X and Millennials, Xennials are a micro-generation born between 1977 and 1983, this generation is hailed for its grasp of social media, despite having an “analog” childhood. They also exhibit the optimism of Millennials, along with the cynicism of Generation X. Stewart, Acosta Sales & Marketing, said this demographic represents 8% of the US population and, on average, has a larger number of children in the household than the overall Millennial population. “Xennials are family centered consumers who are spending significantly more than Millennials and at the same level of Gen X shoppers,” he said.8 Stewart said that Xennials will use every avenue necessary to get a deal or best bang-for-their-

buck, and take that into account when deciding where to shop and what to purchase. “They love sweepstakes and loyalty cards/reward programs and are big time users of digital coupons,” he said.9 Stewart shared with IDDBA some ideas for attracting this small but influential group: • Give them bang for their buck: 82% of Xennials are influenced to enter a store by deals, rewards, and competitive pricing. • Give them incentive to try your products: 66% of Xennials would purchase a brand if they were provided a sample, offered a deal, or sent a coupon.10

Colin Stewart, senior vice president, Acosta Sales and Marketing

Consumer Lifestyles defying age precepts, living healthier lives with higher levels of disposable incomes. Overall, Boomers: • Are growing as a group: they currently make up 28% of the US population, compared to 21% in 2000. • Are in good health and active: they are living and working longer, with many working well into their 60s and 70s. • Are prosperous: Their careers grew in the economic expansion of the 1970s and 1980s, while the bull market of the 1980s and 1990s contributed to their net worth.7 • Are still very loyal: 82% reported buying the same brands as they did the previous year and 93% still shopping at the same grocery store.

GEN X

when asked about shopping over the past month. Notably, this generation is particularly open to new trends in cooking and eating and report high levels of interest in new items and offerings at the grocery store. Gen X continues to as loyal, if not slightly more, than their Baby Boomer parents, with 48% reporting they care about their favorite brands.

MILLENNIALS Millennials consume food at restaurants and bars 30% more often than older generations, reducing the number of trips made to retailers as their per capita income rises, according to a United States Department of Agriculture (USDA) study. The generation spends the smallest amount of their food dollar on grains, white meat, and red meat;

This generation still has buying power to exertspending an average of $380 a month on groceries as a household. They are highly engaged with digital70% report redeeming a digital or mobile coupon

DOWNLOAD FIGURES ONLINE

figure 3.9

Xennials are Family Centered Consumers Who are Spending Significantly More than Millennials and to the Capacity of Gen X Shoppers % Spending More on a Routine Shopping Trip Than Last Year

18% MILLENNIALS

23%

22%

XENNIALS

GEN X

(older millenails with families typically from the late 1970s to the early 1980s)

298.16

Spent Monthly

348.69

Spent Monthly

380.42 Spent Monthly

Source: WBTB August 2017 Study

WHAT’S IN STORE | 2019 figure 3.10

Xennials are Bargain Hunters Who Hunt for Deals in Every Space (Digital Tools) % Important/Extremely Important

Millenials (22–36)

Xennials (34–40)

Gen X (37–52)

Load a coupon onto your shopper card from a website

46%

52%

35%

Visit a store's website to learn about deals

45%

52%

37%

Print online coupons

44%

52%

39%

Read/review a store's digital flyer/circular

43%

52%

37%

Use a Search Engine (Google, Bing, Yahoo) to find recipes online

42%

48%

33%

Open/read an email from a retailer/store

41%

50%

31%

Use a mobile application to make your shopping list

41%

48%

27%

Open/read an email from a brand

39%

47%

27%

Use a Search Engine (Google, Bing, Yahoo) to find brand/manufacturer coupons online

39%

46%

31%

Use a website to make your shopping list

38%

44%

26%

Read the ads/banners on internet pages

37%

44%

24%

Participate in a sweepstakes/contest online

36%

43%

25%

Participate in a sweepstakes/contest on a mobile phone

34%

40%

21%

Source: Acosta Custom Shopper Panel N=905/WBTB August 2017 Study N=3,684

figure 3.11

Recommendations and In-store Store Marketing Tools are Very Important and Impactful for Brand Purchases Impact of Various Marketing Tools on Purchase (% Often/Sometimes)

Millenials (22–36)

Xennials (34–40)

Gen X (37–52)

End-of-Aisle Display

68%

71%

66%

Store Flyers

69%

78%

79%

In-Aisle Displays

74%

78%

69%

Checkout Displays

59%

62%

52%

On-Shelf Coupons

71%

77%

68%

I often choose my shopping destination based on grocery store circulars

23%

28%

24%

I make my shopping list based on the grocery store circular

32%

40%

32%

If it is a brand I use, the grocery store circular will often prompt me to buy when it's…

32%

40%

41%

Source: Acosta Custom Shopper Panel N=905/WBTB August 2017 Study N=3,684

DOWNLOAD FIGURES ONLINE 56

Consumer Lifestyles proportionately, they purchase more prepared foods, pasta, and sugar/sweets than older generations.11 Additionally, the USDA report found Millennials spend 55 fewer minutes than Generation X (143 minutes) in weekly food preparation, presentation, and cleanup at home; they also reported purchasing prepared food within the prior seven days.12

figure 3.12

Following the Millennial Shoppers, Gen Z Shoppers are Making More Trips to the Store In an average month, about how many of each of the following types of shopping trips do you make?

GEN Z According to a study by Y-Pulse, five traits of Gen Z that the food industry should be aware of are: • They seek both new cuisine and comfort foods, with 71% stating they like trying new dishes and flavors at restaurants and 91% saying they enjoy ordering food they’re familiar with. • Community is important when dining. Sixty-six percent say they enjoy restaurants that offer shareable food and 76% state they like to hang out with friends when dining out. • Food media influences them. Fifty-six percent say they enjoy watching The Food Network, and 52% say they like watching “Tasty” style videos on Facebook and Instagram. • Perceptions of healthy food are influencers. Forty percent say that snacks offered in school vending machines are healthy. • They’re independent when it comes to food choices. Fifty-eight percent state they like to cook for themselves and 50% state they like to get snacks from the convenience store.13

DEMOGRAPHICS Matt Lally, associate director, Nielsen Fresh, said it’s increasingly important for retailers and manufacturers to think beyond demographics or isolated groups. “There’s so much diversity, polarization, and exposure, and we’re just a much more dynamic population with insights that we didn’t previously have access to,” he said. “What this means is that you uncover very different insights when you layer multiple demographics on top of one another.” He gave as an example multicultural Millennials, who shop very differently from their parents. “If you look at just generation or ethnicity by themselves, it’s not © 2018 International Dairy Deli Bakery Association

Last Minute

Fill-In Stock-Up

Routine

14.3 3.5 3.8 2.9 4.1 Total US Shoppers

17.1 17.2 4.5

4.1

4.4

4.3

3.7

4.5

4.7

Gen Z Shoppers (18-21)

Millennial Shoppers (22-36)

Significantly higher than Total US Shoppers at 95% confidence level Source: Acosta, The Why? Behind the Buy, fall 2017

going to give the full picture of what a multicultural Millennial shopper looks like,” he said.14 Despite the need for retailers to look beyond consumer demographics, it is still important to examine the growing spending power and product preferences of demographic groups in the United States. To that end, we have identified 3 groups that have the potential to continue to increase their grocery spend and are worthy of both retailer and manufacturer consideration.

HISPANIC AMERICAN FAMILIES With projected spending power of $2 trillion by 2024, Hispanic American shoppers are some of the most valuable grocery shoppers for many reasons, 57

WHAT’S IN STORE | 2019 according to Acosta Sales and Marketing:

Key Insight

• They often shop with their families.

ENGAGING SHOPPERS THROUGH TECHNOLOGY: BOOMER VS. MILLENNIAL

• And they are engaged with digital grocery tools.15

Brick-and-mortar retailers wishing to connect with consumers through mobile apps should understand the shopping preferences of generational demographics, as Baby Boomers and Millennials differ in terms of app usage. A global study conducted by Aruba, a Hewlett Packard Enterprise Company, found: • 66% of Millennials are more likely to shop at stores with loyalty program apps, versus 33.3% of Boomers, who favor price (40.7% versus 22.5%). • Reasons to download a retailer app: MILLENNIAL » Parking spot locator. » Product availability and comparison. » Digital payment option. BOOMER » Product availability and comparison. » Locate a salesperson. » Obtain special incentives or coupons. • 62% of Millennials use retail apps one to five times a week, compared to 48.2% of Boomers; 13.5% of Millennials use the apps more than 10 times weekly, compared to zero Boomers. • Almost 54% of Millennials prefer to use an app versus a sales associate when searching for products in-store; 44.4% of Boomers said the same. Mobile ordering apps are the most popular retail apps among Millennials (55.1% vs. 33.3% for Boomers); Boomers’ top choice are grocery and convenience store apps (40.7% vs. 18% for Millennials). Source: Pavel Radda, “Five Things Retailers Need to Know About Millennials and Baby Boomers,” Chain Store Age

• They show a strong interest in exploring new products.

Colin Stewart, senior vice president, business intelligence, Acosta Sales & Marketing, said many Hispanic American shoppers view shopping as a social experience, with seven in 10 shopping with another person; for consumers that have children, it’s nine in 10. “And this behavior is not just seen in ‘older’ Hispanic Shoppers, but in younger Hispanic Millennials also grocery shopping with others,” he said. “This compares to the four in 10 total US shoppers who grocery shop alone.”16 Stewart said Hispanic American shoppers are significantly more likely to: • Try new flavors and products, • Be among the first of their friends and family to try new items, • Buy grocery brands that are authentic to their heritage. “Four in 10 Hispanic American shoppers also indicated that they want to take cooking classes to learn how to prepare new dishes,” he said. “This strong engagement with food likely impacts their enjoyment of grocery shopping.”17

Other findings Stewart shared with IDDBA include: • Hispanic American shoppers live in larger households: 69% live in a household comprised of four or more people. • They are educated: 59% have some college experience or attended college for four or more years. • They were mostly born in the United States: 62% are US-born, while 38% are foreign-born. • They shop across more channels than other US shoppers: 30% of Hispanic Millennials shop at Hispanic/ ethnic grocery stores, just as past generations of this demographic have. • They are technologically proficient: 54% say they use technology to make their lives easier, 48% get recipe ideas online, and 43% are comfortable using digital/online tools to assist with grocery shopping.18

Consumer Lifestyles figure 3.13

Key Insight It’s important that manufacturers and retailers do not think about demographics in silos. The American population is more polarized, blended, and exposed (to different cultures and cuisines) than ever, which means that cohorts are more dynamic than ever. A multi-cultural millennial often shops very differently from their parents. Many cuisines and tastes are also converging as social media, restaurants, and travel have all expanded the average American palate, which means catering to just Asian American or Hispanic American households no longer works as food choices increasingly blend together across ethnicities.

Using Mobile Technology While Shopping % Shoppers indicating the digital behavior was extremely or very important when grocery shopping BOOMERS

MILLENNIALS

Compare prices

21%

43%

Use a mobile coupon

14%

40%

Send or receive a text with family

10%

36%

Mobile shopping list

11%

40%

Look up products health/nutrition information

10%

36%

Locate products in the store

35%

Matt Lally, associate director, Nielsen Fresh

ASIAN AMERICAN WOMEN With a global perspective and multicultural sensibility, Asian American women are quickly becoming an important consumer demographic whose shopping patterns are impacting brands and products, according to Nielsen. This group—with an average age of 36—is overwhelmingly multilingual and diverse; they also practice a cross-cultural lifestyle, one rooted in the values and traditions of their countries of origin. Asian American women: • Are conscious of their food purchases 78% prefer to cook with fresh food, 71% try to buy locally grown food, and 50% regularly eat organic food. • Enjoy cooking 81% say they cook meals frequently, 64% would rather cook a meal at home than eat in a restaurant, 72% enjoy being creative in the kitchen, and 62% plan dinners ahead of time. • Are price-conscious they shop at warehouse and club stores 26% more than non-Hispanic White women.

Source: Acosta, The Why Behind the Buy, fall 2017

WHAT’S IN STORE | 2019 figure 3.14

People Identifying as Two or More Races Will Double by 2060

198,103

Population

181,930

103,384

59,693 48,837

42,039

38,965 26,022

17,083 3,957 2014 2060 Hispanic

White

Black or African American

5,607

Native American

734 Asian

1,194

Native Hawiian or Other Pacific Islander

7,995

Two or More Races

Source: Race and Hispanic Origin by Selected Age Groups: Main Projections Series for the United States, 2017-2060. US Census Bureau, Population Division: Washington, DC.

figure 3.15

Bigger Baskets, More Revenue Shopping trips per household White

127 128 125

% spent on deal*

Basket ring $ per trip

$6,436 142

Black Asian Hispanic (any race)

Basket ring $ per household $6,043

$51 $43

$6,223 $6,738

23% 20%

$49 $54

27% 20%

Blacks shop more often; Hispanics spend more per trip; Asians are deal prone Source: Nielsen Homescan, Total U.S. 52 weeks ending 12/30/2017, excludes gas only or Rx only trips UPC-coded & non-UPC-coded items *% Dollars on Deal is UPC only

Consumer Lifestyles

Key Insight HOW RETAILERS CAN CONNECT WITH HISPANIC AMERICAN SHOPPERS WIDE VARIETY AND STORE EXPERIENCES Hispanic shoppers’ grocery spending, trip frequency, and channel surfing indicate that retailers need to deliver an engaging mix of products they regularly buy (including brands that are authentic to their heritage), at competitive pricing, while also creating a positive in-store experience for the shopper and their family members that shop along with them FOCUS ON FOOD EXPLORATION Hispanic shoppers enjoy food and new flavors. Their enthusiasm for food choices, interest in new flavors, ability to blend new flavors with their traditional dishes, and overall enjoyment of grocery shopping make them a receptive audience for targeting new product offerings.

DOWNLOAD FIGURES ONLINE • Explore food rooted in tradition 82% enjoy trying different types of food, but 67% say cultural heritage is an important part of who they are, and 69% say it’s important for their children to continue family traditions.19

MILLENNIAL MOMS ACROSS ETHNICITIES Millennials are no longer the young singles and childless couples they used to be. Many of them are well into their 30s now, with families of their own. Stewart, Acosta Sales & Marketing, said Millennial moms now hold significant spending power and decision-making responsibilities for their households. According to Stewart:

GO DIGITAL Retailers and brands need to engage Hispanic shoppers using digital methods, whether it’s viewing the store flyer online, redeeming coupon offers using their mobile devices, using a shopping list app, or viewing cooking videos online. Digital marketing programs need to add value to have an impact on Hispanic shoppers’ behaviors. Source: Colin Stewart, senior vice president, business intelligence, Acosta Sales & Marketing

• They spend more on food. Millennial parents reported spending an average of $360/month on household groceries, over $100 more monthly when compared to Millennials without children spending an average of $245 per month on groceries. • The majority of Millennial moms (69%) are handling the grocery shopping duties for their household. • They want to learn about good diets. Sixty-four percent of Millennial moms would like assistance in making healthy food choices. • They value family time. Sixty-four percent of Millennial mom shoppers what to make dinner time “family time,” as 44% of weekday meals are typically not eaten together.20

• They have more kids living at home. Almost half of Millennial shoppers (46%) indicated having children under 18 in their household, compared to just one-third of total US shoppers.

WHAT’S IN STORE | 2019 figure 3.16

Savoring Food, Enjoying Shopping US Hispanic shoppers enjoy meal planning and learning how to prepare new meals. Not only are they more open to food choices and experimentation with flavors than total US shoppers, but they relish blending new flavors with their traditional dishes and trying new products. This openness to new food experiences contributes to the Hispanic shopper's enjoyment of grocery shopping.

I enjoy preparing new dishes

62% 65%

Total US Shoppers US Hispanic Shoppers

54%

I enjoy the experience of planning meals for me and/or my household

51% 52%

I enjoy the experience of shopping for ingredients to prepare the meals that I planned

61% 53% 57%

I want the opportunity to customize my food choices to better meet my needs

51% 55%

I often try new flavors/products

I buy grocery brands that are authentic to my ethnic heritage

I want to take cooking classes to learn how to prepare new meals/dishes

25% 47% 25% 39%

DOWNLOAD FIGURES ONLINE Source: Acosta, The Why? Behind the Buy, 2017

Consumer Lifestyles figure 3.17

Overall Attitude Towards Grocery Shopping "I enjoy grocery shopping"

72%

61%

US Hispanic Shoppers

Total US Shoppers

Source: Acosta, The Why? Behind the Buy, 2017

figure 3.18

US Hispanic Shoppers Grocery Shop More Often, and Across More Channels than Total US Shoppers In the past six months, at which of these stores have you bought any household groceries?

% 91% 93

80% 77%

48%

44%

39% 22% 19%

30%

3% US Hispanic Shoppers

Total US Shoppers

Grocery Store/ Supermarket

Mass Merchant

Club Store

Dollar Store

Natural/Organic Grocery Store

Hispanic/Ethnic Grocery Store

Source: Acosta, The Why? Behind the Buy, 2017

90 % 47

OVER

of consumers say they snack multiple times throughout the day, with

stating that they can’t get through the day without snacks.

Chapter 4

EATING TRENDS 67 / International Flavors

67 / Eating Occasions

69 / Health and Wellness Trend Continues Brisk Pace 82 / Conscious Eating

WHAT’S IN STORE | 2019

IDDBA Trends Variety of Convenient, Portioned, and Healthy Prepared Food Options Important for Attracting, Retaining Shoppers Through its What’s in Store research, IDDBA has identified three key trends in consumer eating trends, which, when analyzed separately and together, could provide innovative solutions to retailers looking to capitalize on consumer dining preferences and tastes. 1. SNACKING IS A MEAL REPLACEMENT With 80% of consumers snacking at least once per day and more likely to replace one or two meals a day with a snack than they were just a few years ago, providing snacking options is a now a necessity for retailers.

2. FOCUS ON HEALTH AND WELLNESS IS A LIFESTYLE FOR CONSUMERS who are seeking products that are fresh, contain certain attributes like protein and fortified nutrients, and doesn’t have, or have less of, ingredients they deem as undesirable, such as salt and sugar. Additionally, consumers are looking at food as a form of medicine and vital to one’s overall physical and emotional health. 3. RISE OF CONSCIOUS EATING, whereby consumers are looking for products and ingredients grown or manufactured in a manner that reflects one’s own beliefs and preferences. Sales of organic products continue to grow, as well as interest in alternatives, such as plant-based proteins.

What Does This Mean for Retailers?

In a marketplace where consumers have numerous meal options, it’s imperative for retailers to understand the eating patterns of today’s consumers and engage them with products that resonate with their lifestyles and tastes.

• Focus on the health attributes of your products in your store’s marketing messaging. Establish your store as a destination where health-and-wellness consumers can easily find convenient, healthy, and tasty food options.

• Create a variety of snack-sized, fresh and freshlyprepared options. Utilize the strengths of your instore fresh departments to provide an assortment of unique and tasty offerings that consumers can’t find elsewhere.

• Tell the story behind the food, with particular emphasis on its origin and how it was sourced.

Eating Trends

INTERNATIONAL FLAVORS Scott Allmendinger, director of consulting, Culinary Institute of America, told IDDBA that east Mediterranean, North African, continental African, and Asian island cuisines are growing in interest among consumers. Indian cuisine is also growing in popularity. “India is such a vast country, with so many types of cuisine,” he said. “India, for the foreseeable future, will be a source of inspiration because of the vast number of styles and flavors.”1 Matt Lally, associate director, Nielsen Fresh, told IDDBA that sushi has been one of the fastest growing categories across the store for the past five to seven years. It’s grown 15% annually each of the past five years, with sales surpassing $1.2 billion. “It’s remarkable, given the number of retailers that even offered this 10 years ago,” he said. “You can now find sushi at convenience stores and drug stores. It further supports the idea that cultures are blending together.” The same holds true to naan, according to Lally, which is also experiencing widespread sales across all demographics. It also kicked the trend of consumers eating less bread.2

EATING OCCASIONS Claire Conaghan, senior account manager, Datassential, told IDDBA for years the play for consumption has been away-from-home versus athome (or another way of saying it: restaurants versus retail). However, this view is changing. “What we now see is that these sourcing areas are starting to blur,” she said. “With the rise of alternative channels, renewed interest in both c-stores and grocery deli, and other factors, we see that most occasions now include both restaurant and retail offerings.” As an example, she cited a dinner party where there could be meats and cheese from a grocery deli, alcoholic beverages from a club store, fresh bread from a local bakery, and a main course from a local restaurant. “With the increase in delivery options, it is becoming common that consumers may get take-out to supplement what they have in their fridge without it always being the whole meal,” she added.3 © 2019 International Dairy Deli Bakery Association

Key Insight JILL TOMENY'S TAKE ON NEW FLAVORS AND HOW RETAILERS CAN INCORPORATE THEM INTO THEIR FRESH OFFERINGS USE FAMILIAR CATEGORIES TO INTRODUCE NEW FLAVORS Create a deli pizza program that incorporates Indian, Korean, or Moroccan ingredients. COMBINE FAMILIAR FLAVORS IN NEW WAYS Salted caramel apple coffee cake or chipotle pumpkin BBQ sauce. LOCALLY INSPIRED FLAVORS are appearing regularly in both retail and foodservice. KFC’s recent promotions of Nashville Hot, Georgia Gold, and Smoky Mountain BBQ chicken flavors. GLOBAL BBQ Korean, regional US, and South American flavors and styles all making appearances. LATIN-INSPIRED FLAVORS Mango, Tres Leches, and cilantro lime seen across fresh categories. SPICY FLAVORS ARE GOING GLOBAL Gochujang, Harissa, and Sambal, while spirit- or cocktail-infused profiles are seen across the store. NATURAL SWEETENERS Honey or agave, nut butters, and aromatic herbs are trending. They can add a savory note to traditional baked goods.

WHAT’S IN STORE | 2019 DINING AWAY FROM HOME

Key Insight FOUR MEGA FOOD TRENDS IMPACTING THE INDUSTRY BACK TO NATURE, NO TO SUGAR The focus of the food industry continues to shift from weight management to nutrition and natural well-being. With this, the industry has seen a rise in so-called “raw foods:” uncooked/unprocessed foods that have not been heated above 48˚C, preserving most of the natural vitamins and minerals. NATURALLY FUNCTIONAL With sugar, rather than fat, being the villain in the obesity debate, savory snacks and healthy fats and grains have made a comeback. Another big trend for 2018 is gut health, which has links with mental health and performance. Fermentation and pickling are becoming more ubiquitous, with probiotic claims featured across a wide range of food products. REDEFINING INDULGENCE Indulgence is and will always be a core driver in foods. However, it is changing shape and form, as consumers crave different products for different occasions and in different geographies. This is apparent in the extreme flavor combos that manufacturers are embracing. PLANT-BASED AND ORIGIN FOODS Veganism is now claimed to be the biggest lifestyle movement of the 21st century, with the world’s largest corporations signing up to the “meatless meat” movement. Ethical consumption is also on the rise, with 30% of consumers reporting that they are shopping local. Source: Michelle Grant, head of retailing research, Euromonitor International

Lally, Nielsen Fresh, said that in 2016, for the first time, shoppers spent more money dining away from home than on food purchased for at-home consumption. This trend grew in 2017. While numerous factors contribute to this, the main drivers of this trend are convenience and experience. “This makes it no surprise that deli prepared foods ranked as the No. 1 most important ‘enhancement service,’ according to Progressive Grocer research, and also why prepared food ranks as the single greatest differentiator between retailers who excel in total food sales and those who struggle,” Lally said. “Some retailers are taking it a step further and turning grocery shopping into an experience with music, cooking demonstrations, meal-prep stations, and even serving alcohol while consumers shop.4

SNACKING Consumers are more likely now than they were just two years ago to replace one or two meals per day with snacks, illustrating the growing trend of replacing traditional meals with snacking, according to a recent Technomic report. Other findings include: • Eighty percent of consumers snack at least once a day. • Lunch is the most likely meal to be replaced with a snack. • Thirty-seven percent of consumers say any food can be a snack, provided the portion size is small.5

Lally, Nielsen Fresh, said that while someone can conceivably snack on many items, individual snacks generated $33 billion in sales in 2017. While traditional products still account for the majority of sales, growth is occurring from less traditional products, such as specialized jerky (5% growth yearover-year), and combo packs offering the consumer variety such as cheese-plus-nuts or meat-plus-cheese options (10% growth year over year). “When looking at most any category, sales of individual snacking items outpaced the growth of total category,” he continued. “Health also plays an important role with strong growth from snacking items.”6 Consumers are not only eating more snacks, they also seek benefits in them. According to Nielsen, non© 2019 International Dairy Deli Bakery Association

Eating Trends

“With the increase in delivery options, it is becoming common that consumers may get takeout to supplement what they have in their fridge without it always being the whole meal.” Claire Conaghan, senior account manager, Datassential GMO snacks increased 18.2% annually over the past five years. Other health benefits sought by snacking consumers include: • Free from artificial colors and flavors (16.2% increase).

Key Insight SNACKING IS AN ALL-DAY AFFAIR AT RETAIL • Retailers need to keep snack-focused displays stocked and running all day and offer items that can cover the breakfast through dinner spectrum of meals. • Snacking-focused displays need to include numerous shopper cravings — sweet, protein-based, healthy, beverage-based. • Remember that offering selection in the snack segment doesn’t necessarily mean reinventing the wheel. It can be as simple as offering single-serve, minisized items, or smaller packs of existing products. Single-serve packaged muffins, cake slices, a twin pack of chicken tenders, protein-enhanced smoothies, grab-and-go pizza slices, a single portion of prepacked grain salads, or specialty cheese trays cut for one are all great ways of using existing items as snacks. Source: Jill Tomeny, senior manager, fresh, Daymon Worldwide

• No/reduced sugar claims (11.3% increase).

Convenience stores, in particular, are in a prime position to connect with health-minded snacking consumers, as 44% said they are willing to pay a premium for these products when shopping t he channel.7 Conaghan, Datassential, said all-day snacking is infringing on traditional dayparts, as the timeframes whereby consumers snack span multiple eating occasions. “Breakfast can mean something at home before going to the gym, a small bite when you get to the office, and something else even just an hour or two later, with those patterns continuing all day,” she said. “This is also not just something younger consumers are doing but spans the generations.”8

HEALTH AND WELLNESS TREND CONTINUES BRISK PACE Tomeny, Daymon Worldwide, said that wellness brands are the fastest growing segment in private label; fresh programs are also the measure for the success of a retailer’s health and wellness programs and the way consumers decide where to spend those dollars. “Great tasting products will drive repeat sales in the segment, while innovation can create both excitement and brand loyalty,” she said. Shoppers are looking for: continued on pg 78

BLACK GARLIC

provides a sweet, caramelized, umami-rich flavor

Top Food & Culinary Trends WHEY

a protein-packed addition to breakfast foods, smoothies, and grains

2018 Food Trends Source: Datassential, 2018 Trends to Watch

PERSIMMON a sweet-and-tangy addition to cakes, pudding, and other desserts

ROSE WATER

LABNEH

a rich, creamy, and strained yogurt of Middle Eastern origin

adds rich, floral notes to cakes, ice creams, and drinks

PANDAN a leaf from Southeast Asia that creates a sweet, grassy, vanilla-like flavor to desserts and cocktails

NEXT-GENERATION SALT CURING

can turn rich ingredients into textures suitable for grating

UBE

a purple yam common in Filipino cuisine that adds a natural color to food

SEEDS are finding their way into everything from toppers and porridges to seed-rich breads

KOLSCH

a lighter and more refreshing beer option

ETHNIC SPICES like harissa, curry, peri peri, ras el hanout, and shichimi

HERITAGE-BREED MEATS HEALTHFUL KIDS' MEALS VEGETABLE CARB SUBSTITUTES

like cauliflower rice and zucchini spaghetti

Top Food & Culinary Trends

What’s Hot 2018 Top 20 Food Trends Source: National Restaurant Association’s What’s Hot in 2018

ETHNIC-INSPIRED KIDS' DISHES

like tacos, teriyaki, and sushi

DONUTS with non-traditional filling, including liqueur, and Earl Grey cream

SUSTAINABLE SEAFOOD

THAI-ROLLED ICE CREAM

ETHNIC CONDIMENTS

such as sriracha, sambal, chimichurri, gochujang, and zhug

STREET FOODINSPIRED DISHES

like tempura, kabobs, dumplings, and pupusas

UNCOMMON HERBS

PERUVIAN CUISINE

including chervil, lovage, lemon balm, and papalo AUTHENTIC ETHNIC CUISINE

NEW CUTS OF MEAT

including shoulder tender, oyster steak, Vegas Strip Steak, and merlot cut

ETHNIC-INSPIRED BREAKFAST ITEMS

such as chorizo scrambled eggs, and coconut milk pancakes

ANCIENT GRAINS

including kamut, spelt, amaranth, lupin

AFRICAN FLAVORS

NEW GENERATION OF GLOBAL FLAVORS

Southeast Asian, especially Laotian and Filipino, African and Middle Eastern spices

HOUSE-MADE/ ARTISAN PICKLES

ALTERNATIVE OPTIONS

BOTANICAL FLAVORS

to standard products and ingredients, like lab-cultured burgers, non-dairy “milks,” cricket flour, and ancient grains

LIMITED EDITIONS

retro re-releases, and seasonal themes

like ginger, honey, hibiscus, lavender, elderflower, mint, cardamom, and chamomile

NUTRIENT-DENSE TREATS such as fortified ice creams, vegetable desserts, mood-enhancing ingredients, protein-packed chips, and fresh product snacks

Top Food & Culinary Trends

Culinary Menu and Flavor Trends Source: Campbell’s Culinary Trendscape 2018

CARNIVORE OPTIONS

like unique butcher cuts, antibiotic-free meats, and exotic game

“HERITAGE” FOCUS

on recreating culinary traditions and the personal stories behind food

JAPANESE GASTROPUB OFFERINGS

miso sake yakitori glaze, furikake seasoning, onigiri-stuffed rice balls

Top Food & Culinary Trends EAST AFRICAN FLARE

Berbere spice, Tanzanian barbeque

The Flavors of 2018

HANDHELD STREET FOOD STAPLES WITH A TWIST

sizzling egg crepes, gyro arepas, dessert bao buns

Source: McCormick Flavor Forecast 2018

WELLNESS DRINKS

smoothies in place of coffee; afternoon soup made with oyster mushrooms, avocado, thyme, and sage; evening elixir comprise of fresh pineapple, ginger, turmeric, and dandelion greens, topped with sparkling water

GLOBAL HOTPOTS Puebla hotpot of ancho chili, smoked paprika and spices in chicken stock; West Indies hotpot of coconut milk infused with bay leaves, thyme, turmeric, allspice, and topped with chili papaya pica sauce and plantain chips

Top Food & Culinary Trends

What’s Hot 2018 Top 10 Concept Trends Source: National Restaurant Association’s What’s Hot in 2018

ENVIRONMENTAL SUSTAINABILITY

HYPER-LOCAL SOURCING

such as restaurant gardens, onsite beer brewing, and house-made items

LOCALLY SOURCED PRODUCE

VEGGIE-CENTRIC/ VEGETABLEFORWARD CUISINE

LOCALLY SOURCED MEAT AND SEAFOOD

CHEF-DRIVEN FAST-CASUAL CONCEPTS

fine-dining versions of burgers, pizza, and sandwiches

NATURAL INGREDIENTS/ CLEAN MENUS

FARM/ESTATEBRANDED ITEMS

FOOD-WASTE REDUCTION

SIMPLICITY/ BACK TO BASICS

WHAT’S IN STORE | 2019

Key Insight

TOP TRENDS IDENTIFIED BY THE SPECIALTY FOOD ASSOCIATION’S TRENDSPOTTER PANEL

TOP TRENDS REPORTED BY MINTEL IN GLOBAL FOOD & DRINK TRENDS 2018

PLANT-BASED FOODS.

FULL DISCLOSURE on how, where, when, and by whom food is grown, harvested, made, and sold.

UPCYCLED PRODUCTS as consumers have become more aware and concerned about food waste. FILIPINO CUISINE. GOTH FOOD AND THE USE OF ACTIVATED CHARCOAL produced by heating coconut shells to extremely high temperatures until they carbonize. ALTERNATIVE SWEETENERS syrups made from dates, sorghum, yacón and sun root. ROOT-TO-STEM COOKING use of the entire fruit or vegetable. CANNABIS CUISINE. TRADITIONAL BREAD use of local grains, milling the day before baking, and longer proof times.

• Sugar and sodium reductions in private brands • Expansion in plant-based options across categories • Healthy twists on indulgence • “Free from” designations, as they look to remove artificial colors, flavors, preservatives, high-fructose corn syrup and nitrates.9

Nielsen reported 67% of Americans stated they are prioritizing healthy or socially conscious food purchases in 2018, with 68% saying they’re concerned about what’s lacking in their food. The group also found: 78

GREATER FOCUS ON CONSUMER “SELFCARE” to counter negativity in their daily lives, resulting in increased interest in ingredients, products, and combinations of food and drink that provide nutrition and physical/emotional benefits. EMPHASIS ON FOOD TEXTURE that engages all senses and provides opportunities to share experiences in-person and online. PERSONALIZED SHOPPING OPTIONS that save time and money: home delivery, subscription services, and automatic replenishment. TECHNOLOGY as laboratories replace farms and factories in developing food and drinks that are inherently more nutritious and environmentally-friendly.

• THE “FRESH” FACTOR ISN’T LIMITED TO THE PERIMETER, as center-store products, containing ingredients such as cauliflower, kale, cranberries, and strawberries are generating more consumer interest. • Health benefits of CERTAIN INGREDIENTS AS A

FORM OF MEDICINE. • PROTEIN 70% of consumers say they follow a highprotein diet, with meat (78%) and dairy (58%) as the top sources. However, plant-based alternatives are seeing dollar growth: 20.7% in frozen prepared foods; 18.9% in fully-cooked, plant-based meats; and 14.1% in diet and nutrition products.

Eating Trends

1 in 3 Meals of Meat-Eating Millenials is Meat-Free

of Millennials are already vegetarian/vegan

Top Reasons for Millennial Interest

51%

37%

36%

32%

30%

OVERALL HEALTH

PARTICULAR HEALTH CONCERNS

FEWER CHEMICALS/ PRESERVATIVES

ENVIRONMENTAL IMPACT

TREATMENT OF ANIMALS

Source: Acosta, Progressing Protein Palates, Winter 2018

• LESS SUGAR 22% of consumers are restricting the amount of sugar in their diets; one in two are planning to eat less sugar or “no sugar added” products; and sales of non-caloric and free from artificial sweeteners grew 16% the past year.10

According to Acosta’s Progressing Protein Palates report, over one-quarter (26%) of Millennials are vegetarian or vegan. Of meat-eating Millennials, one-third of their meals are currently meat free. The top reason cited for Millennial interest in flexitarian, vegetarian, or vegan diets was overall health.

DEFINITION OF HEALTH, WELLNESS VARIES Matt Lally, associate director, Nielsen Fresh, told IDDBA health and wellness is a very important space right now. “In some ways, it’s a challenge, as it’s a spectrum,” he said. “One consumer’s definition is likely different than another’s.” Lally said retailers and manufacturers are addressing this trend in different ways: • Walk-in clinics at retail • On-site dieticians

WHAT’S IN STORE | 2019

Shoppers Struggle With Product Claims and Labeling

85%

who are confused want more info to understand, especially via PACKAGING and TAKE

Informed Gen X is most influenced by ALL NATURAL and NO ADDED HORMONES/ ANTIBIOTICS

AWAY INFO CARDS

Most Confused

Most Informed

MILLENIALS

GEN X

Source: Acosta Custom Shopper Survey Jan. 2018, Nielsen AOD Core Total US xAOC 52 Weeks ending De. 30, 2017, and Nielsen FreshFacts Total US 52 Source: 2017 Food Health Weeks ending Oct.& 28, 2017 Survey, International Food Information Council Foundation

• In-store pharmacies • Retailer acquisition of, or partnership with, healthfocused companies or organizations • Store signage focused on products and how they fit into specific lifestyles

On the manufacturer side, companies are continuing to expand into this space: • Reformulation of their products • Acquisitions of companies within the wellness space • Removal of artificial flavors, coloring, and other ingredients consumers are looking to avoid

“This movement continues its push into mainstream retail, with more and more shoppers across generations and ethnicities expressing an interest, at the very least,” Lally said. 11 Lally added that since health and wellness cover such a wide spectrum, it’s really about where products 80

DOWNLOAD FIGURES ONLINE fit into one’s lifestyle. “Every product has a role within health and wellness,” he said. “Even indulgent products can resonate with some health and wellness consumers through the use of clean labeling and natural ingredients.”12 An example of this behavior was revealed in findings from a Hudson Institute report, which showed that “well-beings” (the most health-proactive consumer) consumed a similar amount of both chocolate and non-chocolate candy as other consumer segments.13

FUNCTIONAL FOOD TRENDS Totaling $247 billion in sales in 2017, functional and fortified foods continue to play a more prominent role in consumer diets as more individuals adhere to healthy diets and lifestyles. Citing Mintel data, the © 2019 International Dairy Deli Bakery Association

Eating Trends figure 4.1

Consumers Factor Food Label Claims in Decision Making

59% 50%

25%

31%

23%

14%

2017

37% 27%

26%

33%

10%

16%

2018

Organic Foods and Beverages

Organic Restaurants

Natural Foods and Beverages

Natural Restaurants

Sustainable Food Production

Less Pesticides in Food Production

Affordable Food Supply in Food Production

Source: 2017 Food & Health Survey, International Food Information Council Foundation

figure 4.2

Institute of Food Technologists (IFT) reported 55% of adults said they are living a healthier lifestyle than last year, with food high in nutrients and healthy components being the No. 1 way individuals define a healthy food. Among the top functional-food trends in 2018 announced by IFT are: • INSTANT NUTRITION highly fortified nutritionals, functional snacks, and naturally dense food, such as nuts.

Top Wellness Claims — Q1–2018 Latest 52 weeks v. 1 YA

H & W claim

Dollars

$% growth

Grain-free

$974 M

48%

Calorie claim

$1.28B

31.3%

Cruelty Free

$1.04B

29.2%

Corn free

$1.61B

22.6%

Grass fed

$888M

20.7%

Q1 2018 v Q4 2017

• FOOD TO BUILD PHYSICAL AND MENTAL

STRENGTH

H & W claim

• ACCEPTANCE OF FULL-FAT FOODS

Chia

• NATURALIZATION, with 53% of consumers stating that the exclusion of undesirable ingredients is more important than the inclusion of beneficial ones. • PLANT-BASED MEAL OPTIONS, as 39% of Americans would like to add more to their diets.

Dollars

$% growth

$72M

20.2%

Quinoa

$179M

18.4%

Low Glycemic

$297M

16.5%

Stevia

$590M

16.1%

Calorie Claim

$318 M

15.3%

Source: Nielsen Retail Management Services, Total Food View,

WHAT’S IN STORE | 2019 of consumers say an endorsement by health organization is important. • MINIMAL PROCESSING two-thirds look for claims that convey minimal processing, with 72% of Millennials doing so. • THE SEARCH FOR SPECIFIC NUTRIENTS 30% of Millennials and 24% of all consumers believe they don’t get enough.14

CONSCIOUS EATING

figure 4.3

Dollar Growth for Specific Package Claims Among Food and Beverage Products

+3.6

Nothing Artifical

SURGING INTEREST IN PLANT-BASED DIETS, ALTERNATIVES Allmendinger, director of consulting, Culinary Institute of America, said the Plant Forward diet— including more plant-based foods and fewer animal products—is going to become more important and embraced by more consumers. In response, restaurants, manufacturers, and retailers will expand the categories. He said the movement doesn’t necessarily cater to just vegetarian or vegan diets; it’s shifting the share of plates away from animal proteins and more toward plant-based proteins. “Wellness, sustainability, and food ethics can be addressed by shifting our diets to more plant-based foods,” he added.15 “I haven’t seen a food trend get adopted as quickly and across as many platforms and segments as plant forward,” Allmendinger said. “Everybody’s talking about it, and everybody’s developing things. Foodservice is certainly leading, but retailers have gotten on board as well. College and university foodservice continues to lead and grow in this category. It’s getting traction almost everywhere you look.”16 Allmendinger said despite the growth in the plant forward movement, barriers exist. The first barrier is the notion that plant proteins don’t taste as good as animal proteins. The second barrier is the perception that plant products cost more, which is really counter-intuitive to the reality of food costs, Allmendinger said. This mindset among consumers is driving more innovation and creativity 82

Free of Additives and Artifical Ingredients

+7.8

All Natural

Source: Nielsen product insider, 52 weeks ending May 20, 2017

DOWNLOAD FIGURES ONLINE in the industry in the form of flavorful, and filling, vegetables. Additionally, interest in grains continues to grow, especially amaranth, spelt, and hemp, he continued.17

ORGANIC Sales of organic products reached a record $47 billion in 2016, an increase of almost $3.7 billion from 2015, according to the Organic Trade Association. Organic food sales increased 8.4% ($3.3 billion), accounting for 5.3% of total food sales, also a record.18 © 2019 International Dairy Deli Bakery Association

Eating Trends figure 4.4

Where Protein Comes From Matters to Many Consumers What are the primary sources of protein in your/your household's diet? Select up to 3.

61%

Eggs

58%

Dairy

29%

Seafood

19%

Legumes, nuts, seeds

Whole grains

Non-dairy milk beverage

10% 6% 78%

Meat Protein supplements

Meat alternatives

MORE AMERICANS PLANNING TO INCREASE CONSUMPTION

10% 6%

Source: 2017 Food & Health Survey, International Food Information Council Foundation

“Organic items and ingredients are true points of differentiation within fresh programs,” she said. “With retailers like Aldi and Walmart increasing their fresh organic private brand presence, it’s a space that shouldn’t be ignored.” Jill Tomeny, senior manager, Fresh, Daymon Worldwide

Progressing Protein Palates

WHAT’S IN STORE | 2019

Americans still love meat. But alternatives are on the rise.

are buying more fresh meat than a year ago

are buying less fresh meat than a year ago

Protein is important to younger generations for

...and to older generations for

EXERCISE RECOVERY

HEALTH BENEFITS

PLANT-BASED MEAT ALTERNATIVES

are growing

of plant-based purchasers also eat meat.

year-over-year

Source: Acosta Sales & Marketing

Eating Trends

“I haven’t seen a food trend get adopted as quickly and across as many platforms and segments as Plant Forward. Everybody’s talking about it, and everybody’s developing things. Foodservice is certainly leading, but retailers have gotten on board as well. Colleges and university foodservice continue to lead and grow in this category. It’s getting traction almost everywhere you look.” Scott Allmendinger, director of consulting, Culinary Institute of America

Tomeny, Daymon Worldwide, said almost onequarter of consumers believe organic foods are fresher and/or more nutritious than non-organic foods -- organic produce sales grew by about 10% and organic meat and seafood sales rose almost 20% over the past year. “Organic items and ingredients are true points of differentiation within fresh programs,” she said. “With retailers like Aldi and Walmart increasing their fresh organic private brand presence, it’s a space that shouldn’t be ignored.”19

PROTEIN Tomeny said protein continues to be a growth segment, driven by the explosion of high-protein (and low-calorie) premium pint ice creams. “We may see a way to incorporate that trend into indulgent bakery desserts,” she said. Delis can easily leverage the trend by adding “protein bars” into salad bar sets; precut meats, tofu, cheese cubes, and seafood are frequent choices. “There’s also opportunity within cheese and deli departments to leverage protein content—as well as snacking appeal—of specialty meats and cheese,” she said.20 © 2019 International Dairy Deli Bakery Association

FSMA and Menu Calorie Labeling Resources, Webinars, Fact Sheets, and More

VISIT IDDBA.ORG

WHAT’S IN STORE | 2019

Top Eating Trends Spotted at IDDBA 18 FRESH SNACKING

ON THE GO

QUICK PROTEIN

CREATION STATION KITS

Eating Trends

INDULGENCE WITH FRUIT

INDULGENT SNACKING

INDULGENCE

HEALTHY CHOICES

SIMPLE SOLUTIONS

The most frequent ISB consumers are aged

25–34, % 35

of whom indicate they purchased from an ISB in the last week.

Chapter 5

BAKERY SALES AND EATING TRENDS 91 / Bakery Sales Across the Store, in ISBs Remain Tepid 91 / Bakery Department Growth

94 / Bakery Department Trends

96 / Bakery Consumer Lifestyle

100 / Bakery Consumer Demographics

102 / Bakery Eating Trends

103 / Cakes

105 / Pies

WHAT’S IN STORE | 2019

IDDBA Trends Focus on Indulgence, Product Attributes and Specific Demographics for Attracting Shoppers to the In-Store Bakery Through its What’s in Store research, IDDBA has identified three key trends impacting consumer shopping and purchasing at in-store bakeries (ISB), which, when analyzed separately and together, could provide innovative solutions for retailers looking to capitalize on the changing palates of today’s shoppers and drive traffic to their bakery departments. 1. INDULGENCE While healthy eating continues to be a factor in consumer food purchasing decisions, indulgence is the top driver of shoppers to the ISB. Consumers are not only searching for innovative concoctions and creative takes on traditional bakery products, they’re also looking to treat themselves. This includes health and wellness shoppers. 2. INCREASING PRODUCT CLAIMS While clean labelling and transparency have become necessities for connecting with today’s shoppers, who continue to seek out information around where the food they consume comes from and the specifics around the ingredients it contains, many products are seeing success with highlighting nutritional

attributes- such as ‘whole grain’, ‘high protein/fiber’ and ‘no preservatives.’. Shoppers are searching for “free-from” products, as well as ones with “better for you” ingredients and product claims are making that easier. Freshness is a highly-sought-out attribute specifically in baked goods and one that ISBs deliver with the majority of their products. Product claims can also serve to help a retailer tell their story; for example, “Our bread is baked fresh daily with no preservatives.” 3. Identifying today’s typical ISB shopper. The top shoppers of ISB are BABY BOOMERS,

SENIORS, AND FAMILIES WITH CHILDREN, who tend to purchase more of the traditional bakery items that correspond with traditional dayparts and eating occasions. These products oftentimes do not appeal or resonate with younger, single, and childless consumers who live in single or two-person households. It is important to continue to appeal to the primary shopping demographic while also focusing on innovating and marketing around a younger, larger population.

What Does This Mean for Retailers? As consumers’ eating patterns change and baked goods are viewed through a lens that extends beyond daypart, it’s important for retailers to understand what could draw additional foot traffic to their ISBs. Focus on indulgent products in single-serve and mini forms, which cater to individuals and smaller households. Look beyond the standard ISB fare and offer unique products that all shoppers would be interested in

tasting. Develop effective messaging for product labels, cases, displays, and external spaces. Be a storyteller and develop messages around ISB products that resonate with the shopper. Highlight the ingredients and attributes within the products. Develop messaging that explains to shoppers why they should shop the ISB or simply continues to highlight what is new or unique.

Bakery Sales and Eating Trends

BAKERY SALES ACROSS THE STORE, IN ISBS REMAIN TEPID Kokil Singh, principal, Client Insights, IRI, told IDDBA that the bakery category across the store— including the bakery aisle, expanded categories with refrigerated and frozen items, baking mixes, cookies, to name a few of the larger categories within this expanded universe plus fresh or in-store bakery (ISB)—is up 1.2% compared to a year ago and is growing at a compounded annual growth rate of 1.8% over the course of 2012 through 2017. While trends are positive, growth has been tepid since 2015 in the category, she said.1 Singh added that bright spots within the category (in terms of sales growth) are: • Bagels/bialys (A Yiddish word for a small roll that is a traditional dish in Polish cuisine.) • Pastries/doughnuts • Pies and cakes • Cookies • Tortillas

She said pre-packaged cookies are the biggest growth driver in sales dollars. The uptick in this segment is attributed to both unit sales and higher average price per unit, as well as diversifying assortment. Other categories with unit growth are bakery snacks, pies and cakes, bagels, and tortillas, she continued.3 According to Singh, some of the categories facing headwinds include English muffins, refrigerated dough, frozen items, and baking mixes. Bread and rolls across both the bakery aisle and fresh bakery are challenged with unit sales declines.4

BAKERY DEPARTMENT GROWTH Nielsen Fresh reported ISB sales of $12.9 billion for the 52 weeks ending on July 21, 2018. The dessert category saw sales rise to $5.3 billion, up from $5.2 billion a year prior. Other categories experiencing an increase in sales include: • Cookies ($1.7 billion, up from $1.6 billion) • Doughnuts ($982 million, up from $957 million)

A Bit About Our Data Both Nielsen Fresh and IRI/Fresh Look Marketing databases represent items sold in the supermarket service and self-service bakery, cheese, and deli departments, including System 2 items (or retailer-assigned codes), and Universal Product Code (UPC) and Price Lookup (PLU) items. The data represented in this section is sourced from two different providers, and, therefore, variances in the numbers may be found when category definitions do not align • Nielsen FreshFacts® historical data is projected to 100% ACV (all commodity volume) of the grocery channel, plus Walmart, Sam’s Club and Target. Nielsen Fresh provides information for both standard (UPC) and retailer-assigned (PLU and System 2) items in the deli and bakery departments across the United States. Data from the latest 52 weeks is not projected. It includes approximately 18,000 census stores from grocery, mass, and club, but does not include alternative formats such as Whole Foods or Trader Joe’s. • IRI/Fresh Look’s Fresh View is projected census-level sales of traditional grocery stores (with sales of $2 million or greater), including Walmart, Target, and Sam’s Club.

WHAT’S IN STORE | 2019 figure 5.1

In-Store Bakery Performance Dollars (millions)

Latest 52 Wks W/E 07/21/18

Latest 52 Wks YA - W/E 07/22/17

Units

Latest 52 Wks 2YA - W/E 07/23/16

Latest 52 Wks 3YA - W/E 07/25/15

Latest 52 Wks W/E 07/21/18

Latest 52 Wks YA - W/E 07/22/17

Latest 52 Wks 2YA - W/E 07/23/16

Latest 52 Wks 3YA - W/E 07/25/15

Desserts

$5,275

$5,161

$5,092,

$4,825

1,120,010,663

1,045,131,830

985,280,904

Cake

$2,993

$2,935

$2,927

$2,799

467,001,940

423,854,019

416,332,228

Pies

$868

$853

$842

$778

349,675,424

320,682,547

275,317,236

Cupcakes

$662

$658

$641

$599

135,345,990

135,922,266

132,112,196

Brownies

$255

$238,

$230

$202

57,412,071

54,702,543

53,895,168

Speciality Desserts

$130

$122

$119

$114

28,498,367

28,121,851

27,239,438

Desserts Party Platter

$127

$113

$121

$130

18,194,676

16,653,106

18,741,375

All Other Desserts

$238

$210

$200

63,882,195

65,195,498

61,643,263

$1,707

$1,630

$1,589

$1,454

468,410,313

449,799,903

439,475,780

Bread

$1,615

$1,620

$1,697

$1,691

747,715,997

747,727,499

795,478,353

Rolls and Buns

$1,181

$1,173

$1,200

$1,206

820,169,843

806,374,278

816,310,197

Sweet Goods

$988

$989

$988

$949

359,592,637

365,959,147

368,335,944

Doughnuts

$982

$957

$942

$970

662,485,351

659,336,130

655,237,238

Muffins

$767

$727

$677

$632

257,416,336

250,300,660

233,690,296

Bagels

$191

$188

$193

$196

203,654,267

207,747,665

207,161,537

All Other

$194

$109

$93

$79

84,582,947

46,318,729

42,815,604

$12,904

$12,558

$12,474

$12,006

4,724,038,356

4,578,695,841

4,543,785,853

4,496,144,972

Total

Source: Nielsen xAOC, Total Food View, 52 Weeks Ending 7/21/18

• Bagels ($192 million, up from $189 million) • Muffins ($767 million, up from $727 million)5

Bread sales dropped slightly to $1.6 billion, from $1.62 billion a year prior.6 Billy Roberts, senior food and drink analyst, Mintel, told IDDBA that among ISBs in the United States growth continues a steady climb, growing 3.5-4% annually. Mintel predicts the market will surpass $19 billion in sales by 2022, a 40% increase over its 2012 performance and 21% ahead of 2017's total sales. “ISBs are continuing to not only capitalize on consumer demand for convenience but are also 92

DOWNLOAD FIGURES ONLINE leveraging key advantages relatively unique to the in-store space, namely indulgences, which are not only convenient, but which also appear to be freshlyprepared,” he said. He added that while consumers express concerns about their health, ISBs appear to be one of those store sections where indulgence is largely permissible. ISBs are also emerging in the breakfast daypart, offering an easy and quick option for the morning meal. “Continued growth during that daypart, though, likely will require a slight shift in focus toward healthier attributes, be it fiber content © 2018 International Dairy Deli Bakery Association

Bakery Sales and Eating Trends or the usage of whole grains, for example,” he said.7

options available in their ISBs; however, roughly half as many consumers had purchased from an ISB than purchased baked goods in the bread/bakery aisles of the supermarket in general. “Clearly, there is room to increase in-store bakery usage occasions even among loyal shoppers,” he said. Roberts, Mintel, suggested retailers could engage other areas of the store— possibly a deli or cheese section, or even the bread/ baking mix aisles—to introduce or refamiliarize consumers to their ISB items.10

Not all operators have experienced sales growth over the past year, however, as evidenced by findings from Progressive Grocer. Fifty-five percent of ISB respondents to Progressive Grocer’s (PG) “2018 Retail Bakery Review” reported an increase in sales; this is substantially down from 70% in 2016. About 30% reported that sales had stayed the same, while around 10% reported a sales decrease. Almost 45% reported an increase in profits, compared to around 52% in 2016.8

BAKERY PURCHASES AT CLUB, DOLLAR, E-COMMERCE CHANNELS RISE

Despite the volume drop, respondents were optimistic that sales in 2018 would rebound: 65% said they expect sales to increase, compared to 61% last year.9

Singh, IRI, said increased spending and store openings show the growing interest in club, dollar, and e-commerce channels for consumer food purchases, and bakery products are no exception. “These channels represent continued opportunity to

Roberts said that consumers appear aware of the

figure 5.2

Bakery Dollars and Growth In-Store Bakery Gross (Total Bakery Dept. Sales)

206.7BILLION

Perishables

1.1%

9 BILLION

Penetration by Retail Channel

Bakery Products

Total All Outlets Supermarket Dollar Stores Drug Stores Mass Excluding Supercenters Supercenters

1.3%

Dollar Sales

YAGO

$185 M

-0.8%

$1.3 B

-4.6%

$1.4 M

-2.8%

$1.2 B

+0.3%

$3.6 B

-1.6%

30.8

Bagels Bread Cereal and Granola Cookies and Crackers Desserts Doughnuts

$698 M

+2.4%

Warehouse Clubs

12.8

Meal Combos

$16.6 M

-8.3%

Convenience/Gas

1.1

Muffins

$526 M

+1.9%

All Other Outlets

4.3

Prepared Foods

$1.1 M

+7.8%

Rolls and Buns

$788 M

-3.5%

Sweet Goods

$812 M

-1.5%

$56 M

+45%

73.9 53.5 2.1 0.9 4.2

Wraps and Tortilla Shells Source: Progressive Grocer's 71st Annual Consumer Expenditures Study, July 2018, 52 weeks ending 12/30/2017

WHAT’S IN STORE | 2019 figure 5.3

Allergen-Free Products Offered

68%

43%

BAKERY DEPARTMENT TRENDS According to PG, the top five concerns facing ISBs are:

Nut-Free

Gluten-Free

specialty, drug, and mass merchandisers. “While we see a downtick in these channels, the themes that made these stores resonate with consumers— uniqueness, filling niche needs such as gluten-free, or healthful products—are still very relevant and should be considered by traditional channels such as supermarkets,” she said.12

• Customer satisfaction • Profits and recruiting effective employees (tie)

• Product quality and employee training (tie)

• Attracting more shoppers to the bakery • Labor costs13

INDULGENCE DRIVING GROWTH IN ISBs Egg-Free

Soy-Free

24%

Other Allergen-Free Baked Goods

Do Not Sell

Source: Progressive Grocer market research, 2018

determine ‘What is fresh bakery?’ here, and also to potentially redefine the department to be relevant with current and future generations.”11 Singh added that traditional grocery is the mainstay channel when it comes to bakery sales, with 95% of households shopping and purchasing in this channel. Channels experiencing decreasing bakery sales are 94

Matt Lally, associate director, Nielsen, told IDDBA that while there is still a lot of interest and focus on health and wellness, consumers continue to indulge and treat themselves. “When you look at in-store bakery relative to other departments, it’s the secondleading food and beverage department, in terms of volume growth, across the entire store,” he said. “And it’s something we don’t give enough recognition to, because there’s so much conversation around health and wellness.” He added that it’s a pretty remarkable statistic when a $12 billion department increases sales by 4%. “When you look at most departments in the store, they’re poised to achieve a single-percentage growth,” he said.14 Lally said the dessert category is fueling growth, mainly in the cake, cookie, and pie product subcategories. Breads, and in some instances rolls, have struggled, due to recent diet trends and consumers trying to reduce carbs, as well as increased innovation in commercial breads that offer lower prices.15

Bakery Sales and Eating Trends figure 5.4

Key Insight

Bakery Category Share of Sales Dollar CAGR Desserts Cake Pies Cupcakes Brownies Specialty Desserts

Unit CAGR

3.0%

7.5%

2.3%

4.9%

3.7%

18.1%

3.4%

2.1%

8.1%

4.9%

4.4%

3.4%

-1.0%

-3.0%

6.0%

1.6%

5.5%

4.1%

Bread

-1.5%

-2.4%

Rolls and Buns

-0.7%

-1.0%

Sweet Goods

1.4%

-1.3%

Doughnuts

0.4%

-1.1%

Muffins

6.6%

4.7%

Bagels

-0.7%

0.0%

All Other

34.6%

25.6%

2.4%

1.7%

Desserts Party Platter All Other Desserts Cookies

Total Bakery

Source: Nielsen xAOC, Total Food View, 52 Weeks Ending 7/21/18

DOWNLOAD FIGURES ONLINE Jill Tomeny, senior manager-fresh, Daymon Worldwide, echoed the indulgence factor. “Indulging will always be a reason to shop the bakery,” she said. “The health and wellness halo is extending to indulgence, with the use of simple, natural ingredients.” She said products sweetened with honey or maple syrup, exotic citrus notes, or enhanced with superfoods like chia all make indulgence justifiable.16 Nostalgic indulgence is also hot, according to Tomeny. Examples she gave are funfetti cakes for adults, strawberry lemonade cupcakes, or mile-high banana cream pies.17

WHAT DOES CLEAN LABEL MEAN TO YOUR SHOPPERS? One of the biggest differences between younger consumers and older consumers is that younger consumers are more likely to see ‘clean label’ products as intrinsically better products, for example items that are made with natural or organic ingredients. When asked in a GlobalData survey, “What does the term ‘clean label’ mean to you?” 38% of Americans of all ages said “natural/ organic claims” meant “clean label” to them. But when you break this down by age, the figure was 60% for 25- to 34-yearolds, versus just 12% for consumers ages 65 and above. This means that younger consumers are much more likely to seek out bakery products of the natural or organic pedigree, and this is going to shift long-term purchase behavior. Packaged and in-store bakery marketers are going to have to adapt to this new reality. Maybe the most shocking finding from this survey is that just 8% of 25- to 34-year-olds say they do not know what “clean label” means; 58% of Americans age 65 and older say they do not know what “clean label” means. This is a huge difference, and this generational shift means that younger consumers may be expecting something completely different in packaged and in-store bakery than older consumers. Source: Tom Vierhile, innovation insights director, GlobalData

WHAT’S IN STORE | 2019 figure 5.5

Projected Bakery Sales for 2018 The percentage of the expected sales increase for 2018 was also higher than it was last year. Respondents expect sales to rise 8.3% this year, while the expected growth last year was only 7.8%.

65% 61% 30% 3% Current

35%

YAG

Increase

Decrease

Stay the same

N/A

Don’t know

Source: Progressive Grocer market research, 2018

MINI, BITE-SIZED PREFERENCES EXPANDING THE CATEGORIES Contributing to this dessert trend is the continued evolution and innovation within mini and bite-sized products. “Take, for instance, pies, which have seen tremendous growth because of that new and expanded distribution of what was traditionally a product geared toward gatherings and has since evolved with more of your everyday occasions suitable for today’s smaller households,” Lally said.18 Mark Van Iwaarden, director of marketing, Legendary Baking, told IDDBA that offering mini pies is a way retailers can offer more nontraditional flavors and expand their selection. “With 4-inch or 5-inch pies, retailers are more willing to put a super indulgent or really unique flavor on the shelf because they know the consumer is going to be buying it for themselves or for them and another person,” he said. “They’re willing to try something different.”19

DOWNLOAD FIGURES ONLINE 96

BAKERY CONSUMER LIFESTYLE Tom Vierhile, innovation insights manager, GlobalData, told IDDBA that the industry continues to see a strong trend toward “clean label” offerings in packaged bread and bakery products, including products “free from” high fructose corn syrup, artificial colors, and artificial flavors. Additionally, more companies are experimenting with “better-foryou” ingredients like sprouted grains, even though the specific benefits of sprouted grains are rarely addressed in new product launches.20 Marketers of packaged bread and bakery products are also aligning themselves with snacking trends toward products that offer better portion control, Vierhile added.21

PRODUCT CLAIMS IMPORTANT IN THE ISB Lally, Nielsen, said that product claims on packaging are becoming an important attribute to ISB products, especially freshness claims. “Whether it’s ‘freshbaked in store’ or some variation of it, this messaging © 2018 International Dairy Deli Bakery Association

Bakery Sales and Eating Trends figure 5.6

2017 Supermarket Bakery Dollar Sales & Unit Volume Dollar Sales ($ in Millions) Bagels Bread Cereal and Granola Coating Mixes and Crumbs Cookies and Crackers Desserts Doughnuts Meal Combos Misc. Bakery Muffins Prepared Foods Rolls and Buns Sweet Goods Wraps and Tortilla Shells Total Bakery

Dollar Percent Change From Year Ago

Unit Volume (In Millions)

Unit Percent Change From Year Ago

$185.10

-0.8%

203.26

0.6%

$1,345.42

-4.6%

556.80

-4.6%

$1.42

-2.8%

0.34

2.3%

$1.06

8.4%

0.54

4.6%

$1,163.60

0.3%

307.75

0.3%

$3,617.79

-1.6%

640.37

-0.3%

$698.68

2.4%

515.26

2.4%

$16.61

-8.3%

8.28

-37.3%

$17.49

614.3%

8.88

1193.0%

$526.14

1.9%

195.25

0.2%

$1.13

7.8%

0.63

4.2%

$788.28

-3.5%

650.25

1.4%

$812.36

-1.5%

304.08

-2.4%

$55.94

45.5%

31.51

38.5%

$9,231.02

-1.1%

3,423.57

0.0%

Source: Progressive Grocer, 71st Annual Consumer Expenditures Study, 2017

Key Insight WAYS TO ATTRACT THE HEALTH AND WELLNESS SHOPPER TO ISBS 1. Find ways to position ingredient decks as “clean”. This can include everything from removal of artificial ingredients and colors, use of non-GMO or organic ingredients, to inclusions such as whole or sprouted grains. 2. A focus on simple portion control, which sells the concept of allowable indulgence. 3. Lastly and most importantly, effectively communicating ingredients and nutrition facts both on the shelf and online are critical. Source: Jill Tomeny, senior manager-fresh, Daymon Worldwide

“Targeted bakery offerings positioned to help consumers achieve nutritional goals can capture share. Claims focused on specialized needs and wants are winning.” Tim Grzebinski, principal, Client Insights, IRI

WHAT’S IN STORE | 2019 figure 5.7

Sales of Bakery Products in the US in 2018 Sales in Millions $

Fresh bread and rolls Snack bars/granola bars Pastry/doughnuts Frozen Pizza Bakery snacks Mexican food Frozen bread and dough English muffins Frozen desserts/topping Refrigerated baked goods Cheesecakes Refrigerated tortilla/egg roll/wonton wrappers

6,140.3 $5,083.2 $4,795.2 $3,431.4 $2,779.4 $1,010.9 $726.5 $684.4 $385.5 $304.1 $124.5

13,393.6

Source: Statista, June 2018

draws shoppers in and touts the advantage of the in-store bakery over the commercial aisle,” he said. This freshness factor helps set ISB products apart from center aisle items. “When compared with like categories across the store, the growth of the in-store bakery products is greater than their commercial counterparts,” Lally said.22 Citing his organization’s consumer survey, Vierhile told IDDBA that gluten-free diets, particularly popular with younger consumers, are one of the bigger factors affecting sales of bakery products. “Just 15% of Americans of all ages say they are ‘intolerant’ when it comes to gluten, but that number rises to 33% for consumers between the ages of 25 and 34,” he said. “This is a problem for a sector that tends to revolve around products that are grain-based.”23 Although ISBs are not ‘dedicated environments’, intolerance is distinct from allergy or Celiac disease. Many younger consumers would consider purchasing baked goods that are ‘not made 98

with gluten containing ingredients’ which continues to be an area of both innovation and opportunity.

CARBS PLAY ROLE IN SHOPPERS’ VIEW OF ISB Negative views of carbohydrates are another factor that has the potential to cause difficulty for bakery operators, according to Vierhile. He cited the International Food Information Council Foundation’s 2018 Food & Health Survey, which reported that the percentage of Americans saying that carbohydrates are the source of calories most likely to cause weight gain hit 25%, an increase of five percentage points from 2017. “This is an indication that carbohydrates are seen in an increasingly negative light,” he said. “One factor that may be driving this negativity is growing acceptance of low-carbohydrate diets like the Paleo diet and Ketogenic diet.”24 Singh, IRI, said that while consumers’ health and © 2018 International Dairy Deli Bakery Association

Bakery Sales and Eating Trends

Key Insight

SALES OF CLEAN LABEL PRODUCTS CONTINUES TO INCREASE

HISPANIC MILLENNIALS IMPORTANT ISB SHOPPERS

An area that continues to be small, but has seen consistent growth over the past few years, is the movement toward cleaner labeling and free-from products in ISBs. While currently representing less than 3% of sales, it offers tremendous opportunity for ISBs. ISBs can learn from the moredeveloped claims in the grocery aisles, instead of viewing them as competition. Sales of products with clean labels have increased 40% year over year; clean-label refrigerated cookie dough sales increased 20%. Source: Matt Lally, associate director, Nielsen

Just over two-thirds of consumers (70%) purchased items from an in-store bakery in the last three months, and while that number jumps to 74% of Hispanic consumers, it is even more pronounced among Hispanic Millennials (81%). Hispanic Millennial consumers appear to have a strong regard for in-store bakeries; indeed, a quarter (26%) indicate they will make a special trip to a retailer for its in-store bakery, compared with the 19% overall average and 20% of Hispanic non-Millennials. Hispanic consumers also express a stronger appreciation for informed staff at in-store bakeries. Source: Billy Roberts, senior food and drink analyst, Mintel

wellness concerns today extend to anxiety about sugar and carbohydrates, consumers are not completely shunning them. “Some carb-focused categories are feeling the impact, but consumers also continue to indulge,” she said. “While overall performance of staples such as bread, sugar, cereal, and pasta are challenged, we see pockets of growth.” This includes the enduring snacking trend in the United States as well as consumers’ proclivity to indulge and treat themselves, which Singh says is a growth driver in some of the carbohydrate categories, such as sweet baked goods and cookie. Taste is another factor. “Taste is still key,” she continued. “In an otherwise challenged bread category, products touting better taste and indulgence are finding success.”25 Tim Grzebinski, principal, Client Insights, IRI, said lifestyle is playing an increasingly critical role in managing overall health. “Targeted bakery offerings positioned to help consumers achieve nutritional © 2018 International Dairy Deli Bakery Association

goals can capture share,” he said. “Claims focused on specialized needs and wants are winning.” Among the ingredients now trending in the bakery sector are super grains (quinoa, spelt, rye, millet, barley), protein, fiber, and Omega 3.26 Grzebinski added that storytelling remains an important selling point for today’s bakery shoppers. “More consumers want to know what is in their food, and it’s making transparency a key theme in the bakery world.,” he said. He said that more manufacturers are calling out “No High Fructose Corn Syrup” and “No Artificial Flavors or Colors” on the front of their packages, as well as removing many artificial ingredients and dyes. “Consumers want clean simple ingredients that they can understand,” he said. “Products positioned as fresh, local, authentic, less processed and simple continue to gain momentum.”27

WHAT’S IN STORE | 2019 • Low in sugar (44%) figure 5.8

• Addresses nutritional goals (42%)

Category Share of Bread Sales in the United States in 2017

• Easy-to-understand ingredients (42%)29

Other

Flat

8.7%

5.4% Crusty/hot hearth %

37.9

Sandwich %

17.8

Roberts, Mintel, told IDDBA that health attributes often take a backseat to flavorful indulgence for consumers shopping the ISB. However, with more ISBs seeking sales around the breakfast daypart this could shift, and certain free-from claims could resonate for multiple dayparts. “Even though such claims are often associated with health, there appears to be a sizable portion of consumers seeking simply to avoid certain ingredients, whether related to health or not,” he said. “Some 42% of those who buy foods with a free-from claim do so because they want to eat foods that are as pure as possible, and one-third say foods with these claims are more natural than other foods.”30

Artisan

30.2% Source: Statista, July 2017

BAKERY CONSUMER DEMOGRAPHICS

DEFINITION OF HEALTHY CHANGING

FAMILIES WITH CHILDREN, BABY BOOMERS, AND SENIORS ARE TOP ISB SHOPPERS

Grzebinski said that consumers’ definition of healthy eating has changed; they are no longer looking for just low-fat options. He said that strong growth is occurring in products with the following attributes: • Organic

• No artificial preservatives

• Non-GMO

• Protein

• Non-Dairy

• Less sugar

• 100% Natural

• Low calorie claims28

• Gluten-Free

Citing a recent IRI survey, Grzebinski explained that healthy eaters have a desire for transparency when it comes to evaluating new food and beverages. “Consumers want to understand what they are putting into their bodies and feeding their loved ones,” he said. Survey respondents are seeking the following ingredients and attributes when shopping and consuming food: • Fresh/not processed (52%) 100

Roberts, Mintel, told IDDBA that a large proportion of ISB shoppers have children under the age of 18 in the household. “These households simply have more eating occasions, as well as more opportunities to cater to these larger families’ needs for birthday and specialoccasion cakes and treats,” he said. “These larger families also have less time to bake treats that can be purchased easily and conveniently from a bakery.” In the case of ISBs, a greater convenience (particularly if it is located in the grocery store where a family member shops anyway) and lower-cost options than found in specialty bakeries are spurring the interest from these larger households; there’s also an interest in items tailored to meet specific dietary needs, such as sugarfree or gluten-free, he said.31 Roberts said that considering households with children typically have younger heads of household doing the shopping, it should be little surprise that the most frequent ISB consumers are aged 25-34, 35% of whom indicate they purchased from an ISB in the last week. © 2018 International Dairy Deli Bakery Association

Bakery Sales and Eating Trends

“Consumers want clean simple ingredients that they can understand. Products positioned as fresh, local, authentic, less processed and simple continue to gain momentum.” Tim Grzebinski, principal, Client Insights, IRI Some 37% of males aged 18-34 indicate they purchased from an ISB within the last week, and overall, Hispanics were more likely to have purchased from an ISB within that timeframe: 34%, compared with 27% of non-Hispanics.32 While younger consumers are much more likely to appreciate ISB items than those from a stand-alone bakery shop, roughly one-quarter of all consumers indicate they have had some baked good from an ISB within the past week.33

BUT BOOMERS, SENIORS MAKE MORE PURCHASES Jonna Parker, principal for Fresh Center of Excellence, IRI, told IDDBA that Baby Boomers and seniors make more bakery purchases than younger generations; their purchases add up to more than half of all fresh bakery dollars. This is due to their eating patterns, as they’re much more likely to engage in traditional meal occasions than younger generations. This impacts product assortment in ISBs, which end up being the items that the older generations are purchasing. “There’s certainly money to be made by engaging these generations, but if we don’t engage in everyday shopping with Gen X, Millennials, and Gen © 2018 International Dairy Deli Bakery Association

Key Insight CONSUMERS OPEN TO CARBOHYDRATE ALTERNATIVES One area that could open the door to future innovation is the growing embrace of alternative carbohydrates as a replacement for grains, potatoes, corn, and other ingredients. When asked in a GlobalData survey, “Which of the following would you consider choosing as an alternative to traditional carbohydrates?”, the top response, selected by 58% of Americans surveyed, was vegetables (excluding white potatoes). “Varieties of your usual carbohydrate” was the second most popular response, selected by 54% of respondents, followed by “Pulses”, such as lentils and beans”, which was selected by 37% of respondents. Source: Tom Vierhile, innovation insights director, GlobalData

Key Insight TRENDING ISB FLAVORS AND INGREDIENTS CRAFT COFFEE AND GLOBAL TEA FLAVORS Earl Grey bundt cake, cappuccino muffins LATIN-INSPIRED Mango cheesecake, cilantro lime cornbread FIRE AS FLAVOR Brown butter apple tart, smoked salted caramel cheese cake SPIRIT-INFUSED Mimosa muffins, raspberry Moscow mule cake Source: Jill Tomeny, senior manager-fresh, Daymon Worldwide

101

WHAT’S IN STORE | 2019

Key Insight ADDED NUTRIENTS Interest in added nutrients peaks among younger consumers with household incomes of $50,000 or greater. This may not necessarily indicate such products can command a premium price, particularly considering cost of living can vary significantly by region. However, it does suggest that younger, higher-income households are notably more likely than others their age (indeed, than all groups aged 35-plus) to consider added nutrients in a baked item when purchasing. This age/income demographic also is of the age when they are beginning families and having children, so the convenience of an ISB’s options can resonate particularly well. This group likely also appreciates products that are lower in sugar and without allergens, which may be notably helpful for families seeking a quick and easy option for their child’s class snack in school. Source: Billy Roberts, senior food and drink analyst, Mintel

Z, the department is really going to struggle from here forward,” she said.34

MILLENNIALS, GEN Z NOT ACTIVE ISB SHOPPERS Parker told IDDBA that both Millennials and Gen Z shoppers index very low when it comes to ISB purchases. They’re much less likely to purchase baked goods than their older generational counterparts.35 “One of the important things to keep in mind with Millennials is the assumption that as Millennials become parents, they will naturally be drawn to the ISB for products like cakes and prepackaged bakery snacks, like past generations,” she said. “Smaller household sizes are more prevalent among Millennials. 102

Additionally, many of them are delaying having children until later in their lives. We’re not seeing that natural generational change.” Parker suggested the following for engaging Millennial and Gen Z shoppers in the ISB: • FOCUS ON ISB BREAKFAST BAKERY AND WHY

THEY SHOULD START THE MORNING WITH BAKED GOODS. • KEY IN ON AUTHENTICITY, TRANSPARENCY, AND CREATIVITY. Millennials are more intrigued with variety and uniqueness than the same day in and day out. Fresh can be a selling point for them, but they need to know how and where products are baked. ISBs can do a better job of marketing transparency on ingredients and baking methods as seen in several other departments like produce. • BE A STORYTELLER. Gen Z is extremely culturally diverse and highly exploratory in their food and tastes. They present a great opportunity for bakeries to reinvent the types of food that they offer. They’ve also always lived in a climate where allergens, health concerns, and transparency of what’s in your food has been on store shelves. Storytelling will be essential to connect with Gen Z. • OFFER A VARIETY OF PORTION SIZES. Smaller household size also may result in many Millennials not finding products that fit their lifestyle needs, as oftentimes the portion sizes are geared towards occasions and household of four or more persons. Retailers have seen success with half loaves of bread as well as half pies; packaging manufacturers are working to keep up with the need and many offer interesting options. • FOCUS ON HOLISTIC HEALTH AND FUNCTIONAL FOOD. While a draw for Millennials and Gen Z shoppers, fresh-baked energy bars and protein-packed baked goods are underrepresented in ISBs; additionally, most shoppers don’t view ISBs as destinations for these products.36

BAKERY EATING TRENDS MOST POPULAR BAKERY TRENDS Forty-five percent of respondents listed cookies as their top-selling bakery item, compared with 39% a year prior. Forty-one percent said bread was their top seller, a significant drop from 61% in 2016.37 © 2018 International Dairy Deli Bakery Association

Bakery Sales and Eating Trends

Key Insight

IS IT INSTAGRAM WORTHY?

INCLUDE ISB PRODUCTS IN MEAL KITS

In today’s environment, particularly among younger demographics, people are looking for products that are attractive in order to post on Instagram (also known as ‘Instaworthy’) or Pinterest. They want items to have a strong visual appeal, and this is how bakeries can continue to drive traffic by giving shoppers products that they can’t easily recreate themselves but that they want to consume and share with others. Social media is a powerful tool, especially if products are posted by people who aren’t affiliated with the store or manufacturers themselves. There’s been a huge rise in influencers (social media users with large numbers of followers). Finding ways of introducing them to the product or explore ways of collaborating with them can generate buzz or help new products go viral, which gets people excited.

The rise of meal kits has led retailers to be more focused on creating meal solutions within the store. Unfortunately, many don’t do a good job of including the bakery in these plans. Work within the store to make sure that breads and desserts are included to make the solutions truly complete. Single serve desserts or desserts for two, rolls, biscuits and dinner breads are all part of the picture. Sandwiches, especially ethnic items, are hot in foodservice this year, and in store bakeries can play a part in that segment. This can be both on the fully prepared side, but also as part of cross merchandising within the deli. Source: Jill Tomeny, senior manager-fresh, Daymon Worldwide

Source: Matt Lally, associate director, Nielsen

Tomeny, Daymon Worldwide, said crossover products like the following are growing in popularity: • Dessert fruit tacos • Everything bagel donuts • Gin and tonic bundt cakes • S’mores muffins38

She added that there is increased interest in ethnic sandwiches on restaurant menus, and shoppers are looking for the right breads to recreate them at home. “Mexican tortas and cemitas need telera, boliilo or cemita rolls, while a good Bahn Mi needs a Vietnamesestyle baguette,” she said.39

CAKES John Gardner, assistant vice president, sales, DecoPac, told IDDBA the current health and wellness is applicable to cakes to some degree, despite cake’s traditional indulgent role. “Retailers, and the consumer, are demanding an attention to nutrition, even within their celebrations,” he said. “A few years ago, it was felt that consumers would leave behind nutritional concerns in a time of celebration and indulge. While somewhat true, there needs to be an understanding that people are extremely conscious of what's going into the food they are consuming.” He mentioned proper labeling as a requirement for retailers; on the supplier end, high-quality ingredients are not just an option, but a necessity.40 103

WHAT’S IN STORE | 2019

Key Insight TOP WEDDING CAKE TRENDS • Brushstroke Cakes (melting chocolate on wax paper and using it to create “feather”) • Celestial Details (blue, purple, and metallic confections) • Hand-Painted Flowers • Gold Leaf • Geometric Accents • Figs as Garnish • Metallic Ombre (iridescent pigments, pastel and neutral tones) • Succulent Cakes (with piped icing succulents that create a terrarium-inspired appearance) Source: weddingwire.com

Billy Roberts, senior food and beverage analyst, Mintel

figure 5.9

Top 5 and Bottom 5 Sweetening Agents by Preference

Bottom 5

Top 5

When we surveyed consumers about 17 specific sweetening agents, they had a distinct perception as to their natural or artificial derivation. Consumer perception of the various sweetening agents either skewed strongly natural or strongly artificial. Honey was viewed as the most natural sweetening agents, while aspartame was viewed as the most artificial. Aware

Preferred

Honey Sugar

82%

64%

82%

59%

82%

Maple Syrup

71%

31%

82%

Stevia Agave

58%

22%

46%

50%

13%

71%

10%

20%

21%

Erythritol Acesulfame K Monk Fruit Sorbitol Xylitol

“Some 42% of those who buy foods with a free-from claim do so because they want to eat foods that are as pure as possible, and one-third say foods with these claims are more natural than other foods.”

Perceived Natural Sweetening Agent 94%

15%

77%

20%

21%

19%

GENERATIONAL DIFFERENCES IN CAKE PREFERENCES Gardner added that generational differences exist in both the speed in which a cake is ordered and made as well as personalization. “Younger generations want both, and they are not mutually exclusive,” he said. Ease of ordering, control of design, fast pickup (delivery even better), and expressing themselves on their cakes in similar fashion as they do on social channels are important factors to consider when connecting with younger consumers. “As a matter of fact, sharing the cake on social is virtually a necessity,” he said. “If you don't see it shared, it’s likely not creating a memory.”41 Gardner added that a key to growing the cake category are technologies that make it easy for consumers to order and personalize their cakes, such as an integrated, digital approach through smartphones.42

Source: Kerry Proprietary Consumer Research, Sensibly Sweet Formulating for Clean Label Taste, 2018

104

Bakery Sales and Eating Trends

Key Insight

ELEGANT AND EXECUTABLE

DEMAND FOR SMALLER PIE SIZES INCREASING

Elegant and executable are critical in cake design for today's retailer. With labor top of mind, we need to make sure that trendy designs can be executed quickly for bakery staff. We've seen a simple, yet trendy, unicorn design take the industry by storm. The trend toward adults releasing their inner child on cakes has been a popular theme among our retailers. The inner child trend allows adults to express themselves the way they want on their celebration cake. Whimsical designs, nostalgic decorations, toppers that encourage fun/play, and of course the ever present need to personalize are all elements of this trend. Edible décor is not just a trend; it's here to stay. Shoppers are after decadence, and creative use of chocolate, fondant and sugar-based decorations is critical to serving this demand. Source: John Gardner, assistant vice president, sales, DecoPac

The trend toward smaller pie sizes is ever increasing, in part because of multiple factors driving it. One primary factor is demographics. As the Baby Boomers age, they’re increasingly living in smaller households. Additionally, Millennials are getting married later, so they’re staying single longer and having kids later. Small households need smaller pies. Conversely, larger households are looking for any way to stretch a buck so, larger 11” and 12” pies are increasingly popular, allowing people to get maximum value on their pie purchase. This trend toward smaller pies allows pie companies and, ultimately, the consumer, to experiment with incorporating ethnic flavors – the other demographic shift – such as adding jalapeños to chocolate or Thai chili spice to berries. Source: Mark Van Iwaarden, director of marketing, Legendary Baking

PIES Van Iwaarden, Legendary Baking, told IDDBA that there is a trend to go “back to the basics” with a lot of retailers but in a new and improved way: offering apple, cherry and pumpkin pies that consumers know and love but done cleaner or without high fructose corn syrup or in larger and smaller formats. However, consumer preferences do stretch beyond traditional flavors. “This is not to say that there isn’t any innovation happening regarding flavors and fillings,” he said. “Consumers continue to crave their pumpkin spice latte’s even out of season.” To that end, pumpkin or variations of it seem to be broadening their seasonal appeal from solely a Thanksgiving © 2018 International Dairy Deli Bakery Association

item to being sought after from July to December, he explained.43 Van Iwaarden added that pies featuring the flavors of alcoholic drinks such as bourbon pecan are also increasing in popularity. “This mimics an overall trend for drink flavors appearing in lots of different food items,” he said. Another trend is new twists on traditional favorites, as consumers leery of straying too far from the norm but still want something different have gravitated to flavors such as caramel apple, and apple raspberry.44

105

WHAT’S IN STORE | 2019 EXTRA SWEET TREATS

Trends Executed at IDDBA 18 ALTERNATIVE WEDDING DESSERT OPTIONS

INDULGENCE

Edible chocolate chunk cookie dough doughnut and caramel corn doughnut

106

Bakery Sales and Eating Trends

FLAVOR INFUSION Prosciutto cheese doughnut, birthday cake doughnut, French toast style doughnut

SWEET HEAT Dark chocolate donut garnished with hot chili pepper

107

of US consumers saying they are eating cheese at least once a week, according to research from Mintel.

Chapter 6

CHEESE SALES AND EATING TRENDS 113 / Sales and Consumption Marketplace

115 / Economic Pressures Facing the Cheese

117 / Eating Trends

Cheese Category

121 / Millennial and Gen Z influence on the

122 / Cheese as a Key Driver of Customer Experience

WHAT’S IN STORE | 2019

IDDBA Trends Focus on Snacking, Nutritional Attributes, and Hispanic Cheeses for Attracting Shoppers to the Cheese Department Through its What’s in Store research, IDDBA has identified three key trends impacting consumer shopping and purchasing for cheese categories at retail which, when analyzed separately and together, could provide innovative solutions to retailers looking to drive sales in their cheese departments. 1. SNACKING While cheese is an ingredient with multiple applications across dayparts, snacking continues to be the defined eating occasion on the forefront of both retailers and manufacturers. Nine in 10 consumers across generations snack daily, and some statistics indicate that there is at least some portion of the population that snacks three to five times a day. Regardless of the numbers, the demand remains.

2. NUTRITIONAL-ATTRIBUTE LABELING to highlight cheese’s inherent and perceived health benefits. These claims range from high protein to heart -healthy but are all centered on leveraging the growing health and wellness trends happening across product lines. In many cases, nothing changed about a cheese other than the call-outs on the packaging or signage. 3. The rise and substantial GROWTH OF HISPANIC CHEESES. Hispanic cheeses continue to show up on restaurant menus and retail shelves with much success. While one can point to demographic and population shifts accounting for some portion of these sales, there are many factors contributing to this subcategory’s double-digit growth over the past four years.

What Does This Mean for Retail? Retailers should consider each of the trends and find ways to accommodate the shopper’s preferences using their existing structures. Additionally, consider the shopping pattern data outlined in this chapter--including statistics, data points and opinions—for inspiration for future innovations within the department. Leverage signage, packaging, and product placement throughout the store to remind shoppers that cheese makes an excellent, exciting, and satiating snack. • Focus on identifying other areas in the store’s prepared foods offerings where cheese could be successfully used, with special attention directed to the Hispanic cheese subcategory.

• Create signage that highlights the inherent benefits of cheese consumption. • Consider events and promotions tied to any of these three trends- for example, adding cheese cubes to an olive bar (or transitioning an olive bar to a cheese snack bar every first Saturday of the month); creating a prepared foods menu to highlight Hispanic cheeses on a hot bar coupled with a percentage off the Hispanic cheese subcategory as part of a weekly promotional calendar; or leveraging in-store dietitians and nutritionists to focus on health and wellness attributes around cheeses.

Source: IRI Infoscan Reviews, IDDBA/FreshLook Marketing, USDA ERS/Mintel

110

Cheese Sales and Eating Trends figure 6.1

Deli Specialty Cheese Dollars

Dollar Sales (millions)

Dollar Sales % Change vs. YA

Units

Dollar Dollar Share to Share to Specialty Specialty Cheese Cheese YA

Dollar Share to Deli Cheese

Dollar Share to Deli Cheese YA

Volume Sales (lbs)

Volume Sales % Change vs. YA

Volume Volume Share to Share to Specialty Specialty Cheese Cheese YA

Volume Share to Deli Cheese

Volume Share to Deli Cheese YA

Cheddar Blend

$606

0.1%

21.1%

13.3%

13.4%

100,582,176

-1.3%

26.0%

26.3%

15.8%

16.1%

Hispanic Specialty

$379

5.8%

13.2%

12.5%

8.3%

7.9%

75,316,037

3.4%

19.4%

18.8%

11.8%

11.5%

Parmesan

$239

-0.3%

8.3%

8.4%

5.3%

21,056,015

-0.6%

5.4%

5.5%

3.3%

Mozzarella

$225

4.1%

7.8%

7.6%

5.0%

4.8%

35,872,560

3.5%

9.3%

8.9%

5.6%

5.5%

Feta

$220

-2.4%

7.6%

7.9%

4.8%

5.0%

23,068,445

-2.2%

6.0%

6.1%

3.6%

3.7%

Brie

$133

1.0%

4.6%

2.9%

11,662,879

-0.5%

3.0%

1.8%

1.9%

Goat Cheese

$96

0.5%

3.4%

3.3%

2.1%

5,411,108

-2.5%

1.4%

0.8%

0.9%

Gouda

$94

-6.0%

3.3%

3.5%

2.1%

2.2%

9,464,566

-7.8%

2.4%

2.6%

1.5%

1.6%

Bleu

$75

-3.6%

2.6%

2.7%

1.7%

5,896,018

-4.0%

1.5%

1.6%

0.9%

1.0%

All Other Blends/Assorted Packs

$59

7.3%

2.1%

1.9%

1.3%

1.2%

7,006,000

13.7%

1.8%

1.6%

1.1%

1.0%

Colby Jack

$58

16.7%

2.0%

1.7%

1.3%

1.1%

10,749,584

13.4%

2.8%

2.4%

1.7%

1.5%

Gruyère

$52

3.1%

1.8%

1.2%

1.1%

3,082,929

0.6%

0.8%

0.5%

Monterey Jack

$49

-5.1%

1.7%

1.8%

1.1%

10,613,541

-5.5%

2.7%

2.9%

1.7%

1.8%

Pepper Jack

$49

-5.0%

1.7%

1.8%

1.1%

9,157,382

-4.9%

2.4%

2.5%

1.4%

1.5%

Romano

$47

-6.7%

1.6%

1.7%

1.0%

1.1%

4,114,264

-3.4%

1.1%

0.6%

0.7%

Havarti

$45

-6.9%

1.5%

1.7%

1.0%

1.1%

4,322,870

-8.0%

1.1%

1.2%

0.7%

Swiss

$37

-9.9%

1.3%

1.4%

0.8%

0.9%

4,457,312

-11.8%

1.2%

1.3%

0.7%

0.8%

Cheddar

$36

32.6%

1.2%

0.9%

0.8%

0.6%

5,172,286

33.8%

1.3%

1.0%

0.8%

0.6%

Asiago

$29

-6.0%

1.0%

1.1%

0.6%

0.7%

2,971,135

-6.5%

0.8%

0.5%

Dubliner

$25

3.3%

0.9%

0.6%

0.5%

2,507,144

5.9%

0.6%

0.4%

Provolone

$25

-20.1%

0.9%

1.1%

0.5%

0.7%

2,949,057

-23.3%

0.8%

1.0%

0.5%

0.6%

$296

-2.1%

10.3%

10.6%

6.5%

6.7%

31,888,629

-2.9%

8.2%

8.5%

5.0%

5.2%

$2,877

0.4%

63.3%

63.6%

387,321,938

60.8%

61.2%

All Other Deli Specialty Cheese Total

IRI Unify Total Store View, 52 weeks ending 6/17/18: Note: Deli Specialty Cheese includes Random-Weight cheese items that are not Service and Fixed-Weight (UPC) cheese items in brands, flavors and forms commonly found in the Deli department

111

WHAT’S IN STORE | 2019 figure 6.2

Deli Service Cheese Dollars

Dollar Sales (millions)

Dollar Sales % Change vs. YA

Units

Dollar Share to Service Cheese

Dollar Share to Service Cheese YA

Dollar Share to Deli Cheese

Dollar Share to Deli Cheese YA

Volume Sales (lbs)

Volume Sales % Change vs. YA

Volume Share to Service Cheese

Volume Share to Service Cheese YA

Volume Share to Deli Cheese

Volume Share to Deli Cheese YA

American

$662

2.2%

39.6%

39.5%

14.6%

14.4%

114,351,104

1.3%

45.8%

46.0%

18.0%

17.8%

Swiss

$247

1.6%

14.8%

5.4%

32,200,667

1.9%

12.9%

5.1%

5.0%

Provolone

$167

1.7%

10.0%

3.7%

3.6%

23,802,594

1.6%

9.5%

3.7%

Cheddar

$100

4.5%

6.0%

5.9%

2.2%

2.1%

12,569,544

5.5%

5.0%

4.9%

2.0%

1.9%

Muenster

$93

0.9%

5.5%

5.6%

2.0%

13,335,643

1.4%

5.3%

5.4%

2.1%

Colby Jack

$79

7.3%

4.7%

4.5%

1.7%

1.6%

11,184,702

8.3%

4.5%

4.2%

1.8%

1.6%

Baby Swiss

$72

1.8%

4.3%

1.6%

8,953,617

3.8%

3.6%

3.5%

1.4%

Pepper Jack

$43

5.9%

2.6%

2.5%

0.9%

5,858,714

6.8%

2.3%

2.2%

0.9%

Havarti

$40

2.0%

2.4%

0.9%

4,270,211

0.8%

1.7%

0.7%

Jarlsberg

$36

-1.6%

2.2%

0.8%

5,287,609

-0.6%

2.1%

2.2%

0.8%

Mozzarella

$30

-3.4%

1.8%

1.9%

0.7%

4,166,067

-3.7%

1.7%

1.8%

0.7%

Colby

$30

-1.2%

1.8%

0.7%

4,385,881

-1.0%

1.8%

0.7%

Gouda

$27

0.7%

1.6%

1.7%

0.6%

2,985,504

1.8%

1.2%

0.5%

All Other Service Cheese

$45

-6.2%

2.7%

2.9%

1.0%

1.1%

6,276,371

-6.6%

2.5%

2.7%

1.0%

1.1%

$1,669

1.9%

36.7%

36.4%

249,628,229

1.7%

39.2%

38.8%

Total

Source: IRI Unify Total Store View, 52 weeks ending 7/15/18 Note: Deli Service Cheese includes Random-Weight only cheese items sold by the slice in the Bulk Service Case or pre-packaged as Grab-and-Go. It excludes any Fixed-Weight (UPC) items.

figure 6.3

Total Deli Cheese Dollars

Dollar Sales

Dollar Sales % Change vs. YA

Units

Dollar Share Dollar Share to Deli Cheese to Deli Cheese YA

Volume Sales (lbs)

Volume Sales Volume Share Volume Share % Change to Deli Cheese to Deli Cheese vs. YA YA

Specialty

$2,876,915,417

0.4%

63.3%

63.6%

387,321,938

-0.1%

60.8%

61.2%

Service

$1,669,313,525

1.9%

36.7%

36.4%

249,628,229

1.7%

39.2%

38.8%

$4,546,228,942

0.9%

636,950,167

0.6%

Total

Source: IRI Unify Total Store View, 52 weeks ending 6/17/18 Note: Deli Service Cheese includes Random-Weight only cheese items sold by the slice in the Bulk Service Case or pre-packaged as Grab-and-Go. It excludes any Fixed-Weight (UPC) items. Deli Specialty Cheese includes Random-Weight cheese items that are Self-Service, ex Grab&Go Sliced, and/or Fixed-Weight (UPC) cheese items in brands, flavors and forms commonly found in the Deli department

112

Cheese Sales and Eating Trends

SALES AND CONSUMPTION

figure 6.4

Cheese Dollar Share Latest 52 Wks - W/E 07/21/18

Dollar Sales

Dollar Share of Total Cheese

Dollar % Change vs. Prior Year

Dollar Share to Deli Cheese YA

Deli

$4,165,932,235

19.7%

1.2%

63.6%

Dairy

$16,929,274,593

80.3%

-0.4%

36.4%

Total

$21,095,206,828

-0.1%

Source: Nielsen xAOC, Total Food View, 52 Weeks Ending 7/21/18

Key Insight SPECIALTY CHEESE SHOPPERS GOOD FOR SALES ACROSS DEPARTMENTS Specialty food continues to growth overall as a category; cheese remains the largest subcategory in specialty at retail. According to Dairy Farmers of Wisconsin (DFW), household penetration of specialty cheese remains high: 96.8% of households buy cheese, with 85.7% of them also purchasing buy specialty cheese. Specialty cheese households purchase an average of seven pounds a year from roughly 8.3 shopping trips. Although this may seem somewhat insignificant, when DFW looked at basket size for specialty cheese shoppers, they found it to be significantly higher than the average shopper: $92 versus $48. These shoppers also drive cross category sales in multiple departments. Anything a retailer can do to drive attract customers to the specialty cheese department can potentially increase sales across the store.6

Two notable cheese records were reached in the United States in 2018: natural cheese consumption (36.62 pounds) and stockpiles of US cheese (1.39 billion pounds as of May 2018) reached all-time highs. While those two records seem contradictory regarding their effect on the price of cheese, they are both important to bear in mind concerning today’s cheese retail environment.1 While US cheese consumption per capita continues to grow year over year, it is not even in the top 15 countries when ranked, based on per-capita numbers. Until 2016, France reigned with an impressive 59 pounds per capita, but has since fallen and is now replaced by Denmark (61.82 lbs.), Iceland (60.94 lbs.), and Finland (60.06 lbs.). The bottom three countries in terms of consumption, and therefore opportunity, are China (.22lbs.), Mongolia (.66 lbs.) and Zimbabwe (1.32 lbs.).2 Mozzarella continues to be the most consumed cheese in the United States at 11.72 pounds per capita (32% of total consumption per capita), with cheddar close behind at 10.37 (28% of total) pounds. This means that 60% of total US cheese consumption is comprised of just these two varieties. Additionally, household penetration of natural cheese is breaking records, with 66% of US consumers saying they are eating cheese at least once a week, according to research from Mintel.3

TOTAL CHEESE SALES Total specialty and deli service cheese sales at retail in the United States are $4.5 billion, up 2.3% over the 52 weeks ending in June 17, 2018, according to IRI. Nielsen Fresh echoes these numbers, reporting total deli cheese at $4.1 billion, up 2.1% over 52 weeks previous ending July 21, 2018.4

113

WHAT’S IN STORE | 2019 figure 6.5

Specialty Cheese Drive Cross Category Sales

Produce

57%

50%

Milk

Bread from bakery section

Meat

44%

42%

41%

Crackers

Juice/soda/beverage

Cereal/Rice/other dry goods

Souce: Carbonview, "Consumer Insights: Impact of premium cheese in grocery", Nov 2015

DOWNLOAD FIGURES ONLINE SALES BY VARIETAL Specialty: The Power of Cheddar Cheese When examining varietal data by volume and dollar share, cheddar and cheddar blends continue to grow and dominate the cheese category accounting for 27.3% of specialty cheese sales overall. Although cheddar blends are slightly down around 1.3% from a year ago, cheddar is up 32.6% over the same period, according to data shared with the IDDBA from IRI. Looking at dollars, cheddar and cheddar blends combined is up a 32.7% and still accounts for 22.3% of overall dollars in the specialty category.

114

A notable second this year is Hispanic Specialty cheeses, picking up 19.4% of specialty volume and 13.2% of specialty dollars, up from July 2017. This category continues to rise to the top due to both the rising Hispanic population in the United States (see Chapter 3 for additional specifics about population and demographics and additional trend-related information later in this chapter) and younger generations, notably Millennials and Gen Z, who are both driving diversity around more bold flavors. Rounding out the top three is Parmesan at 8.3% of sales in dollars and 5.4% of sales in volume. When speaking to the IDDBA about volume versus dollar growth, Jonna Parker, principal, Fresh Center for Excellence, IRI, noted that due to the sheer volume of cheddar sales, any decline in volume or dollars can affect the whole specialty cheese category

Cheese Sales and Eating Trends figure 6.6

Specialty Cheese Drives Category Growth 5-year growth

24%

Non-specialty cheese

Specialty Cheese

Specialty

Spec perc

Non-Spec

Non-Spec perc

2012

3242

2013

3262

0.60%

653

4.30%

2014

3227

-1.10%

669

2.50%

2015

3286

1.80%

106

5.50%

2016

3339

1.60%

749

6.10%

2017

3315

-0.70%

773

3.20%

626

Source: IRI custom WMMB database

numbers and be the one variable to account for volume lost.5

DELI SERVICE CASE Looking at varietal data for the service deli case, American cheese remains the top seller, accounting for $661,594,328 (in the rolling 52 weeks from July 15, 2018), which is 39.6% of dollar deli cheese sales and 45% of the volume. American cheese has seen a steady increase in the past three years. Swiss cheese is the second top cheese at 14.8% of dollar share and 12.9% of volume share. Provolone is third with 10% in dollar share and 9.5% in volume. When discussing these numbers with Parker, IRI, she noted that “flavor trends in the service case haven’t changed too much.”7

ECONOMIC PRESSURES FACING THE CHEESE MARKETPLACE There are several factors unique to 2018 that will affect the US cheese market. As referenced earlier, the United States is currently stockpiling cheese at a record rate (1.39 billion pounds as of May 2018). Part of that stockpile is the investment in milk production. A February 2018 report from CoBank’s Knowledge Exchange Division highlights the US efforts to capitalize on increased milk production with international joint ventures. For example, a large-scale dairy in the United States would consider partnering with a European company with manufacturing, networking or marketing experience. CoBank’s report concluded that these partnerships were on the rise. This should spur innovation and competition in the marketplace.8 Meanwhile, the European Union (EU) feels strongly that naming 340 food, wines, and spirits should be the exclusive right of European producers. These names are tied to geography. The EU is actively signing trade agreements with other countries that prohibit producers outside of the EU from using any of these names, which include Parmesan, Asiago, Muenster, and Feta specifically in the cheese category.9 Mexico recently signed an agreement with the EU extending an existing agreement specific to spirits from 1997. For US cheesemakers, this will substantially affect their business as Mexico has been a key export market in the past decade (see figure 6.7). Pressure on Mexican exports are also subject to a new round of 2018 tariffs, which jumped from 15% to 25% in July 2018 on cheese imports. US cheesemakers are grappling with both renaming some cheeses and increasing their prices in the Mexican marketplace.10 This economic environment is also stressed, as the increase and generally high levels of domestic milk production would enable greater ability to export US cheese and, therefore, were predicted to be a key area of growth and potential stability for cheese producers at the end of 2017. In addition to the EU 115

WHAT’S IN STORE | 2019 figure 6.7

US Cheese Exports Exports to Mexico (metric tons)

Overall Exports (metric tons)

341,085 286,658

89,982 96,413

88,940 24,635

2016

2017

2018 (January to March)

2016

2017

2018 (January to March)

Source: US Dairy Export Council

116

and Mexican tariffs, the United States has also pulled out of the Trans Pacific Partnership (a 12-nation pact) that would have opened new markets, such as Japan, where cheese is gaining popularity. Asia has long been considered a key region for growth as dairy is just beginning to be consumed; growth can be slow in a new market but has serious potential.

is ambitious given global dietary trends, we believe it is achievable. To reach that plateau, the United States will need to target the highest growth regions (not necessarily regions where we are traditionally strong in cheese) with products suited to their particular consumer palates (not necessarily products we are accustomed to exporting).”11

The US Dairy Export Council (USDEC) estimates that to maintain strong overall growth, the US dairy industry needs to increase its dairy export volume about from its current 15% level to around 20%, an effort the USDEC named “The Next 5%.” Merle McNeil, business unit director, USDEC, said, “Raising cheese exports by around 440 million pounds over the next five years is a critical component to achieving that goal. While such a gain

Any of these factors alone or evaluated together will have an impact on long-term pricing, and potentially, product innovation if cheesemakers choose to experiment with dried milk and cheese products by taking advantage of the stockpile and trying to find ways to capitalize on it. Innovation can also take the form of experimentation to grow by leveraging the export market where possible.

Cheese Sales and Eating Trends

EATING TRENDS PRODUCT TRENDS WITH GROWTH POTENTIAL Snacking Snacking continues to be a top-of-mind trend in the cheese category with 94% of consumers snaking at least once daily. According to a report from Persistence Market Research in late 2017, the global cheese snack market is expected to rise at a compound annual growth rate of 5.2% from 2017 to 2025, when it is predicted to become a $39.57 million business. The report notes that trends, such as busy lifestyles and schedules, are driving consumers across generations toward available and convenient food options.12 Recently, marketer positioning of cheese as a both natural and protein-packed option have made the category a growing contender for the snacking dollar, according to market research firm Packaged Facts in its reports Cheese: US Market Trends and Opportunities. Brands have been capitalizing on snacking by packaging their cheese in more convenient forms, marketed to both adults and children.13 Snacking on cheese has deep roots; humans have historically relied on cheese as a convenient way to use excess milk and store protein throughout the winter months as well as during migrations. Similar to the rise of the Paleo diet over the past couple of years, repackaging cheese for on -thego is somewhat of a resurgence. Retailers have an opportunity in this area by leveraging small pieces from cut-and-wrap service cheese cases wrapped together for a quick snack; partnering with the deli department to build interesting snacking options; and experimenting with leveraging packaging. The key question for increasing sales around this trend is how to make available cheeses that are portable, appealing, and front of mind to the consumer. It further begs the question, though: “How will cheese continue to evolve to meet the surge of demand around snacking?” Beyond just being portable, what new forms or varieties are on the horizon to continue innovation in this area?

Key Insight SNACK CHEESE DFW named ‘gourmet snack’ as one of its 2018 top five ways that consumers would enjoy specialty cheese. Cheese manufactures across the United States are continuing to innovate and release new cheese snacking products geared toward grab-and-go and convenience. Cheese Market News noted to the IDDBA that it has profiled six distinct new snacking lines from popular cheese companies in the first half of 2018 alone. Snacking options, also marketed as mini-meals, include packaging innovations with individuallywrapped cheeses (often in conjunction with other high protein snack foods), dried cheeses made into crisps, and even cellophanewrapped cheese flights.14 Snacking was one of the major themes in Show and Sell at IDDBA18, where a cheese-centric merchandising team from various manufacturers and retailers planned out an open cold-case themed around “Snack Time is Anytime” (see pictures). The overall concept leveraged simple signage to organize snacks by daypart. Additionally, it combined prepackaged options from manufacturers and some simple snack packs created in-house with easy to use value added ingredients. They focused on the emerging variety around snacking. Melissa Shore, director or new product development, Finlandia, who was on the cheese team and contributed to the snack time set, told IDDBA that the cheese snack set has come a long way from simple format cheese packaged in a stick. “There are better flavored cheeses coming into the snacking format,” Shore said. “We are seeing cheeses of all varieties coming into the snacking format. Part of it is the push for protein- consumers wanting to feel full, so focusing on combinations like cheese with nuts and eggs, as well as dried and fresh fruit. One of the big takeaways for this case was really to highlight that variety.”15 117

WHAT’S IN STORE | 2019 NUTRITIONAL ATTRIBUTES Many consumer groups continue to report being motivated by a ‘clean label’ when they make purchasing decisions. More and more individual attributes are being called out on specific products separate from the nutritional label box, commonly found on the back of the package. Cheese has long been a full-fat, high-protein food, both attributes that are actively sought out by some consumer groups. Melissa Shore, director of new product development, Finlandia told IDDBA, “I think protein is still

relevant. I continue to see protein being pushed across the board.” A recent Mintel survey, The Future of Fresh found that 54% of US consumers believe they need more protein in their diet;34% of food and drink launches (all types) had a high/added-protein claim on the label from January 2014 to December 2017.16 There are several other claims for cheese manufacturers to leverage, most of which will appeal to the “clean label” consumer: • Hormone-free

Key Insight SNACKING MAJOR THEME IN SHOW AND SELL AT IDDBA18 A cheese-centric merchandising team from various manufacturers and retailers planned out an open cold case themed around “Snack Time is Anytime” (see photos below). The overall concept leveraged simple signage to organize snacks by daypart. Additionally, it combined prepackaged options from manufacturers and some simple snack packs created in-house with easy to use value added ingredients. They focused on the emerging variety around snacking. Melissa Shore, director or new product development, Finlandia, who was on the cheese team and contributed to the snack time set,

118

told IDDBA that the cheese snack set has come a long way from simple format cheese packaged in a stick. “There are better flavored cheeses coming into the snacking format,” Shore said. “We are seeing cheeses of all varieties coming into the snacking format. Part of it is the push for protein- consumers wanting to feel full so focusing on combinations like cheese with nuts and eggs, as well as dried and fresh fruit. One of the big takeaways for this case was really to highlight that variety.”

Cheese Sales and Eating Trends figure 6.8

Dollar Share by Cheese Claim Dollars

Dollars % Chg YA

Dollars EQ

Dollars EQ % Chg YA

Units

Units % Chg YA

16,868,821,463

-1.5

3,563,856,893

-2.9

4,802,377,207

-1.9

Excellend Source of Calcium

2,521,789,527

-0.2

627,932,118

4.4

754,063,363

3.1

Good Source of Calcium

1,333,840,941

21.2

349,469,183

35.5

384,957,108

14.5

Calcium Presence

402,132,255

4.7

53,634,299

3.8

85,059,200

2.4

Comparative Calcium Claim

180,931,064

-8.9

36,917,683

-11.7

45,826,543

-11.8

20,442,470,654

-0.5

4,525,311,391

0.1

5,886,879,350

-0.7

865,044,597

7.8

106,498,786

5.8

185,404,072

7.8

20,426,114,126

-0.5

4,450,009,047

-0.1

5,843,046,800

-0.8

524,943,043

12.8

85,552,808

19.6

123,633,846

15.8

Protein Presence

197,395,150

-1.4

30,664,169

-3.9

43,998,101

-4.9

Excellent Source of Protein

151,840,558

6.8

64,052,605

1.0

58,476,935

9.8

Comparative Protein Claim

7,222,374

-24.0

1,531,547

-22.8

3,127,740

-24.7

21,307,515,250

-0.2

6,072,283,422

-0.4

No Calcium Claim

Not Applicable Natural No Protein Claim Good Source of Protein

Total Cheese

Source: Nielsen xAOC, Total Food View, 52 Weeks Ending 7/21/18

• Calcium Rich • Rbst-free • Non-GMO • Grass-fed

Shore indicated that non-GMO was one of the callouts gaining strength across the cheese category. Many manufacturers are prominently adding calorie count to the front of packaging to attract healthconscious consumers. And although “no sugar added” does not specifically apply to cheese, she has seen a rise in “no” on packaging in general. “It used to be more subtle,” she said. “But now manufacturers are screaming it.”17 Cheese is a category that can make a lot of these claims successfully simply because of the nature of the food itself. For example, the process of making cheese preserves the milk and, therefore, artificial © 2018 International Dairy Deli Bakery Association

preservatives are rarely needed. A recent report from the American Journal of Clinical Nutrition in mid-2018 was widely cited by both news and cheese reporters as it challenged some mainstream opinions and found no “significant link between dairy fats and cause of death or, more specifically, heart disease and stroke — two of the country’s biggest killers often associated with a diet high in saturated fat.” The researchers went further and indicated that certain types of dairy fat may guard against having a severe stroke. While this doesn’t make for an easy call-out on packaging, it may lead to cheesemakers considering a “heart healthy” or “brain healthy” designation for their cheeses long term.18

HISPANIC CHEESE/ VARIETIES Hispanic cheese is a subcategory that continues to grow. Overall, the ethnic food category had grown to roughly $12.8 billion by early 2018.19 As Americans 119

WHAT’S IN STORE | 2019

QUESO FRESCO (Keh-so Fres-co)

One of the most popular, soft and moist with a saltiness and acidity that mirrors other fresh farmer style cheeses— it crumbles easily, does not melt and is delicious on fruit, beans, tacos

Hispanic Cheeses 101

COTIJA (Ko-tee-hah)

Aged, firm, salty cheese similar to a dry Feta in both taste and use commonly crumbled over foods

REQUESON (Re-keh-sohn)

PANELA (Pah-neh-la)

Similar to Ricotta in taste and use, made with whey and tastes of fresh milk with a soft texture

Often compared to Mozzarella in terms of texture, moist and mild cheese that does not melt

OAXACA (Wah-ha-ka)

Similar in appearance to Mozzarella, mild, firm white cheese commonly braided or rolled. Similar to string cheese in taste and texture, it melts extremely well and is commonly shredded for use in cooking applications 120

Cheese Sales and Eating Trends figure 6.9

Hispanic Cheeses Outpace Category Past Year Sales Volume Growth (2016-2017) Total Cheese

0.02%

Hispanic Cheese

Source: IRI Custom WMMB

increasingly enjoy more bold and unusual flavor combinations, traditional foods from around the world are gaining foothold and popularity. Bolstered by inclusion on numerous restaurant menus as well as the continued popularity of tacos, Hispanic cheeses have seen double digit growth at retail in the past four years. In fact, in 2016-2017, Hispanic cheeses outpaced the total cheese category for percent volume growth. DFW released a list of top 10 fastest growing cheeses at retail by percent volume growth for 2018; out of the list of 10 cheeses, five were specific Hispanic varieties: Requeson, Queso de Freier, Oaxaca, Queso Blanco, and Cotija. DFW also included Queso Fresco and “other Hispanic” in its list of top-10 fastest growing cheeses at foodservice based on percentage volume growth.20

MILLENNIAL AND GEN Z INFLUENCE ON THE CHEESE CATEGORY According to Caroline Roux, research manager, Food & Drink, Mintel, Millennials claim to “know their cheeses” more than any other generation. A majority of Millennials would like cheese recommendations and are interested in their retail stores providing them with more information on flavor profiles as well as pairing opportunities. Millennials are also actively influencing the organic cheese market, as organic product launches have increased from 2% in © 2018 International Dairy Deli Bakery Association

2013 to 11% in 2015, according to Mintel’s Global New Products Database.21 In late 2017, Schuman Cheese summed this up on its top trends list by calling out the ‘Millennial influence.’22 Jim Dimataris, director of processor relations at California Milk Advisory Board, sums it up as, “With Baby Boomers firmly on board, Millennials are now the specialty cheese generation.”23 While Millennials may be a driving force with organic and influence, Gen Z is the generation credited with driving much of the global flavor and ethnic food trends, with offerings such as Southeast Asian, Mediterranean, Middle Eastern, and Korean flavors cited as notably attracting them. Their tastes are often quantified as ‘diverse.’24 Both of these generations continue to drive trends by leveraging social media. DFW included ‘on a cheese board’ in its top-five ways consumers will enjoy specialty cheese in 2018. At least a portion of this is driven by making cheese attractive for social media platforms, such as Instagram and Pinterest. Hashtags include #cheeseboard and #cheeseboardgoals; as of this publishing, #cheese had over 17 million posts on Instagram alone.

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WHAT’S IN STORE | 2019

Key Insight THE POWER OF SOCIAL MEDIA Both of these generations continue to drive trends by leveraging social media. DFW included ‘on a cheese board’ in its top five ways consumers will enjoy specialty cheese in 2018. At least a portion of this is driven by making cheese attractive for social media platforms, such as Instagram and Pinterest. Hashtags include #cheeseboard and #cheeseboardgoals; as of this publishing, #cheese had over 17 million posts on Instagram alone.

CHEESE AS A KEY DRIVER OF CUSTOMER EXPERIENCE Sheri Allen, ACS Certified Cheese Professional®, works with both retailers and manufacturers to sell more cheese and has seen a rise in retailers offering cheese classes as a way to drive category sales, interest and growth. Some stores have the advantage of dedicated cooking school-style spaces, while others are just leveraging whatever space they have. Classes can as complex as a hands-on cooking demonstration and as simple as highlighting cheese by region or easy pairings. “People are wanting to know more about cheese,” she told IDDBA. “A big part of that is the continued popularity of cooking shows and recipe websites. People are coming into stores with printed out recipes and asking about specific cheeses that are called for.”25 Retailers are also planning more events around specialty cheese to drive traffic and customer excitement. Allen and her team have been hosting these types of events for almost a decade. She likes to think about this planning as it relates to seasonality; for example, planning demos around fondue in the fall. She also stresses that “visuals go a long way.” She partnered with Emmi Roth on a cheese demo 122

that included a “rock box” to represent the cave-aging of the cheese being featured. It was a great starter for conversations as customers curiosity was piqued. As impressive as any of the demos are, Allen stresses to both retailers and manufacturers that “demos sell a week after the event.” They are great customer engagement and education pieces as well, but many customers will come back to the store looking for the cheese that they sampled last week that is continuing to make an impression. It can be a helpful customer service to keep a brief log of what was sampled and when so that anyone in the department can help with customer questions after the fact. Manufacturers will often incentivize samplings as well- offering free cheese, extra promotions and sometimes retailercentric sales competitions. These promotions are a win-win for all parties, including the customer.26 In addition to demos, Allen has seen many retailers elevate the role of cheesemonger in their stores. “It is a key part of the cheesemonger’s job to educate and explain,” she said. Retailers are embracing the value of the American Cheese Society Certified Cheese Professional certification (ACS CCP®) by providing support to have their lead cheesemonger obtain this difficult and comprehensive accreditation. The ACS CCP® exam requires 4,000 hours working in cheese to qualify and passing a three-hour/150-question exam held once yearly. They feel the investment raises the customer trust of the cheesemonger’s knowledge and their recommendations for cheese selection. She added, “It’s important to emphasize the investment retailers (of multiple scales and store count sizes) are doing to elevate their cheese islands through the CCP® certification that gives another level of credibility and knowledge to the lead monger who is also teaching his staff.” This can drive category growth, leveraging cheesemonger’s expertise and a push for sales. “It builds trust in the customer that they are getting solid recommendations as the monger has conversation and asks questions to help that customer find ‘their’ perfect piece of cheese and pairings.”27 Allen specifically used the example of raw milk cheeses and their potentially higher price points. “There are so many challenges for these producers and it takes a cheese person to explain to a customer © 2018 International Dairy Deli Bakery Association

Cheese Sales and Eating Trends not only why a raw milk cheese is safe, but also in making that cheese safe, why the cost to the customer is higher,” she said. “Most customers are open to understanding more about farmstead producers- where the health of the animal is the priority. There's an art to selling cheese and the more the monger knows, the more they can sell by telling the story, the romance of the cheese, where it is made, who the producer is, if it is local, what to put it with."28 Allen cited Casellula, a wine and cheese café in New York City, as an example of a niche market with offerings beyond just a selection of cheese for drawing customers. Owner Brian Keyser of Casellula, started Casellula over 10 years ago and created a niche marketplace with specialty cheeses, focusing on interesting varieties for cut and wrap from all

over the world. Since the opening of his café, he has witnessed retailers really raise the varieties offered in their cheese departments, forcing operations like his to greater, sometimes out of the box creativity with pairings. In terms of niche markets, it is no longer sustainable to just have specific cheeses be available, because customers know that they can grab those cheeses while they procure the rest of their grocery list. Caselulla cannot operate as solely a cheese shop--they offer a calendar of classes, events and pairings to draw customers in for a unique experience or evening. This begs the question what will happen to niche markets when retailers can additionally execute the experience piece too.

IDDBA 18, Show & Sell, New Orleans, LA

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According to IRI Whole milk fat products have been gaining interest as shoppers hunt for 4% milk-fat options in the milk, yogurt, cream cheese, natural cheese, cottage cheese, sour cream and frozen novelties categories.

Chapter 7

DAIRY SALES AND EATING TRENDS 127 / The State of Milk 136 / US Exports

133 / Into the Spreads

140 / Trends for 2019

133 / Yogurt

WHAT’S IN STORE | 2019

IDDBA Trends Successful dairy and dairy-based product innovations rely on research. IDDBA covers four broad dairy subcategories: refrigerated beverages, cultured products, butter, and cheese. Fluid milk, the base of all dairy products, is a worldwide commodity subject to fluctuating supply and demand, especially while trends are evolving. In the competitive marketplace of food manufacturing and marketing, it is imperative to provide high-quality products that consumers want, when and where they want them. Three trends that have the potential to contribute to sales and demand growth in 2019 are: 1. REAL FOOD One singular definition for “real food” doesn’t exist. Ask five customers what they think real food is, and chances are you’ll receive five very different responses. Let’s consider milk. Following the FDA’s definition “Milk is the lacteal secretion, practically free from colostrum, obtained by the complete milking of one or more healthy cows.” Most store-bought milk has been homogenized and pasteurized, due to regulations based on safety. Unless it’s raw and straight-from-the-cow, it’s been processed in some way. Whereas a plant-based alternative runs a more processed path before

reaching consumers. Real means existing, not imitation. Real food then is a food that’s as close to its natural state as possible. Market the natural nature of milk to target this consumer interest. 2. TRANSPARENCY is almost just as complicated to define as real food, given the wide-reaching term that serves a multitude of interests. The keys of this concept are: • the sustainable advance of the division, • the ability of members of sector and policy to guarantee food safety and quality, • providing consumers with the information they need for exercising their preferences in buying behavior, and for the identification of appropriate policy regulation that accounts for society’s predilections regarding social, environmental, and ethical concernsi 3. CONVENIENCE products are made to make the consumer’s life easier, and who doesn’t want that? The dairy industry is innovating to keep stride with consumers on the go.

What does this mean for retailers? • The idea of real food can be transported through messaging in-store. Many consumers don’t know what to believe in the current influx of information regarding food, specifically on labels. Making your message authentic is a challenge every marketer faces. Highlight the key values of a product -- as a retailer offer consumers help to understand. The brand will likely focus on the deeper emotional connection, so set the baseline with facts.

• Convenience is all about aiding the consumer’s interest to save time and/or effort. A prepared snack pack with dried fruit, nuts, and cheese is good for “on-the-go,” “quick snacking,” and “protein” all buzz phrases peaking consumer curiosity. It’s about packing and merchandising, merchandising and packing.

• Transparency messaging is similar; draw attention to products from local producers, have a section of the department highlight products/companies that practice sustainability, or showcase the “simple ingredient lists” of dairy products.

Transparent Food, Transparency, date accessed August 8, 2018, http://www.transparentfood.eu/transparency.html.

126

Dairy Sales and Eating Trends figure 7.1

Within the Dairy Aisle, Natural Cheese, Yogurt, Processed Cheese, Margarine/Spreads, and Cottage Cheese are Over-Space, and Could be at Risk Cheese Milk Yogurt Cream Butter Cream Cheese Sour Cream Margarine and Spread Dairy Refrigerated Dips Cream Cheese Sour Cream Margarine and Spread Total Dairy

Dollar sales

$ share dairy

Total Linear Feet

Share Linear Feet

Space Allocation Index

$9,355,240,010

24.8

591,023

20.1

124

$8,816,142,860

23.4

803,099

27.3

$5,168,142,860

13.7

513,423

17.4

$3,674,091,401

9.8

194,654

6.6

148

$2,432,974,463

6.5

173,831

5.9

109

$2,096,113,760

5.6

98,903

3.4

166

$1,818,718,277

4.8

193,667

6.6

$1,150,860,866

3.1

83,929

2.9

107

$871,922,688

2.3

62,282

2.1

109

$854,034,980

2.3

125,385

4.3

$779,160,436

2.1

68,767

2.3

$658,138,995

1.7

35,706

1.2

144

$38,675,478,783

100

1,944,670

100

Source: IRI Audit TUS Food, CY 2017 week ending 12/24/17

THE STATE OF MILK According to IRI data, US retail sales of white milk were down 1% in measured channels, however sales of whole milk were up 2.9%. Sales of plant-based alternatives were up 27% while soy milk alone is down 8.8%. Yogurt drink sales were up 8.5%, and sales of coffee creamers rose 6.7%. Butter blends are also up 5.5% compared to margarine/spreads down 4% for volume sales in the latest 52 weeks ending July 15, 2018.2 Nielsen data shows non-dairy creamers are up 3.6%, milk/dairy alternatives are up 8.6% and margarine spreads/butter substitutes are down .9%. Fat-free (-12.1%), low-fat (-4.3%), and reduced fat (-2.3) dairy are all down in volume in the latest 52 weeks ending July 21, 2018.3 Whole milk fat products have been gaining interest as shoppers hunt for 4% milk-fat options in the milk, yogurt, cream cheese, natural cheese, cottage cheese, sour cream and frozen novelties categories, according to IRI data, with the percentage share of

total milk increasing from 33% in 2012 to more than 40% in the first five months of 2018.4 Concern has surrounded the sales of low-fat fluid white milk losing ground to plant-based alternatives, but it does not necessarily mean consumers have abandoned dairy entirely – as often seen in consumer interests of environmental, health, or animal welfare concerns. The dairy department is experiencing different dynamics in each subcategory, which could lead manufacturers or retailers to consider updated messaging to further resonate with consumers.5

FDA PUSHES FOR “MILK” “The U.S. FDA defines milk products as ‘Food products made exclusively or principally from the lacteal secretion obtained from one or more healthy milk-producing animals, e.g., cows, goats, sheep, and water buffalo, including, but not limited to, the following: lowfat milk, skim milk, cream, half and half, dry milk, nonfat dry milk, dry cream, condensed or concentrated milk products, cultured or acidified milk or milk products, kefir, eggnog, yogurt,

127

Dairy Sales and Eating Trends Quick Look

WHAT’S IN STORE | 2019

According to IRI, the Dairy Aisle sales are currently at

55.7

BILLION

for dollar sales in the 52 Weeks ending 7/15/18 compared to a year ago at

621.7

figure 7.2

Volume is On the Rise For those exclusively buying whole fat milk as well as those buying both whole fat and middle fat milk % Vol. Exclusive whole fat Exclusive middle fat Exclusive fat free Whole & Middle Fat Whole and Fat Free Whole, Middle and fat free Middle and Fat-Free

1.1%

INCREASE

98% 95% 85%

of US households purchased cheese

purchased milk

7.50%

2.30%

-9.50%

16.40%

-0.30%

43.20%

1.30%

2.40%

-10.80%

17.60%

-6.80%

-10.40%

figure 7.3

Whole Fat was the Primary Growth Driver for Some Categories Based on raw volume growth, middle fat contributed fewer pounds than whole fat volume sales % chg.

According to IRI panel data for 52-week period ending 4/22/18:

10.10%

Source: IRI Consumer and Shopper Network, Total US, 52 weeks ending 2/25/18

MILLION which is a

%Change

Butter/blends Cottage Cheese Cream Cream Cheese Frozen Novelties Ice Cream Margarine/Spreads Milk Natural Cheese Processed Cheese Sour Cream Yogurt

Fat Free

-0.50%

Middle Fat

Whole Fat

-8.80%

-0.40%

-1.50%

-13.90%

-2.40%

1.30%

4.90%

-1.30%

11.80%

5.30%

1.50%

.23.1%

-4.70%

2.70%

0.90%

-3.10%

-6.60%

2.40%

-1.60%

-22.40%

-4.30%

-0.80%

-4.50%

-5.40%

-8.90%

-4.20%

-2.00%

-13%

-3.30%

3.40%

0.80%

-7.30%

-13.20%

1.70%

-4.20%

-26%

2.60%

-5.30%

0.40%

-26.70%

-9.70%

2.50%

-5%

-10%

-5.80%

16.10%

Source: IRI Consumer and Shopper Network, Total US, 52 weeks ending 2/25/18

DOWNLOAD FIGURES ONLINE

purchased yogurt at least once 128

Dairy Sales and Eating Trends

Social Media Chatter About Food Transparency Claims Are Continuing to Increase NON-GMO

FAIR FOOD & WAGE

ANIMAL WELFARE & FEED

5.9M 4.4M 4.0M % % % +123 +231 +83 mentions in 2017

mentions in 2017

vs. last year

Chatter has not only increased, it's become more detailed GRASS-FED

NO ANTIBIOTICS EVER

2M +222% 57K +226%

mentions in 2017

vs. YA

mentions in 2017

vs. YA

Source: IRI Social advantage, total social mention volume, 2017 Animal Welfare includes grass fed, free range, cage free, sustainable seafood, no antibiotics ever, certified humane, all veg diet, no animal bi-products

butter, cheese (where not specifically exempted by regulation), whey, condensed or dry whey or whey products, ice cream, ice milk, other frozen dairy desserts and products obtained by modifying the chemical or physical characteristics of milk, cream, or whey by using enzymes, solvents, heat, pressure, cooling, vacuum, genetic engineering, fractionation, or other similar processes, and any such product made by the addition or subtraction of milkfat or the addition of safe and suitable optional ingredients for the protein, vitamin, or mineral fortification of the product (21 CFR 1240.3(j)).’”6 FDA will soon be issuing a guidance document describing the changes it is considering to the standards of identity for marketing milk.

WHAT DOES THAT MEAN FOR THE INDUSTRY? The milk industry faces competition from beverages made from soy, rice, almonds, hemp, oats and other nuts and grains — as well as from a record milk surplus, prices below the cost of production and recent tariffs on U.S. cheese and whey. The dairy industry has appealed to Congress and the FDA, gone to court and pushed for federal legislation calling on the agency to enforce its legal definition of milk. Those supporting labeling plant-based beverages as "milk" have cited free speech rights of food producers. There is also an ongoing argument about which sector is more sustainable and climatefriendly. FDA will soon start gathering public comment before taking next steps in redefining 129

WHAT’S IN STORE | 2019

Some Current Notable Dairy Campaigns

Fairlife meets the demand for more protein and less sugar and hit the $250M in sales in 2017.

Dairy Farmers of America celebrated World Milk Day with Mülü. To “turn heads,” DFA presented a sleek bottle containing a nutritious drink: milk. The website says, “And while our limited run of Mülü will be gone in an instant, wholesome milk from our family farms will be available in grocery stores for generations to come.” At the bottom of the page a disclaimer is provided: “This product is milk. Mülü Will not be sold in stores, but milk always is.” Visit www.drinkmulu.com for more information.

The Undeniably Dairy campaign by Dairy Good spans a broad range of dairy categories that reflect changing eating patterns, i.e. health and wellness, sustainability, and transparency.

the rules for milk products. In June of 2018, Scott Gottlieb, FDA commissioner, said it will take about a year to go through the process. Even if the FDA restricts the word "milk" to products containing animal-derived liquids and strictly enforces standards, it may not make a difference to the marketing and sales of either traditional dairy milk or plant-based beverages. Consumers know their favorites, and still will seek and purchase 130

DOWNLOAD FIGURES ONLINE them regardless. There are many alternative terms that could be used: "plant-based beverage," simply "beverage," or perhaps "fortified beverage." Producers of these plant-based products won't be happy with such changes — not to mention relabeling is likely expensive.

Dairy Sales and Eating Trends figure 7.4

Since 2015 Milk Has Seen a Decline in Dollar Sales, Shelf Space and Sales Per Linear Foot

10.10

Dollar Sales (Billions)

9.60

9.40

Total Linear Feet

606,069

591,023

575,577

CY 2015

CY 2016

CY 2017

Source: IRI Audit TUS Food, CY 2017 week ending 12/24/17

figure 7.5

UPC-Coded Plant-Based Sales Dollars

$ % Chg YA

Plant-based diet

6,932,075,502

0.9

Creams and non-dairy creamer

4,003,076,193

Units

0.8

5.9

1,285,159,710

3.6

457,867,104

2.6

153,637,179

0.6

193,871

-5.5

9,001

-8.5

Dough and batter products

1,913,257,080

0.2

871,070,028

-0.1

Milk/dairy alternative

1,523,852,478

8.9

469,821,663

8.6

Oils/butter/margarine spreads/substitutes

4,130,320,982

2.9

1,240,486,374

-0.9

17,847,826

7.6

2,098,236

3.9

Sour cream products

1,226,273,419

0.2

616,729,464

-0.4

Yogurt

7,249,440,359

-3.2

4,313,846,448

-7.0

Total

66,772,390,078

1.0

24,865,261,096

-1.2

Dips/spreads

Packaged coffee

4.3

Units % Chg YA

2,312,677,595

Dessert toppings

2,744,841,427

EQ % Chg YA

Source: Nielsen Product Insider, powered by Label Insights, 52 Weeks Ending 7/21/18

131

WHAT’S IN STORE | 2019

Key Insight 2019 TOP CONCERNS FACING US RETAIL DAIRY DEPARTMENTS The biggest concerns facing US retail dairy departments are the following: • The misconception that all shoppers are looking for is cheap milk. Retailers fight to the lowest retail price, but consumers are showing us with their dollars that it’s not all about cheap milk. Look at the segments that are growing: valueadded, lactose free, refuel. These products are not focused on being the lowest cost. Shoppers are looking for value, which doesn’t always mean the lowest retail price. Milk is one of the most local products in the grocery store, and retailers have an opportunity to tell this story and to connect shoppers to the family farmers that produce the products. It's an opportunity that doesn’t need to be supported by big investments. The use of technology and partnering with local dairy associations can help bring this story to life. • Shoppers are confused about many things surrounding dairy including: antibiotics, hormones, GMOs, etc. Shoppers have such high trust in the opinions of their friends and family that the confusion continues to spiral and we have shoppers and consumers who think that dairy is full of antibiotic residue and hormones that are going to hurt them. The facts are lost

132

and the emotion of scary ideas takes control and becomes fact in the eyes of consumers. Retailers have an opportunity to help shoppers understand the facts. Making this connection will lead to trust and loyalty to retailers who can communicate this clearly. • Shoppers today like to be informed about the products they are purchasing, and many do online research about products they purchase. A survey done by Murphy Research indicates that the top characteristics that shoppers are looking for when shopping for products include: price, quality, brand, and ingredients. The claims that resonate with shoppers include sourcing of ingredients, country of origin, manufacturing process and animal welfare. Utilizing this knowledge to tell dairy’s story can be powerful. Gen Z (ages 8-22) make up almost 30% of the US population and their buying power continues to increase each year. Gen Z is the first truly digitally connected demographic and is driving change in how they expect communication from companies. They prefer communication with videos, photos, animated GIFs and memes; visual content for instant consumption. Retailers and manufacturers will continue to grow their relevance with these consumers if they shift how they communicate.

PLANT-BASED MILKS CONTINUE GROWTH

MILK REINSTATED IN SCHOOLS

Plant-based beverages are on track to comprise 40% of the total dairy and non-dairy alternative beverage category by 2021, up from 25% two years ago, as health and welfare concerns spur more consumers to switch from dairy to non-dairy options, according to Packaged Facts. Non-dairy milk sales grew 61% between 2012 and 2017, and topped out at $2.1 billion last year, according to Mintel.7

USDA’s Food and Nutrition Service published an interim final rule that extends through school year 2018-19 three menu planning flexibilities currently available to many child nutrition program operators the option to offer flavored, lowfat (1%) milk in the child nutrition programs.8 It can be hard for parents to enforce healthy foods and drinks for their children. In fact, according to a study published in USA Today, parents face several © 2018 International Dairy Deli Bakery Association

Dairy Sales and Eating Trends

Key Insight CAPTURE DAIRY SALES There are a few simple things that can be done to capture impulse dairy purchases: • Add single serve dairy products to your foodservice areas. For example, single serve white, chocolate and value-added milk on the beverage wall in the deli. Or single serve yogurts and/or cheese items in a grab & go section. • Adding healthy options at the checkout will help shoppers make healthier decisions. Utilize one of the refrigerated cases to provide healthy dairy options, milk, yogurt, cheese. • Utilize end-caps to provide meal options that include dairy as an ingredient. • Cross merchandise yogurt in the produce department or vice-versa. • With online shopping, make it easy for shoppers to add milk. Milk has a 95% household penetration and shoppers make an average of 30 trips per year to purchase milk. Make it an easy add on when shoppers are purchasing groceries online. Source: Jamie Liebich (director, demand, Midwest Dairy, Chicago), personal communication with IDDBA July 23, 2018.

day-to-day challenges, but the main problem (70%) behind an unhealthy diet is the high cost of healthy food. The next reason (60%) is children's preference for sugary and fatty food. Parents with a low-income level and low education have a hard time determining which foods are healthy (52%), or those food are unavailable where they shop (23%). It’s important to continually promote the benefits of milk in diets. According to the 2015-2020 Dietary Guidelines for Americans consumption of fat© 2018 International Dairy Deli Bakery Association

free (skim) and lowfat (1%) dairy products are an important source of beneficial nutrients including protein, calcium, and vitamin D. Not to mention, it aligns with the idea of “real food.”

INTO THE SPREADS In the spreads aisle, by contrast, the ‘real food’ positioning is mostly resonating for dairy butter, which has continued to gain traction over vegetableoil-based margarines and spreads because consumers see it as more natural and less processed, with a simpler, cleaner label, which they also associate with health and wholesomeness, despite butter’s highsaturated fat content.9

YOGURT Packaged Facts, based in Rockville, Md., estimates of retail dollar sales in the US yogurt industry were just shy of $9 billion in 2017, with sales increasing at a compounded annual growth rate of 2% between 2012 and 2017. “In today’s busy and stressed environment, consumers increasingly see food and beverages through a lens of health & wellness and selfcare,” said Martha Gibbons, senior analyst, Dairy Management Inc. “In 2017, the Hartman Group reported that over half of consumers say they are actively treating or preventing anxiety or stress in their household (higher, 65%, among Millennial consumers) and 44% report dealing with energy or fatigue issues.”10 Gibbons said as a result, consumers seek functional benefits through natural foods to address wellness and want foods and beverages that promote both mental and physical components of stress. There is an opportunity for the dairy manufacturer to market dairy products to address these needs.11 “New Nutrition Business identified digestive health the top trending health and wellness driver for 133

WHAT’S IN STORE | 2019

Key Insight DAIRY SUPERCONSUMERS Dairy superconsumers are 10% of households who drive 22% of the total dairy spend. They • spend 2.2 times more ($634/yr), • purchase 7 subcategories, and • shop at 5 different stores. Stage 1 of IDDBA’s Superconsumer research (2017) results indicate that 20% of households are potential superconsumers, people who often really like dairy, but spend less than a superconsumer (about $311 per year vs. $634). IDDBA’s 2018 work with coffee milk and creamer superconsumers* led to three waves of action to tap into up to $3.5B in brewed coffee sales and over $1.6B in coffee creamer sales. These solutions can be executed by manufacturers or retailers, but the greatest potential comes when suppliers and sellers work together. • Wave 1: Appeal to shoppers already in your store–up to $2.4-$3B opportunity. For some coffee drinkers, creamer is the star. Coffee shops just don’t have the variety of creamers nor do they get the proportion of cream to coffee just right. These shoppers are the ones

who are reluctant to fulfill their needs at food service because it’s too expensive, or they don’t want to make an extra stop. Fifteen million consumers already buy coffee at grocery. Create a Coffee Creamer Bar in your store so they can sip and shop. • Wave 2: Convert up to 2 million potential superconsumers–up to $400M opportunity. Offer a convenient Group Buy option and win on price over food service. Refine creamer bar options to make experimenting with new flavors fun and easy. These potential superconsumers people like coffee with creamer but might currently default to foodservice. • Wave 3: Draw in more shoppers. Invest in technology to expand the market by offering pre-order services and coupons, via mobile apps and in-store kiosks. Wave 3 draws in more people who need something for immediate consumption or want to treat themselves or their families. *Coffee Milks Definition: Liquid Dairy Creamer, Liquid Non-Dairy Creamer, Half & Half, Cream, Milks (plant-based and dairy, used for coffee) Visit www.iddba.org/research for more information.

The Coffee Milks Equation 64 million US households whiten by adding a milk or creamer to their coffee

125M 76% 95M 67% 64M US households

Drink coffee at home or at coffee shops

Coffee drinking households

Whiten their coffee with “coffee milks”

Addressible market in households

Source: IDDBA in collaboration with Eddie Yoon and Nielsen Fresh, Growing the Category with Superconsumers: Coffee Milks and Creamers, July 2018.

134

Dairy Sales and Eating Trends figure 7.6

Nutritional Profile of Milk Compared to Unsweetened Almond Beverage

Calories Total Fat

Macronutrients***

Saturated Fat Carbohydrate Sugars Added Sugar* Protein Ingredients

Unsweetend Almond

1% Milk

40g 2.9g 0g 2g 0g 0g 2g 14**

100g 2.4g 1.5g 12g 12g 0g 8g 3

Almond milk (Filtered Water, Almonds), Natural Flavor, Sea Salt, Locust Bean Gum, Sunflower Lecithin, Gellan Gum, Calcium Carbonate, Vitamin E Acetate, Zinc Gluconate, Vitamin A Palmitate, Riboflavin (B2), Vitamin B12, Vitamin D2

Lowfat Milk, Vitamin A Palmitate, Vitamin D3

*Added sugar for alternatives was calculated based on comparison to 8 fl oz Unsweetened variety of each product **Based on review of USDA NND SRR28 #45136688. All of these ingredients are safe for consumption *** Nutrient composition based on USDA NND SRR28 #01082 and NND SRR28 #14091 Alternatives have no standard of identity and their nutrient profiles vary from brand to brand Source: National Dairy Council, 2018, Dairy Good Undeniably Dairy Campaign

consumers moving into 2018,” she said. “Digestive wellness is evolving in consumers’ minds - from an issue of condition management to one of whole body wellness. The idea of digestive health products is moving beyond probiotics or fiber to include the benefits of fermented products and prebiotics to maintain a healthy microbiome in the gut. Dairy is in a good position to advance and expand the strong gut health image of probiotic yogurts, yogurt drinks and other new items through products that target this wider view of gut health. This is an area that fermented dairy and prebiotic fiber inclusions can play in.”12

Probiotics, prebiotics, digestive enzymes, et al. have created a bit of buzz more recently due to their gut health promises, and the dairy department offers many products touting the good bacteria. While dairy probiotic products have been circulating for at least 20 years, it could be argued Activia’s introduction in 2004 transformed awareness. Since then, yogurts of all varieties have been tied to outstanding claims of health including countering seasonal allergies, relieving constipation, and improving immune parameters. Yogurt manufacturers are increasingly quantifying the active strains on the package to make note of exactly what bacteria are active in the product, both in type and in quantity. 135

WHAT’S IN STORE | 2019 figure 7.7

Butter Sales Dollar Sales

$ % Chg YA

Units

4,130,320,982

2.9

1,240,486,374

-0.9

Butter

3,040,389,677

5.3

817,451,205

1.4

Substitute Spreads

1,019,820,370

-3.4

391,248,316

-4.8

Spray Margarine

44,595,281

0.0

15,413,250

-4.0

Margarine

23,474,282

-10.1

16,017,671

-12.4

1,950,803

1.6

336,222

5.1

Cooking Oil

74,576

-7.9

12,222

-7.7

Butter and Margarine Blend

13,872

2.0

6,316

10.5

Cooking Spray

2,062

-99.2

1,159

-99.2

-99.7

-99.8

Imported

155,529,796

30.0

44,209,934

27.0

Grass-fed

168,495,245

42.3

47,869,017

38.5

66,772,390,078

1.0

24,865,261,096

-1.2

Oils/Butter/Margarine Spreads/Substitutes

Lard

Shortening

Total

Units % Chg YA

Source: Nielsen xAOC, Total Food View, 52 Weeks Ending 7/21/18

Yogurt Trends

US EXPORTS

• Smoothies

In the first four months of 2018, exports were equivalent to 16.8% of milk solids produced—much above the historical average. In April, single-month exports equated to 18.8% of milk solids produced—a new record.

• Toppers • Portable snack packs • Fiber-The Canadian Digestive Health Foundation reports that 50% of Canadians don’t get enough fiber for their diet, and yogurt delivers. • Decadent flavors (ex. Yoplait’s Oui Petites)

With so many factors affecting the international dairy market, a deeper dive by specific region is warranted this year:

136

• US

• Canda

• Tariffs

• China

• Mexico

• Brexit

On a total volume basis, US dairy exports were the third-highest ever. May 2018 exports were greater than levels every month before March 2018 -- when the United States began setting new highs. During May, shipments of butterfat and whole milk powder more than doubled, while exports of all other major product categories, except cheese and fluid milk, grew double-digit percentages compared to levels in May 2017.13 The push to complete the North American Free Trade Agreement (NAFTA) renegotiations continues. At stake is preferential access to the No. 1 US dairyexport market—a market in which overall dairyimport demand is expected to grow 20% during the

Dairy Sales and Eating Trends figure 7.8

UPC-Coded Dairy Sales Dollar Sales

$ % Chg YA

Units

Units % Chg YA

Butter

$3,085,833,720.00

6.10%

814,262,475

1.40%

Cottage Cheese

$1,075,591,640.00

-0.10%

435,453,137

1.30%

Cream Cheese

$1,703,146,211.00

2.50%

662,118,418

0.10%

$3,446,938,137.00

6.00%

1,189,193,839

3.80%

Dairy Aisle

$55,721,033,687.00

1.10%

2,079,7523,568

-1.30%

Fresh Eggs

$5,953,807,975.00

15.90%

234,2649,374

1.00%

Margarine and Spread

$1,309,493,477.00

-3.00%

563,030,213

-4.50%

$13,864,855,254.00

-3.30%

5,018,858,511

-0.90%

$1,236,776,412.00

0.60%

621,285,973

0.00%

$996,361,713.00

7.70%

310,977,531

5.90%

Cream/Creamers

Milk Sour Cream Whipped Toppings

Source: IRI, 52 weeks ending 7/15/18, Dairy Aisle ST Volume

DOWNLOAD FIGURES ONLINE next five years—as well as resolution of Canada’s Class 7 milk-pricing scheme.

TARIFFS The tariffs put a cloud over what Tom Vilsack, Former United States Secretary of Agriculture, described as "a very good start to the year.” That is what ‘The Next 5%’ is all about. US Dairy Export Council’s (USDEC) aim through this program is to increase US dairy exports from 15% of annual US milk production to 20%. Even with the challenge of tariffs, USDEC remains committed to the ambitious goal. 14 At the G-7 summit in Quebec in early June 2018 Trump called out Canada’s high dairy tariffs on US products. President Trump’s aggressive trade measures prompted other countries to retaliate with barriers to American goods. Just days later, Mexico placed a 10% to 15% tariff on nearly all US cheese exports in retaliation for the tariffs Trump placed on Mexican steel and aluminum. In 2017, the cheese © 2018 International Dairy Deli Bakery Association

exported to Mexico from the US accounted for 28% of all US cheese exports and 80% of all Mexico cheese imports, potentially causing a major ripple effect through the industry if the tariffs hold up. Now China is influencing the US dairy trades as well.15 Dairy farmers and cheesemakers are growing anxious about what will happen to all of the milk and cheese they churn out and typically sell overseas. There is potential for long-term damage with trade wars. If the United States loses the market, the competitors will swoop in. The Trump administration has said that businesses should accept this sort of “short-term pain” while it tries to rewire the entire global trading system to its advantage. Retailers will push back, first pointing to the higher costs Americans will pay for — what the National Retail Federation calls “higher prices for everyday essentials.”

US, MEXICO TRADE Over the last five years, the US has sold $6.7 billion 137

WHAT’S IN STORE | 2019

The Impact of NAFTA on US Dairy Exports to Mexico The Mexican dairy market accounts More than

25%

3.5%

growth of all US exports since 2002

of all US exports

total dairy sales

Without free trade with Mexico, the US would pay higher tariffs and jobs will be eliminated. For every dollar of sales associated with dairy exports to Mexico, an additional:

2.50 23.3 $

BILLION

is supported elsewhere in the United States economy

billion aggregate over five years

US exports support much more than farmers. They create jobs across the supply chain — in processing, retail, transportation, and other industries. The dairy export industry has directly generated an aggregate GDP of

8.4

BILLION

over the five-year period

Furthermore, without free trade with Mexico, US dairy producers would face up to

TARRIF

south of the border

Source: National Milk Producers Federation, US Dairy Export Council

in dairy products to Mexico. Those exports also accounted for more than $23 billion in economic output in the United States and created nearly 16,500 full-time equivalent jobs.16 According to research by Fitch Ratings, Moody Analytics, Bloomberg Intelligence and others withdrawal from the North American Free Trade Agreement would reduce Mexican economic growth, lead to Mexican job losses and increase consumer prices, all of which would lessen buying power and hinder 138

dairy demand which would impact all dairy companies supplying Mexico, the United States and otherwise.17

US, CANADA TRADE — A DEEPER DIVE INTO CANADA’S DAIRY POLICY Canadian milk production increased about 5% in 2017. Canadian skim-milk-powder exports more than tripled to over 61,000 tons through the first 10 months of 2017. That is due, in large part, to changes to the nation’s milk-pricing system that essentially allow it to challenge world prices. The pricing © 2018 International Dairy Deli Bakery Association

Dairy Sales and Eating Trends scheme has potential significant impact on US and world markets.18 Although the entire trade in dairy products between the US and Canada is worth less than US $600m, ideological division has sharpened the ongoing dispute. Trump’s delegates have commanded the breakdown of Canada’s system of supply management in agriculture – a complex tie of production quotas and import tariffs designed to ensure Canadian dairy, poultry and egg farmers receive fair prices for their products. Expert observers have said that Justin Trudeau’s government would abandon the treaty altogether before sacrificing supply management. Last year, US farmers dumped almost 100 million gallons of surplus milk. With the milk industry in a deep crisis of persistent overproduction, with farmers sinking into bankruptcy as farm-gate milk prices remain well below the cost of production, a surge in dairy-farmer suicides has caused national alarm, drawing attention to what the New York Times called, “the widespread hopelessness afflicting the industry.” On behalf of a public misery from farm failures and suicides, the US Senate minority leader, Chuck Schumer, resounded Trump in blaming Canada. “Canada, when it comes to dairy, acts like China when it comes to trade,” Schumer said. “They’re unfair. They put up barriers. They treat us bad.”19 Critics often mention Canadian dairy farmers enjoy incomes 60% above average in the country. But to supporters, the protected Canadian dairy industry stands as a model alternative to the dynamic of unlimited free trade in all things. According to Numbeo, a crowd-sourced comparison price guide, the average cost for a gallon of milk throughout Canada is $6.32 in American dollars, nearly twice the US price. Supply management has strong government support because the policy removes the need to subsidize farmers directly in the manner of the United States and the European Union – the two © 2018 International Dairy Deli Bakery Association

figure 7.9

US Diary Exports, Top 10 Markets Mexico Southeast Asia Canada China So. Korea Middle East/North Africa South America Caribbean Japan Oceania

May 2018 (million $)

vs. year ago

$127.40

-16%

$61.30

+7%

$56.20

-8%

$55.90

+15%

$30.30

+12%

$25.70

+66%

$25.30

-3%

$20.20

+15%

$19.80

-26%

$15.50

-24%

Source: USDEC, National Milk Producers Federation, U.S. Bureau of Census

countries blamed for the current world glut. Under supply management, a national marketing agency determines production amounts for each commodity and then sets production quotas for each province. Consumers pay the full cost of production. According to a Library of Parliament study of supply management, the system rests on three pillars: production control, pricing mechanisms and import control. Critics call supply management a misrepresentation of free-market principles, complaining that the comparatively high price of Canadian milk sacrifices the interest of consumers in favor of producers and victimizes the poor. Canada's Consumer Choice Center estimated last year that Canada's supply management systems for dairy, eggs and poultry cost families an extra $257 to $420 (USD) per year. On the opposite, an Ipsos poll in 2018 by the Dairy Farmers of Canada reported that 75% of Canadians support even greater government efforts to defend the industry in the face of current US demands. In 2016, Canada imported dairy products from the United States worth five times more than the amount it exported there. Canadian farmers point out that despite the tariffs that protect them, imports make up 139

WHAT’S IN STORE | 2019 10% of the country’s dairy consumption. By contrast, the Unites States restricts dairy imports to 3% of domestic consumption.20 Low prices are forcing the closure of hundreds of dairy farms a year. “The presidents of the Wisconsin Farmers Union told me that what they really wanted was a supply-managed system like ours,” Bruce Muirhead, Canadian Historian.”21

US, CHINA TRADE In 2017, the US sold $577 million in dairy products to China, an increase of 49% over the previous year. New tariffs placed on $34 billion of Chinese imports spawned retaliatory tariffs on US goods of the same value, inciting what could be a potentially destructive US-China trade war.22 The tariffs will affect 818 Chinese products, including vaping devices, rare earth metals, thermostats and LED light bulbs. China responded roughly 12 hours later by imposing its own tariffs on 545 US products, also worth $34 billion. But China is mainly attacking US agriculture, including beef, wheat, seafood, and dairy.23 Trump has threatened to expand the tariffs to an additional 284 products, bringing the total up to $50 billion per year.

EUROPE AFTER BREXIT The European dairy industry continues to be facing turbulent times despite the elimination of milk quotas in April 2015. Milk production has not increased by as much as many had predicted and the impacts are being felt, particularly on surging butter process.

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2016. Of all the dairy products, it is the most volatile commodity. The full-fat and “real food” concepts are trending which has consumers viewing dairy fats as healthy fat. The known three big producers: The United Kingdom, Germany, and France were expected to continue growing once the quotas were removed. However, Ireland and Poland have shown significant growth. Potential fluctuations in milk prices are very difficult for farmers to manage, while the worst-case scenario is a European butter buyer trying to cope with a three-fold increase in process over the course of 12 months. Right now, it is about managing that volatility.

TRENDS FOR 2019 BREAKFAST ISN’T TAKING A BREAK Whether on-the-go, at work, or creating something at home, breakfast is a meal few skip and accommodates a variety of consumption trends. The dairy department at the grocery store is visited frequently for breakfast options.

BETTER FOR YOU, FOR TODAY AND THE FUTURE Shoppers have more and more been seeking foods for healthier preparation and of higher nutritional value. Beyond that they pursue factors such as environmental sustainability, the fair treatment of animals and organic.

The current outlook for the dairy market sees rising butter prices, contingency plans for Brexit and innovation. In dairy there is a lag between what is happening in the market and at farm level. In Europe there has been rather extensive year-on-year growth in milk production. This is especially the case for butter, where prices have reached record levels. Many are concerned the current bull run may turn bearish in 2019.

Matt Lally, Associate Director, Nielsen Fresh, said, “although still small in sales relative to their conventional counterparts, better-for-you or alternative dairy items have played important role in driving pockets of growth within the dairy department. With new nutrition facts panel implementations around sugar and a continued mainstream interest in transparent products, there’s plenty of room for growth in these areas within the dairy department.”

Butter prices have gone up three-fold since April

Dairy Sales and Eating Trends figure 7.10

Retail is an Important Breakfast Opportunity Most breakfast occasions are sourced from home — which means that shoppers' growing focus on BFY breakfast proficeds an enormous opportunity for retail.

72%

10%

Cereal still dominates in-home breakfast, but has lost its presence at 10% of breakfasts since 1995, with half of this decline being in the past five years. Items shoppers are eating more frequently: EGGS AND EGG DISHES FRUIT SANDWICHES

Prepared and eaten in home

Carried from home

Purchased in restaurant

YOGURT

Source: The NPD Group, 3 years ending May 2017

over the latest 52 weeks ending July 30, 2018 versus the prior year, compared to -0.6% for conventional items. • Plant based milk alternatives increased sales 7.7% • Items nothing “free from” (artificial colors, flavors, sweeteners) increased dollars 7.6% • Grass fed items increased sales 42% • Items touting a good or excellent source of protein +12%24

According to IRI, top growth categories for “humanely raised” of at least $25 million are fresh eggs, lunchmeats and milk. Gibbons, DMI, said, “Today’s consumers are demonstrating a shift in the definition of value relating to food products, including dairy. Their idea of value has expanded to include a calculus of how products fit their individual needs and self-image. This can include factors as diverse as taste, to a company’s actions and transparency around social or environmental responsibility. Although low cost is still a main component of value for some, consumers are also demonstrating a willingness to pay a higher price for products that fit their personal taste or address other issues of importance to them.”25

Transparency is a big part of consumer interest in dairy today. Consumers have been willing to pay premium prices in the market for certified organic dairy products, with the understanding that the food has been raised in a sustainable, environmentally sound manner and that they are helping support and keep family farmers on the land. Many consumers assume that humane animal husbandry practices are employed by organic farmers, and they may believe that organic food is more nutritious. With the increased interest in being transparent, third party rating agencies are speaking directly to consumers. For example, a report by The Cornucopia Institute intends to allow consumers to easily identify organic dairy products that have been produced with strong organic practices. By using the Web-based rating tool found on their website, www. cornucopia.org, consumers can identify the brands and products found in a specific region and examine their rankings, scores, and how well they meet key criteria covering organic management practices. At the time of this publication, the survey rates 68 different organic dairy brands and private-label products found across the country.

141

WHAT’S IN STORE | 2019 CULINARY COOKING BUTTER

Organic Valley is putting Ghee in the spotlight with a new marketing campaign for the almost decade-old product line.

BREAKFAST GRAB-AND-GO KITS

PepsiCo is rolling out Quaker Morning Go-Kit. The three refrigerated kits each contain trail mix, a breakfast bar and Greek nonfat yogurt.

Donna Berry • Daily Dose of Dairy • berryondairy.com

What We're Seeing In Dairy Today PROTEIN AND PROBIOTICS • CONVENIENCE AND ON-THE-GO • CLASSICS CONTEMPORIZED

MILK IN POUCH PACKAGING

Bannister Downs Dairy now offers its milks and flavored milks in lightweight environmentally sustainable packaging.

142

Dairy Sales and Eating Trends SORBET-STYLE PREMIUM YOGURT

Arla Foods expands its successful Finnish brand Ihana into Denmark and the UK. Meaning “wonderful” in Finnish, Ihana was introduced through an extensive brand launch in 2016 in Finland with an iconic new design.

CONTEMPORARY COTTAGE CHEESE

ARTISAN GRASS-FED BUTTER

The six flavors are: Balsamic & Red Onion, Banana Cream & Pecan, Chipotle, Chocolate & Cardamom, Roasted Garlic & Herb, and Rosemary & Honey. The butters come in 4-ounce 100% plant-based compostable containers.

ON-THE-GO BREAKFAST BEVERAGE

Arla Foods introduces Milk & Oats to the U.K. market. Milk & Oats combines the convenience that on-thego shoppers want, which is high in fiber and protein, low in fat and a source of calcium.

143

WHAT’S IN STORE | 2019 figure 7.11

Dairy Milk & Non-Dairy Milk Alts Attitudes While Dairy milk has the edge over the Milk Alts, the gap is relatively small and Alts are viewed as a good replacement by a majority Dairy milk is more natral than milk alternatives Dairy milk is healthier for my kids than milk alternatives Dairy milk is healthier than milk alternatives Milk alternatives are good replacements for dairy milk Milk alternatives have better flavors than dairy milk Milk alternatives have more protein than dairy milk Milk alternatives taste better than dairy milk

43% 42% 39% 32% 26% 25% 25% Strongly Agree

16% 17% 14%

19% 62% 21% 63% 20% 59% 22% 54% 42% 42% 39%

Somewhat Agree

Source: MilkPep, Moms & Kids Research: Findings & Implications, March 1, 2017 Survey Question: MQ10a. And here are some statements related to Dairy Milk and Non-Dairy Milk Alternatives (e.g. Almond, Soy, or Cashew). For each, please indicate how much you agree or disagree with the statement.

According to their website, “The ratings of dairy brands on the Cornucopia Web site are based on a 19-question survey that 81% of the name brand marketers executed. Brands received scores ranging from “one cow” through “five cows” (five cows ranking as best) based on their milk production or purchasing practices. None of the private-label marketers (grocery chains and distributors) opted to participate in the study...”26

ON-THE-GO Jamie Liebich, director, demand, Midwest Dairy, said consumers are busier than ever thus demanding more for the products they purchase, for themselves and their families. “I think we will continue to see growth in brands and products that address these needs,” she said. “Products that are packaged for on-the-

144

go consumption will continue to see growth as consumers are shifting to snacking multiple times per day vs. sitting down for three meals a day. Products that offer added value such as lactose free, reduced sugar, etc. will also continue to see growth. When thinking about areas of decline, products/brands that do not respond to changing consumer behaviors will suffer. Products that aren’t portable or transparent and those who do not provide new taste experiences will suffer.”27 Gibbons, DMI, said she sees great growth opportunity for dairy to meet this consumer need. “Technology that provides shelf-stable benefits and/or on-the-go and single serve packaging are currently being used to extend the convenience of dairy products and broaden dairy’s ability to meet more varied consumer needs and eating or beverage occasions,” she said.

Dairy Sales and Eating Trends figure 7.12

Organic Milk SPINS and IRi’s NaturalLink Consumer Segmentation divides all consumers into seven different segments. Reviewing this data and looking specifically at organic milk, the three biggest consumer segments this past year were:

TRUE BELIEVERS

HEALTHY REALISTS

ENLIGHTENED ENVIRONMENTALISTS

36%

16%

of households

64.72 per buyer

60.17

per buyer

51.77 per buyer

SPINSscan Natural and Specialty Gourmet, SPINSscan Conventional Multi Outlet (powered by IRI), 13Quads Ending 2017-Dec-31. SPINS Consumer Insights (IRI Consumer Panel), Total US All Outlets, 104 weeks ending 2017-Dec-31.

Examples include: • Increasing options in shelf-stable single-serve dairy-based beverages that are targeted to specific consumer needs, for example enhanced protein beverages such as Fairlife’s Core Power, Shamrock’s Rockin’ Refuel and Darigold’s Re:Fuel offer a variety of protein content and flavors. • Compartmentalized packaging that offers dairy in combination with other ingredients to enhance flavor or indulgence (yogurt multi-component packaging including cereal/nut/fruit, or other, mix-ins.) • Multi component packaging for snacking options that offer easy snacking or convenient balancing of overall daily food consumption (e.g. Sargento Balanced Breaks)28

A2 MILK A2 milk differs from regular milk which contains both A1 and A2 proteins. Supporters of A2 milk contend it is the A1 protein that causes indigestion for many people, a problem that lactose-free milk won’t solve. Skeptics say there hasn’t been enough © 2018 International Dairy Deli Bakery Association

DOWNLOAD FIGURES ONLINE independent research to show there is any real benefit to A2 milk, which is naturally produced by cows with a distinct set of genes. A DNA test can determine which cows in a herd produce A2-only milk. A2 Milk Co., founded in 2000, is expanding its US business into the Northeast, and its milk is available at retailers like Wegmans, ShopRite and Stop & Shop, according to Chief Executive Geoffrey Babidge. The milk is already sold in other parts of the country, including in California, where it launched in 2015, and the Southeast and at some Whole Foods stores. A2 already has more than 10% of the milk market in Australia. A similar share in the U.S. would be about $1.5 billion in annual sales, according to Euromonitor International.

145

WHAT’S IN STORE | 2019 figure 7.13

Top Categories Shoppers Regularly Purchase Store Brands Top Categories for Store Brands (bought fairly often/almost every time)

59%

58%

57%

Milk, or Dairy Free Substitutes

Fresh Bakery Items

Non-Prescription Drugs

55%

54%

Fresh Meats and Seafood

Refrigerated Dairy Foods

Fresh Produce

Nearly all shoppers (97% in 2018, 99% in 2017, 99% in 2016) say they choose private label or store brands at least occasionally, and the vast majority report doing so fairly often or almost every time they shop (85% in 2018, consistent with 90% in 2017, and 91% in 2016). When it comes to private brands, fresh perimeter categories are the most widely used. These categories tend to represent the signature experience of each store.

Source: FMI US Grocery Shopper Trends, 2018. Q: "Thinking about provate label or store brands at your grocery store, how often do you purchase private label/store brand…? (Top-2 Box: fairly often/almost every time.)" Results are percentage of shoppers who purchase private brand versions when shopping category. n-varies (664-982).

DOWNLOAD FIGURES ONLINE 146

Dairy Sales and Eating Trends figure 7.14

US Dairy Situation at a Glance

Oceania Commercial Imports export exports prices

Beginning stocks

Dairy product output

Retail prices

Wholesale price

Chicago Mercantile Exchange prices

Unit

May-17

Jun-17

Jul-17

May-18

Jun-18

Jul-18

All milk

Dol./cwt

16.70

17.30

17.20

16.20

16.75

Class III (cheese milk) 3.5% fat

Dol./cwt

15.57

16.44

15.45

15.18

15.21

14.10

Class IV (butter-powder milk) 3.5% fat

Dol./cwt

14.49

15.89

16.60

14.57

14.91

14.14

Butter, Grade AA

Dol./lb.

2.2684

2.5688

2.6195

2.3751

2.3270

2.2361

Cheddar cheese, 40-pound blocks

Dol./lb.

1.6264

1.6022

1.6586

1.6397

1.5617

1.5364

Cheddar cheese, 500-pound barrels

Dol./lb.

1.4806

1.3972

1.4396

1.5870

1.4145

1.3707

Nonfat dry milk, Central and East (Low heat)

Dol./lb.

0.8750

0.9267

0.9023

0.8101

0.8191

0.7996

Consumer Price Index

1982-84=100

244.7

245.0

244.8

251.6

252.0

All food

1982-84=100

250.0

249.7

250.2

253.1

253.2

253.7

Dairy products

1982-84=100

217.0

215.2

216.4

215.7

216.1

215.6

Fluid milk

Dec 1997=100

139.7

138.6

138.8

136.0

136.8

135.7

Other dairy products

Dec 1997=100

147.6

146.1

148.0

146.7

146.1

147.6

Butter

Mil. lb.

163.4

139.2

135.6

168.1

143.5

American cheese

Mil. lb.

443.1

419.3

414.5

443.5

430.5

Other-than-American cheese

Mil. lb.

633.1

626.6

637.2

641.1

633.8

Nonfat dry milk

Mil. lb.

167.9

162.8

151.8

159.9

148.2

Commercial butter

Mil. lb.

292.3

313.6

310.2

307.3

338.5

336.4

Commercial American cheese

Mil. lb.

804.6

816.3

810.2

780.3

804.6

803.3

Other-than-American cheese

Mil. lb.

498.7

492.7

506.5

565.0

580.9

589.3

Manufacturers' nonfat dry milk

Mil. lb.

267.4

280.1

297.8

273.3

270.7

301.9

All commercial (m.e.-fat) 2

Mil. lb.

16,877

17,587

17,839

17,361

18,854

19,093

All commercial (m.e.-skim)

Mil. lb.

10,926

11,308

11,586

11,104

11,234

11,560

All products (m.e.-fat)ii

Mil. lb.

491

462

512

550

508

All products (m.e.-skim)

Mil. lb.

455

531

541

481

426

All products (m.e.-fat)

Mil. lb.

892

866

741

936

989

All products (m.e.-skim)

Mil. lb.

3,570

3,259

3,112

4,266

3,772

Butter

$/metric ton

5,200

5,785

6,046

5,746

5,626

5,093

Nonfat dry milk ( Skim milk powder (SMP))

$/metric ton

2,004

2,098

2,057

2,081

2,076

2,035

Regular hard ice cream, total lowfat ice cream, and hard sherbet. m.e.-fat (skim) = Milk equivalent, milk-fat (skim-solids)basis. Sources: US Dept. of Agriculture: National Agricultural Statistics Service, Farm Service Agency, Foreign Agricultural Service, Agricultural Marketing Service, and Economic Research Service calculations; US Dept. of Commerce, Bureau of the Census; California Dept. of Food and Agriculture; and US Dept. of Labor, Bureau of Labor Statistics. Numerous sources were used fo conversion factors. See the workbook Conversion factors and sources at http://www.ers.usda.gov/data-products/dairy-data.aspx. "For further information, contact Jerry Cessna, 202-694-5171, jgcessna@ers.usda.gov, or Jonathan Law, 202-694-5544, jonathan.law@ers.usda.gov." i

147

According to Nielsen Fresh, US deli dollar sales increased:

14 $33.3 %

totaling

BILLION

in the 52 weeks ending July 21, 2018.

Chapter 8

DELI SALES AND EATING TRENDS 151 / Deli Department Growth 163 / Channels and Competition 169 / Experience

151 / Deli Consumers

160 / Messaging

166 / The Deli as Shortcut to Home Prep

171 / Food Trends

WHAT’S IN STORE | 2019

IDDBA Trends Focus on alternative proteins, sustainable seafood & flavor-forward food for attracting shoppers to the Deli Department Through its What’s in Store research, IDDBA has identified three key trends impacting consumer shopping and purchasing for prepared foods categories at retail which, when analyzed separately and together, could provide innovative solutions to retailers looking to drive sales in their deli departments. 1. Many consumers have increased interest and are purchasing more ALTERNATIVE PROTEINS. Retailers continue to have opportunities where they can offer more choices around these alternatives. Prepared foods departments can continue to be on the forefront of this movement as more brands create more options to try. A deli department can find differentiation in its offerings by highlighting choices around alternatives and creating additional menu items out of the more popular meat-free choices.

2. SUSTAINABLE SEAFOOD can drive growth amongst multiple customer demographics. There are many choices to make around seafood varieties and sustainability; it is an opportunity to increase storytelling around products, curation, and sourcing as well as just simply appealing to consumers that love seafood. Seafood is also a great way to highlight fresh in both the department and store at large. 3. FLAVOR-FORWARD FOOD continues to trend upward with younger generations. A focus on Indian cuisine, as an example, can add spice to more commonly available deli items making them approachable to more shoppers. American palates are continuing to evolve, and the deli case is a great place to try a small portion of a somewhat unfamiliar food.

What Does This Mean for Retail? • Each of these trends creates a retail opportunity to tell a story, differentiate the department and create an impression of being innovative and seasonal. Leverage messaging around options to further brand identity. • Highlight choice through events or pop-ups to promote menu changes and get samples of the food in more shopper’s mouths. Tasting leads to purchasing.

150

• Retailers should consider aligning on a core menu and challenging prepared foods to create new offerings at regular intervals driving interest and traffic to the department. The deli department can drive a trend throughout a store if executed well. For example, sustainable seafood can drive a sustainability focus more generally throughout other departments. • Focus on food quality when highlighting flavorflavor will drive interest and quality will contribute to solidifying for shoppers that the deli department is a place of interest when making meal decisions.

Deli Sales and Eating Trends produce accounted for 6%. Nielsen observed the ability of the frozen and deli departments to provide an entire meal occasion has strong appeal and is driving growth.6

DELI DEPARTMENT GROWTH Deli department sales totaled $33.3 billion in the 52 weeks ending July 21, 2018, representing 4.2% of total store sales, according to Nielsen Total Food View data. From 2016 to 2018, total deli dollar sales grew 14% and volume grew 14.5%.1 “Looking more granularly, the deli department shines as a true growth engine for the store, having posted dollar growth of over $875 million and an increase of over 240 million in units in the last year,” Nielsen reported.2 Two-thirds of operators reported increased profits in 2017, according to data from Progressive Grocer. Three-fourths saw increased dollar sales and unit sales in their prepared foods programs. Seventy percent dedicated more selling space to fresh prepared foods in 2017. Operators reported average sales gains of 8.2%.3

DELI CONSUMERS

Accounting for 58% of total deli sales, deli foodservice realized 19% growth in dollars and 18.2% in the same three years.4 According to Nielsen data, prepared foods throughout the store, not limited to deli items, reached $36 million, an increase of 139.5% over the previous year.5 Nielsen reported 40% of prepared foods sales came from frozen foods, 31% from deli, and 22% from grocery. Dairy, meat, and

The fresh departments have historically been key drivers of both traffic and loyalty. Jill Tomeny, senior manager fresh, Daymon, suggested fresh should be a holistic approach across the store. “The fresh food experience is critically important and a key driver of shopper loyalty,” citing 60% of shoppers whose store choice is driven by fresh categories.7 Nielsen’s president of US fast-moving consumer goods (FMCG), John Tavolieri, echoed the sentiment. “To win shoppers over, fresh has to be integral to a broader, more connected total-store approach that goes beyond category management,” Tavolieri suggested. The highly selective and savvy nature of consumers today demands a greater understanding of unseen competition, connecting across categories, and making the most of adjacencies, within the store or otherwise.8

figure 8.1

US Deli Department Super-Category Contribution Dollar Share

Latest 52 Wks W/E 07/21/18 Prepared Foods Fully Cooked Meat Lunchmeat Cheese Dips/Spreads Meal Combos Pizza All Other

33.7%

Total Deli

Dollar % Change

Latest 52 Wks YA - Latest 52 Wks 2YA Latest 52 Wks 3YA W/E 07/22/17 - W/E 07/23/16 - W/E 07/25/15 33.1%

31.6%

Latest 52 Wks W/E 07/21/18

Latest 52 Wks YA - Latest 52 Wks 2YA W/E 07/22/17 - W/E 07/23/16

30.5%

7.1%

6.2%

10.9%

18.1%

18.3%

18.7%

19.1%

3.9%

-0.8%

4.8%

15.9%

16.4%

16.9%

17.6%

1.9%

-1.5%

3.2%

12.5%

13.0%

13.6%

13.9%

1.2%

-3.1%

4.8%

7.5%

7.3%

7.1%

2.7%

5.9%

6.2%

6.0%

5.8%

5.6%

9.7%

4.4%

10.6%

2.2%

2.5%

2.7%

-4.4%

-7.6%

5.8%

3.8%

3.4%

3.2%

17.3%

3.0%

12.5%

100%

5.1%

1.5%

7.1%

Source: Nielsen xAOC, Total Food View, 52 Weeks Ending 7/21/18

151

WHAT’S IN STORE | 2019 figure 8.2

US Deli Trends Remain Stable

56.5% 57.5% 57.7% 58% 58.6%

2012 2013 Deli Prepared Foods

2014 2015 2016

22% 21.5% 21.3% 21.2% 20.7%

Deli Meat

17.3% 17% 16.9% 16.7% 16.5%

Deli Cheese

Deli Beverages

Deli Other

3.8% 3.8% 3.8% 3.9% 4% 0.3% 0.3% 0.3% 0.2% 0.2%

DOWNLOAD FIGURES ONLINE

Source: Nielsen Perishables Group stable store historical database 2011 - 2015 Deli Other: includes Deli Beverages - Other, Tea; Breakfast Foods; Deli Desserts; Non-Specific Sales; Condiments; Appetizers; Specialty Meat

152

Deli Sales and Eating Trends figure 8.3

Deli Dollars and Growth Dollar Share

Latest 52 Wks W/E 07/21/18

Dollar % Change

Latest 52 Wks YA - Latest 52 Wks 2YA Latest 52 Wks 3YA W/E 07/22/17 - W/E 07/23/16 - W/E 07/25/15

Latest 52 Wks W/E 07/21/18

Latest 52 Wks YA - Latest 52 Wks 2YA W/E 07/22/17 - W/E 07/23/16

Prepared Foods Fully Cooked Meat Lunchmeat Cheese Dips/Spreads Meal Combos Pizza All Other

33.7%

33.1%

31.6%

30.5%

7.1%

6.2%

10.9%

18.1%

18.3%

18.7%

19.1%

3.9%

-0.8%

4.8%

Total Deli

15.9%

16.4%

16.9%

17.6%

1.9%

-1.5%

3.2%

12.5%

13.0%

13.6%

13.9%

1.2%

-3.1%

4.8%

7.5%

7.3%

7.1%

2.7%

5.9%

6.2%

6.0%

5.8%

5.6%

9.7%

4.4%

10.6%

2.2%

2.5%

2.7%

-4.4%

-7.6%

5.8%

3.8%

3.4%

3.2%

17.3%

3.0%

12.5%

100%

5.1%

1.5%

7.1%

Source: Progressive Grocer's 71st Annual Consumer Expenditures Study, July 2018.

Key Insight TOP DEPARTMENTS DRIVING SALES, DIFFERENTIATION, AND TRAFFIC Most successful departments at generating sales (% ranking Extremely/ Very Important)

PRODUCE

PRIVATE LABEL

MEAT

BEER/WINE/ LIQUOR

DELI/ PREPARED FOODS

(down from #2)

66% 64% 60% 59% 59%

Most influential department in driving stores’ overall brand/ image/point of differentiation

MEAT

PRODUCE

DELI/ PREPARED FOODS

(down from #2)

21% 21% 15%

Most successful departments at driving traffic (% ranking Extremely/Very Important)

PRODUCE

DELI/ PREPARED FOODS

MEAT

58% 51% 51%

Source: “85th Annual Report of the Grocery Industry,” Progressive Grocer, April 2018

153

WHAT’S IN STORE | 2019 figure 8.4

In-Store Deli Operations at a Glance

Deli Prepared Driving Highest Growth in Fresh Deli

Average gross margin in 2018

43.9

4.1

vs. 3 YAGO

< 10 stores Avg.

Labor as a percent of sales

19.6%

28.7% vs. 3 YAGO

Shrink as a percent of sales

5.6%

9.8%

vs. 3 YAGO

Full-time equivalent employees per in-store deli

5.5

20%

vs. 3 YAGO

Source: Progressive Grocer Market Research 2018

154

BILLION (60% share)

96.2%

3.2%

5.1%

PENETRATION PENETRATION TRIPS

TRIPS

vs. Year Ago.

>10 stores

6.2

99.5%

2,369 %

BILLION

Average size of in-store delis (sq. ft.)

1,045

Deli Prepared

vs. Year Ago.

Dollars Meat Produce Deli Bakery Seafood

Volume

-1.20%

1.60%

1.70%

1.10%

1.30%

1.60%

-2.20%

Source: Nielsen FreshFacts, Total US 52 Weeks ended July 1, 2017; Nielsen Homescane, Tota US, 52 Weeks ended July 1, 2017 Penetration: Read as "Deli Prepared foods reach 96.2% of US households

Total deli household penetration hit 99.5% and deli prepared foods reached 96.7%, according to the Food Marketing Institute’s (FMI) The Power of Foodservice at Retail Part 2 report. Shoppers made 32.7 trips per year to the department and 17 trips for deli prepared foods. The average purchase for deli items was $8.29 and $8.56 for prepared foods. Purchase frequency of heat-and-eat and readyto-eat items declined in 2018; however, club store purchases jumped 20 percentage points. Millennials and households without children under 18 are leading the segment.9 Different consumer groups vary in trip frequency and access to desired products, especially urban versus rural shoppers and younger versus older shoppers. More than half (58%) of shoppers are loyal to their © 2018 International Dairy Deli Bakery Association

Deli Sales and Eating Trends

Deli Department Growth at a Glance Total annual deli department sales, 52 weeks ending 7/21/2018.

Total edibles sales

5.9

33.3

BILLION

Total store sales

5.1

vs. 3 YAGO

4.2%

vs. YAGO

7.4

10.5% vs. 3 YAGO

Total annual deli foodservice sales, 52 weeks ending July 21, 2018.

14.5

vs. 3 YAGO

19.3

BILLION UNITS

BILLION

19%

vs. 3 YAGO

Source: Nielsen xAOC, Total Food View

vs. YAGO Average price per unit

% $ sales sold on promotion (any merchandise)

14.3

0.6

$5.50

3.9%

vs. YAGO

Avg. weekly deli prepared items selling/store

Source: *IRI, MULO, 52 weeks ending June 17, 2018.

101.7

155

WHAT’S IN STORE | 2019

Key Insight POST-MILLENNIALS: GEN Z, iGENERATION, CENTENNIALS, THE FOUNDERS Typically defined as those born between the mid-90s and mid-2000s, the generation following Millennials certainly has its own distinctions, in spite of its lack of consistent naming convention. According to Mintel, they account for 27% of the US population and are different enough from Millennials that grocers and manufacturers should be fine-tuning their messaging toward them. “Mintel says this demographic has the potential to reset expectations for health and wellness, increase the reach of international cuisine and heighten creativity in the kitchen.” Gen Z: 1. Have a personal brand with a story and values. Brands that support their story get their business. 2. Are among the heaviest consumers of organic and non-GMO foods. 3. Grew up understanding the relationship between food and a well-lived life. • 25% of teens 15-17 years old worry about staying healthy. • 49% agreeing drinking soda is unhealthy. 4. Expect food and food brands to follow their needs, emphasizing flavor and function. 5. Draw influence from social media to cook at home, especially international cuisine. • 62% of those age 18-22 vs. 46% of Millennials and 23% of Gen X • 36% of US parents of kids under 18 agree their kids enjoy eating international foods. Sources: The NPD Group, "Gen Zs Are Discerning Grocery Shoppers with An Eye for Organic and Real Foods," Press Release, March 21, 2018, www.npd.com. The NPD Group, "Unintentional Foodies, Gen Zs Expect Food Brands to Follow Their Needs, Rather Than the Other Way Around," Press Release, January 24, 2018, www.npd. com. "Gen Z Influences Food and Drink Trends," NACS Daily, July 23, 2018, www.convenience.org.

156

primary store for foodservice items, but 35% switch between stores while 7% choose a store other than their primary store. Overall, supermarkets maintain 63% of deli/prepared purchases. Of the 14% of shoppers who buy every few days or daily, over half make five or more trips per week. More than a third regularly check sales specials, and three in 10 are technology-inclined Millennials with children.10

TOP SHOPPER DESIRES AND SUGGESTIONS FOR IMPROVEMENT • DESIRE TO TRY Better prices, particularly focused on new items, and more sampling opportunities. • POSITIVE EXPERIENCE More convenient access (better hours, easier navigation through the store), more product information, and more knowledgeable and friendly staff. • FRESHER IMAGE Clean stores, frequent product rotation, and greater focus on in-stock items.11

HELP AT HOME US consumers are increasingly turning to foodservice for shortcuts in home preparation of meals. Consumers are preparing 4.6 dinners per week at home, compared to 4.9 in the previous year. On average, shoppers buy retail foodservice items once every three weeks, but one in seven shoppers purchase deli/prepared foods every few days or daily. Considering more than half (53%) utilize some semi- and fully-prepared items when cooking dinner at home, there is an opportunity for deli/prepared to pull shoppers toward the department by tapping into their needs around cooking at home.12 Over 80% of dinners in the United States are eaten at home, and The NPD Group predicts that will grow over the next five years. Meals made entirely from scratch have been declining since 2015 to fewer than one-third. About one-quarter of those meals takes less than 10 minutes, a trend expected to grow about 8% over the next five years.13 With the demand for convenience and affordability reaching new levels, the prepared foods category is in prime position to offer help at home.

Deli Sales and Eating Trends

Meal Prep Demographics

While semi- and fully-cooked items are merchandised in many parts of the store, retail foodservice has ample opportunity as a side or main dish within a home-prepared meal occasion given today’s cooking style. Increasing purchase frequency through highlighting retail foodservice as a meal component could drive greater awareness and improve top-of-mind performance as a full meal solution. MEALS ARE MOSTLY COOKED FROM SCRATCH

SOME SCRATCH AND SOME SEMI- AND FULLY-PREPARED ITEMS

MOSTLY SEMI- AND FULLY-PREPARED ITEMS

39%

53%

More likely to cook from scratch most of the time: Dinner is usually planned Buy grocery/deli prepared once a month or less 6-7 home-prepared meals/week Go to solution if not cooking is a restaurant Hispanic shoppers Very health conscious High weekly grocery spending

More likely to mix scratch with semi- and fully-prepared items:

51% 50% 49% 48% 48% 47% 44%

Midwest Small town Households of 5 or more people Women

Source: Food Marketing Institute, The Power of Foodservice 2018, Part 2, 12.

HEALTH & WELLNESS The 2018 Mindful Dining Study found that 60% of all consumers say that what they eat is primarily determined by their concern for their health and wellness. Eighty-one percent of consumers say they shouldn’t have to try too hard to eat healthy.14 To the benefit of food retailers, 41% of shoppers say food stores in general are on their side when it comes to helping them stay healthy, up from 33% in 2017, and © 2018 International Dairy Deli Bakery Association

58% 57% 57% 56%

Mostly rely on semi- and fully-prepared items: 0-3 home-prepared meals/week One-person households Switch around between stores for grocery deli/prepared Low grocery spend Hardly ever/never have dinner planned 2 hours out Buy grocery deli/prepared every few days/daily Pacific region Lower-income

15% 15% 15% 14% 13% 13% 12% 2%

55% say their primary store is on their side compared to 45% in 2017. One in four consumers feel that way about online grocery providers.15 In fact, healthy and nutritious options were among the top desires shoppers have for retail foodservice, according to FMI’s research. The desire to eat healthier spans demographics. Three-quarters of all shoppers and 87% of frequent purchasers of grocery 157

WHAT’S IN STORE | 2019

Eating Well Framework Eating well reflects a combination several consumer desires that support overall wellness and enjoyment leading to a positive experience with food.

QUALITY

NUTRITION

Fresh, healthful ingredients, superior taste

Providing the body with the right nutrients

DISCOVER & ENGAGEMENT Culinary experimentation, taste exploration at home & at food service, scratch cooking

Taste & Enjoyment

PLEASURES

SOCIAL Sharing meals with others, dining out for company

NEEDS

EATING WELL

Mindful Connection

Health

BALANCE & MODERATION Balancing “healthy & indulgent” foods, not overeating

CONVENIENCE Fit with/support lifestyle, access, ease

VALUES

TRANSPARENCY Organic and natural, ethical and sustainable sourcing and production, provenance Source: FMI, US Grocery Shopper Trends 2018.

deli/prepared food said those items are important. Nearly half of urban and rural shoppers agreed. Gen X (48%) and Boomers (46%) led the results along with frequent deli/prepared users (60%). In gearing storelevel strategies to the unique store audience, retailers can play a major role in helping the 48 million households focused on managing health and wellness through food to the tune of $286 billion, according to FMI. 16 Seventy percent of shoppers say they place at least some focus on making nutritious and healthful choices when dining out while just 6% do not.17 Two in five diners try to eat healthy but say it’s too difficult when eating out and may avoid it all together. This doesn’t necessarily mean consumers play it safe; if an unfamiliar ingredient offers a health benefit, 51% 158

of diners are more willing to try, suggesting there is opportunity to emphasize nutrition and health callouts in retail foodservice.18 May 7, 2018 was the compliance date for the FDA menu labeling final rule. With it comes another opportunity to educate. If a calorie-conscious consumer roams through the deli, they might flip over every item that “appears healthy” to see the nutrition facts before purchasing, while many others might just bypass the sandwiches and prepared meals because it takes too much time to read everything. Two-thirds of consumers want nutritional information by the item or spoon size rather than by the ounce or as a percentage of the daily value while © 2018 International Dairy Deli Bakery Association

Deli Sales and Eating Trends 64% want the information prominently highlighted on grab and go items.19 Delis can also help point out better options for calorie counters: • Small sandwiches or 6” subs with modest portions of lean or grilled meat • Vegetarian options can potentially be leveraged as lowcalorie options • Salads without mayonnaise • Adding mustard instead of mayonnaise can help reduce calories • Remind them that low-carb does not mean low-calorie20

While awareness of calorie labeling on menus and menu boards in restaurants is relatively unchanged, more of the shoppers who have taken notice are changing their selections, up 8 percentage points. When it comes to nutritional information, 68% of shoppers believe information is generally enough to make educated decisions, but many would like additional tools in the deli/prepared foods department, such as: • Healthier ingredients (85%) • Products with fewer ingredients/clean label (83%) • More nutritional education (71%) • More detailed in-store information to help guide health decisions (71%)21

TRANSPARENCY Transparency is among the top consumer-driven trends. Consumers are increasingly connected with food trends, have greater awareness of lifestyle choices, and eager to make value-based decisions. The transparency trend encompasses several categories, including local, organic, sustainable, and ethical foods, as well as the desire for clean labels. Transparency is important throughout the store. Communicating commitments, from retailers and manufacturers, around openness and honesty in relation to product attributes, sustainability, and environmental impact builds trust and loyalty among consumers, according to FMI. “Shoppers desire a deeper level of information about ingredients, growers, and production methods in order to © 2018 International Dairy Deli Bakery Association

better align their purchases with their values about sustainability and wellness.”22 Culinary Visions Panel found, 67% of consumers trust vendors at the farmers market because of the direct interaction with growers and food handlers.23 Jill Tomeny, senior manager fresh, Daymon Worldwide, suggested partnering with local bakeries, charcuteries, and farmers to use and offer their products in the store.24 Hosting tasting events to facilitate direct engagement between customers and producers will add new appeal as 55% of consumers specifically seek out local foods and beverages, while 67% buy locally grown products regularly.25 Great service and honesty were the top-desired dining characteristics across age groups, according to research from the Culinary Visions Panel. Restaurant diners enjoy establishments that treat their employees well and use local ingredients, each scoring approval from 87% of diners. Diners also value farm-to-table (79%) and eating at restaurants that support causes they believe in (74%).26 However, consumers across demographics are interested in ethical food options, according to the Panel: • 64% of consumers ages 18-34, 54% of those 35-54 years old, and 49% of seniors 55 and older want more ethically produced snack options • 83% wish restaurants would use more environmentally friendly practices • 55% are concerned by the environmental impact of take out packaging27

Consumer focus on clean labels provides an opportunity in private label products. Forty-one percent of American would rather buy “clean label” items but given their higher price point (up to 10% higher for deli/prepared) buy conventional products instead.28 “To be honest, deli, prepared foods, and bakeries at retail have lagged behind in the clean label segment,” Tomeny, Daymon Worldwide, said. “Fears of increased costs, shrink, or reduced shopper acceptance have been barriers. But there have been significant strides in ingredient technology that have mitigated some of those concerns. Additionally, foodservice operators are rapidly moving towards –and not talking about—clean label. So, we’re at a 159

WHAT’S IN STORE | 2019

Key Insight 4 STEPS TO CLEAN LABEL In addition to nutrition facts, clean label interest has been growing, even amongst the uncertainty surrounding that word. “Clean label is a consumer driven movement, demanding a return to ‘real food’ and transparency through authenticity,” Go Clean Label™ states on its website. That includes “food products containing natural, familiar, simple ingredients that are easy to recognize, understand, and pronounce…no artificial ingredients or synthetic chemicals.” Manufacturers and retailers can connect on a different level with consumers by communicating messages of health and social and environmental consciousness through clean labels. Understanding what “clean label” means for their consumers is a necessary step to meeting expectations. EASY-TO-UNDERSTAND INGREDIENT LISTS Communicate ingredients in ways consumers understand: natural flavors, natural colors, explain unrecognizable ingredients. The shorter the ingredient list, the better. REPLACE ARTIFICIAL INGREDIENTS WITH NATURAL ALTERNATIVES Artificial ingredients are not popular among label readers, and there are many natural alternatives hitting the shelves: • Acerola – Replaces chemically synthesized vitamins and minerals. • Lemon juice and tartaric acid – Replace citric acid E330. • Stevia and agave – Replace sugar and artificial sweeteners. • Turmeric, beets, carrots, and spirulina – Replace artificial colors with added health benefits. • Flaxseed, chia, and tiger nut flours – replace emulsifiers like mono- and di-glycerides. SIMPLIFY PACKAGING Include easy-to-read and accurate claims on the front of packaging, like gluten-free, organic, and non-GMO. IMPLEMENT SUSTAINABLE PRACTICES Labels and packaging aside, consumers also care about ingredient sourcing, fair labor practices, animal welfare, and pollution as they relate to manufacturing practices. Messages of corporate responsibility will go far to build loyalty. Source: Jade Lui-van-sheng, "Making Sense of the Clean Label Concept," Food Manufacturing, June 19, 2018, www.foodmanufacturing.com.

point where retail has got to be more active in getting on board in deli and bakery clean label.”29 Addressing these concerns can certainly lead to innovation that catches the eye. Ice cream shop Salt & Straw developed a flavor made of “wasted” ingredients from other flavors and works with organizations to deliver surplus food directly to people in need.30 IKEA is using Ecovative’s 160

Mushroom Packaging as a replacement for Styrofoam. Mycelium fungus is grown on agricultural waste like corn stalks, then dried and formed into packaging.31

Deli Sales and Eating Trends what’s available before they walk in the door. 32

Key Insight HEALTH-RELATED SERVICES COULD ATTRACT SHOPPERS TO HEALTHFOCUSED PREPARED FOODS In the Progressive Grocer research for the “85th Annual Report of the Grocery Industry,” operators ranked health-related services much higher than in-store restaurants and cooking classes as the most important customer interaction strategies. Most Important Customer Interaction Strategies

(% operators ranking Extremely/Very Important) COMMUNITY INVOLVEMENT SEASONAL/SPECIAL EVENTS SAMPLING/DEMOS WELLNESS EVENTS/COUNSELING HEALTH SCREENINGS HEALTHY EATING STORE TOURS IN-STORE RESTAURANT COOKING CLASSES

73% 60% 55% 31% 24% 21% 17% 10%

Source: Progressive Grocer Market Research, 2018

for shoppers, like making decisions when time is of the essence. Reaching customers on their terms requires operators to have effective in-store messaging, as well as leveraging alternate channels for communication. Building a reputation as a place to go for certain services or information is key to success in getting shoppers back for more. First step of that process, according to Eric Le Blanc, marketing director, Tyson, is letting people know © 2018 International Dairy Deli Bakery Association

Advertising/promotions (41.4%), active sampling/ events (37.9%), and merchandising/experience (27.6%) were ranked as the most influential factors in securing strong everyday deli department sales, according to 2018 Progressive Grocer market research. Incentive-based discounts and increased on-ad specials received no votes.33 Price promotions do not tend to draw sales, according to FMI research. While shoppers prefer an everyday price image, meal specials or special feature days are more popular among regular customers. For those shoppers, FMI found email to be the preferred method of communication about daily specials.34 According to Le Blanc, Tyson, prepared foods represents a very small share of voice in digital and social communications from retailers. Indeed, only 14% of deli/prepared sales were sold on promotion, according to IRI.35 Le Blanc suggests the first opportunity is to improve the messaging outside of the store. He also recommends focusing beyond the specific items, such as a rotisserie chicken, and instead focusing on “the thing that dinner makes possible” like time with family or other emotional connections to food. The messaging challenge is to teach consumers how to or make it easier for them to turn ingredients or components that already exist around the store into full meal solutions. Stores that are already printing an ad can create feature boxes for prepared foods items, adding details about ingredients or suggesting ways to use without decreasing pricing. Messaging in the store should resonate with shoppers on an experiential level. Knowledgeable staff, fresh products, and engaging signage bring the in-store experience alive. “We can focus from an execution perspective on doing a good job on what we have today while at the same time multiplying the options the shopper has by utilizing the rest of the store,” Le Blanc said.36 Investing in human resources to ambassadors for your brand on a person-to-person level does resonate with younger shoppers. “Contrary to popular belief, the digital generation craves interaction,” 161

WHAT’S IN STORE | 2019

Key Insight IDEAS FOR MESSAGING • Daily meal specials plated at the front door during dinner rush. • Mobile-friendly recipes and how-to videos. • Social media posts focusing on how to build a meal using components in the deli. • In-store spotlights on local producers with tasting events. • Private label showcases to highlight wellness or sustainability. • Events for shoppers to experience entertaining concepts the deli can help with. • Daily food demos like meal kits or what to do with a rotisserie chicken (in-store or digital videos). • Highlight ingredients throughout the store to build meals shoppers receive on mobile devices. • Special featured meal days (Sushi Saturday). • Online meal planning tools (with meal options provided) and components in one location in-store.

162

the grocery store is more top of mind when thinking about dinner. Websites, social media, and food apps are gaining ground as shoppers spend less time doing pre-trip planning by looking through circulars. If instore messaging is not compelling enough to attract and retain traffic, the messaging beyond the store needs to supplement and build the reputation that the deli is a dinner destination.39

DELI/PREPARED POTENTIAL IN A TECH-SAVVY WORLD Food delivery apps make it easier for consumers to order and receive fully prepared meals. But at a time when people are increasingly cooking at home, could those same platforms be positioned to offer partially prepared meals and meal components, much like a grocery delivery service? By 2030, online food delivery could represent 10% of the total foodservice market, a $365 billion market share, according to a report for investment bank UBS. Online apps offer a delivery platform for food purveyors who previously did not offer delivery. The report also found that consumers across generations are cooking more at home, in part, to make healthier food.40 Uber Eats has also begun to identify areas in which there are few delivery options and is partnering with local restaurants to fill those gaps.41 In 2018, 56% of grocery operators had a fully integrated omnichannel strategy in use for in-store, online, and digital channels. More than 30% were just getting started and 12% did not have plans.42

said Rachael Perron, culinary and brand director, Kowalski’s Markets.37 In-store events featuring local producers, private label items, and themed entertaining demos provide the retail theater shoppers increasingly seek when grocery shopping or learning about food. Mintel refers to this as “stewarding the customer” and is a vital element to delivering differentiation beyond in-store exclusives programs.38

“Being seen along with restaurant competitors is particularly important as technology usage is much higher among above average spending audiences with a greater propensity for eating out,” reported FMI. Two-thirds of those who dine out at foodservice multiple times per use technology in out-of-home dinner planning, compared to 31% overall. Shoppers likely to use technology for dinner planning:

About 25% of shoppers feel word-of-mouth recommendations for a store are important. One respondent in FMI’s The Power of Foodservice at Retail Part 2 requested retailers advertise more so

• Convenience-focused.

• Eat out an average of three times per week.

Deli Sales and Eating Trends

Key Insight QUICK BITES AROUND THE STORE For many shoppers in need of a quick bite, convenience is key. Nearly a quarter of retailers are not cross-merchandising throughout the store, according to Progressive Grocer market research. The need to eat can be a 24-hour cycle in some markets. The lines between meal parts are blurred the point of needing to be ready at any time. One way to always have a fresh offering is to maintain snack-focused displays featuring quick and easy grab and go items around the clock.

CROSS-CATEGORY SUCCESS

HIT THE CRAVINGS

• Sushi with cold foods and beverages in hightraffic areas. • Sandwiches with soda, chips, crackers, and graband-go produce. • Salads with crackers and specialty cheese. • Specialty meats with produces like melons and dried fruits. • Smoked meats from meat department featured in deli meals.

• Sweet • Protein-based • Healthy • Beverages • Spicy

• Single-serve muffins • Cake slices • Chicken tenders • Protein drinks/smoothies • Pizza • Single-portion grain salads • Specialty cheese trays for one CROSS-MERCHANDISING AROUND THE STORE

Sources: Progressive Grocer Market Research, 2018, and Jill Tomeny, Senior Manager Fresh, Daymon.

In addition to utilizing technology to determine where to eat, consumers are using it for a variety of other tasks, all of which saw an increase since 2016, according to FMI. It’s important to show the full menu, clear pricing, sales specials, and nutrition information for techinclined diners.44

CHANNELS AND COMPETITION “Operators across segments are shifting to meet diners’ various needs as speed, innovation, and category competition become more pressing in 2018 than ever before,” Amanda Topper, Associate Director of Foodservice Research, Mintel, observed.45 When it comes to shopping for dinner, shoppers are © 2018 International Dairy Deli Bakery Association

twice as likely to choose a restaurant than retail when looking to avoid making dinner themselves. Just 25% use both services equally, and 24% choose the deli/prepared more often, leaving most customers to the competition.46

ONLINE NPD reported 20% growth in delivery over the past five years, largely attributed to the proliferation of digital ordering. These platforms are also expanding restaurant delivery from dinner to lunch and breakfast. Grocery delivery services like Instacart and Shipt are helping retailers be competitive, but operators still need to support their prepared offerings to maintain the traffic in-store.47 Progressive Grocer also found that consumers do still embrace a physical store (not just a virtual reality 163

WHAT’S IN STORE | 2019 figure 8.5

Top Omnichannel Services Provided

54%

32%

31%

Mobile Shopping Apps

Click and Collect

Third-Party Home Delivery (Instacart)

Drive-Up Collection Sites

28%

24%

17%

33%

Store-Supported Home Delivery

In-Store Mobile Product Scanning

Ordering Kiosks

None

Source: Randy Hofbauer, "85th Annual Report of the Grocery Industry: Won't Back Down," Progressive Grocer, April 2018, 50.

“Operators across segments are shifting to meet diners’ various needs as speed, innovation, and category competition become more pressing in 2018 than ever before.” Amanda Topper,Associate Director of Foodservice Research, Mintel 164

store experience) but want it on their terms. “The focus continues to be on how consumers want to shop more than on what they’re shopping for.”48 For example, according to Nielsen research, impulse snack purchases are relatively unaffected by online shopping (34% unplanned) versus in-store shopping (36% unplanned).49 FMI found “no clear evidence” to suggest the average online grocery order takes away from the total number of trips to the store. Online shoppers are more engaged in household shopping, spend more on groceries, make more trips, and more frequently shop stores besides their primary store. Online shoppers also tend to plan out multiple meals and do more research ahead of the trip. While prices might do more to attract shoppers less inclined to shop online, online shoppers value store cleanliness and the ability to shop faster compared to others.50 Shoppers are gaining trust in buying fresh items online, however the number of consumers buying © 2018 International Dairy Deli Bakery Association

Deli Sales and Eating Trends figure 8.6

Omnichannel for Tasks

74%

63%

56%

53%

Finding Recipes/Meal Ideas

Checking Sale Items at the Grocery Store

Researching Dinner Options on Menu/Location/Reservations Apps

Ordering Meals from Restaurants

32%

30%

27%

Ordering Meals from a Delivery Service (GrubHub, Uber Eats)

Ordering Groceries

Ordering Deli from the Grocery Store

Source: Food Marketing Institute, The Power of Foodservice at Retail Part 2, 2018, 24, 25.

certain fresh categories online is still relatively low. More than 90% of shoppers still prefer to buy fresh prepared meals, salads, sandwiches, and deli foods in person at the store.51

PRIVATE LABEL Private label and signature products should also be factored into the differentiation equation. Nielsen identified 4.1% growth in dollar sales of private label food products and 2.6% growth in unit sales in 2017-18 resulting in a $97 billion share. Branded products, at $460 billion, have posted no growth in dollars and a decrease of 1.8% in units. Frozen pizza snacks realized 3.6% growth in private label sales, while soup saw 2.8% growth. Snacks, spreads, and dips jumped 2.3%.52 According to Tomeny, Daymon Worldwide, up to 53% of shoppers specifically shop at a store because of its private brands. “Consumers © 2018 International Dairy Deli Bakery Association

DOWNLOAD FIGURES ONLINE are looking for distinctive and differentiated private brand solutions, and retailers that deliver on that desire will both continue to thrive and survive the challenges that the new face of retail presents,” Tomeny told IDDBA.53 Baby Boomers appear more dedicated to trustworthy store brands at 58%, but Millennials are still more inclined to buy store brands than national brands (41% and 36%, respectively). Shoppers are also more likely to buy store brands when it comes to fresh prepared meals, salads, or sandwiches (54%) while freshly sliced meats and cheeses, as well as dips and spreads are close behind (46%).54

165

WHAT’S IN STORE | 2019 figure 8.7

% Consumers Who Ordered Online in the Past Year

20%

19%

Milk

Fresh Meats & Seafood

17%

14%

Packaged Meats

Deli Foods

According to FMI, 44% of consumers see no difference between deli/prepared items made in the store versus in a central kitchen. In fact, 27% feel central kitchen is not as good and one-third retail foodservice should entirely be made-to-order. “Retailers doing in-store production have a key opportunity to use this as a point of differentiation, but only when they are able to clearly communicate the advantages to the consumer.”57

THE DELI AS SHORTCUT TO HOME PREP Through in-store and digital merchandising grocery stores can begin to establish themselves as resources to assist consumers with meal preparation as modern lifestyles demand more time. With so many people incorporating prepared foods into meals they make at home, the deli can provide shortcuts and meal solutions consumers get from other areas of the store or through other foodservice channels. • Value-added prep assistance. • Customizable eating experiences. • More health-focused prepared foods.

Fresh Prepared Foods

Meal Kits

Source: Food Marketing Institute, U.S. Grocery Shopper Trends, 2018, 22.

Fewer than half (48.3%) of operators believe signature items are among the most influential in securing strong everyday deli sales, according to Progressive Grocer’s market research.55 “New approaches to fresh food groceries are also exactly what retailers are looking to capitalize on with private brands,” StoreBrands reported.56 Messaging around these items is key. 166

• Chef-inspired prepared foods. • Curated meal kits58

FMI suggested consumers “want guidance and inspiration on how to translate the ingredients into meals and food experiences that meet their needs for health and enjoyment.”59 Millennials are driving demand for more engagement with meal preparation versus static offerings, according to FMI’s data. Beyond recipes, Millennials exceed all shoppers in their desire for meal preparation and recipe instructions for items on sale, convenient placement of items for an entire dinner solution, tips on reducing food waste at home, cooking instructions and demonstrations, meal kits, and customized meal and ingredient recommendations for their needs.60 Ken Fenyo, head of consumer markets, McKinsey Fast Growth, observed, “For most of the past year, the impact of Amazon’s acquisition of Whole © 2018 International Dairy Deli Bakery Association

Deli Sales and Eating Trends

Key Insight BIG OPPORTUNITY FOR BRAND ENHANCEMENT IN DELI/PREPARED FOODS Progressive Grocer’s “85th Annual Report of the Grocery Industry” revealed high potential for products and services related to deli/prepared foods to enhance merchandising and the brand overall. These reflect consumers’ interest in where their food comes from as well as how they’d like to shop for it.

Most Important Merchandising/Brand Enhancement Services (% operators ranking Extremely/Very Important) PREPARED FOODS SIGNATURE PRODUCTS LOCALLY SOURCED PRODUCTS PRIVATE LABEL CROSS-MERCHANDISING

73% 73% 68% 66% 61%

STORE-WITHIN-STORE SPECIALTY DEPARTMENTS

(Organic, Gluten-free, Specialty Cheese) FREE WI-FI IN-STORE PHARMACIES BOBOS COOKING/MEAL PREP STATIONS

54% 40% 36% 34% 31%

Source: "85th Annual Report of the Grocery Industry: Won't Back Down," Progressive Grocer, April 2018.

Foods has been more psychological than physical.” As a result of the acquisition, brick-and-mortar food retailers can no longer ignore the threat of ecommerce, Fenyo continued.61 Progressive Grocer’s 85th Annual Report of the Grocery Industry reveal elevated concern about a new era of competition for retail operators. “Competitive threats” was the No. 2 issue facing operators, with 58.3% of respondents admitting threats keep them up at night. The next three issues fall under that umbrella: keeping up with advancements in technology, online sales/ omnichannel, and market saturation.62 Indeed, according to Nielsen, the ability for marketers to collaborate to reveal and address unseen opportunities should lead to success.63 Meal kits, both from the meat department and from deli/prepared, and the produce butcher exemplify the importance of prepared foods merchandised around the store. Deli/prepared foods, as a meal solutions center, is in prime position to offer services that assist home cooks in meal preparation in addition © 2018 International Dairy Deli Bakery Association

to providing fully prepared meals. Providing these services not only appeals to consumers’ desires, they help stores stand out in a crowded field of food sources.

MEAL KITS In 2015, NACS research found 77% of consumers had interest in meal kits from any store, and 85% of weekly convenience store customers said they would buy a meal kit for dinner. Two pilot tests at convenience stores, however, “did not reflect the stated interest.”64 According to March 2017 research from Nielsen, 25% of shoppers had purchased a meal kit the previous year and 70% said they plan to again.65 FMI found that only 5% of shoppers ordered or subscribed to a meal kit delivery service and just 12% of Millennials in the past year.66 Research from technology firm Fluent LLC found twice that number of Millennials subscribes to a meal kit service.67 We’ve yet to see if meal kits are the way of the future. What took the industry by storm a few years 167

WHAT’S IN STORE | 2019

figure 8.8

figure 8.9

Only a Fraction of the Picture