Report says fresh foods, meal kits lead the way for growth in grocery retail

Fresh foods from colorful produce displays to heat and serve meal kits sold in grocery deli sections continue to disrupt the food and consumable sectors in retail. Nielsen reports fresh is leading the growth across the entire food retail sector. And while e-commerce is showing greater percentage gains it remains a small segment of overall food sales.

Jordan Rost, vice president of consumer insights at Nielsen, said “fresh is the most disruptive trend in grocery today.” It’s worth a total spend of $178 billion compared to roughly $13 billion of food and beverage sold via e-commerce – that’s nearly 14 times the spend. During a Tuesday (June, 19) webinar Rost said retailers are able to use fresh foods as a moat against encroaching online threats in many categories.

As retailers work to woo customers back to stores with tantalizing fresh offerings and convenient meal solutions this has been the last bastion against growing e-commerce sales which hold 80% of the growth opportunities in consumer goods overall, Rost said. While there has been some slow growth in the middle of the store, fresh foods are “punching above their weight,” Rost said.

Dairy sales are growing at an annual rate of 0.5% and frozen foods (for heat and serve meal options) are growing at 1.8% annually. The fresh meat category is growing sales at about 1.5% annually and the deli department is adding sales at a clip of 2.8% annually. Bakery and seafood are growing at 1.2% and 1.5%, respectively. Fresh produce is growing at a mere 0.3% annually. Nielsen said meal options are thriving in the deli departments of many national grocery chains. Leading the growth are ready-to-eat stews which grew sales by 40.6% last year and meal kits grew sales by 26.8%.

Sarah Schmansky, vice president of fresh growth strategy at Nielsen, said during the webinar grocery delis are no longer just a place to get sliced ham and rotisserie chicken. She said they have become fast food lunch and dinner options for customers serving everything from tacos to meatballs and hamburgers. While meal solutions are hot at deli counters, side items like bean salad, egg and chicken salad and cold cut sandwiches are losing sales overall.

She said consumers will also use the deli to try new prepared food items that they might not have the confidence to cook themselves. Meal kits are also sold in the deli and are representing more sales for the category as 78% of consumers say they repeat the same meals often. Meal kits provide consumers the chance to change up the menu. This category is growing at 28% annually and 9% of the population said they have tried them. Roughly 30 million consumer households said they are considering trying meal kits either through subscription or from their local grocery deli.

Deli accounts for 31% of prepared food sales at retail, second only to frozen foods (40%) with heat and serve options like lasagna, pizza and chicken pot pies that have been around for decades. The grocery category accounts for 22% of prepared foods with heat and serve rice, pastas and soups. Dairy and produce account for just 3% and 1%, respectively of prepared food sales.

SUPERFOOD TRENDS
Rost said as consumers are adding more superfoods to their diets such as blueberries and sweet potatoes those same ingredients are also being added to pet foods. He said consumers who follow trends like the superfood craze of kale a few years ago not only want to add these better-for-you ingredients to their own diets, but they also want their dogs to get them too. He said 12% of pet foods today have blueberries as an ingredient and two years ago that was just 2%. Cranberries are another superfoods ingredient being added to 30% of pet food, compared to just 9.7% two years ago. The same is true for sweet potatoes being added to 27% of pet food today compared to 13% in 2016.

Rost said cauliflower is the latest craze and is now a direct threat to rice producers and a trends few saw coming two years ago. Schmansky said avocado oil is also in vogue and while it’s sought after to replace olive oil for frying it’s also being added to various beauty products from shampoos to skin moisturizers.

Rost said consumers are seeking healthier food options but they are also still willing to indulge with sweets and snacks which they seem to be more willing to purchase online. He said snack food accounts for 42% of the food purchased online. He said consumers are also more willing to buy snack via subscription services with auto-reordering because it takes some of the compulsory buying away. Nuts were the biggest snack category purchased via subscription at 16%, compared to 13% of granola bars, 10% of cookies and 7% of candy are purchased via online subscription.

PRIVATE LABEL SNACKS
Lastly, Rost said store brands or private label are also accelerating in growth at 4.1% compared to flat performance by brands over the past three years.

Much of that growth in is food. He said retailers are pushing their own private brands of salty snacks online and in stores. The gap between private label and the top five salty snack brands sales in stores continues to shrink. Nielsen reports private brands have 10.3% of the dollar share compared to 31.8% for the top 5 brands. Online private label has 15.5% of the dollar share compared to 26.3% from the top five brands. Baking supplies and nuts have the highest penetration level of private label at 59% and 58%, respectively.

He said consumers have become more savvy about private brands and they are no longer a proxy for cheaper, but instead have become a proxy for value. He said the future of retail is evolving because consumer preferences are changing. While e-commerce growth is a big disruptor for brick and mortar, he said retailers who strategically do fresh and private label well in physical stores while also offering grocery pickup or delivery options will be better positioned for the future.