Fresh opportunities for growth: How grocery stores can leverage the perimeter
Produce, meats, dairy and prepared foods are driving sales at grocery stores — and the trend shows no sign of slowing down
Editor's note: This story has been changed to correct a typographical error.
In grocery stores, it’s not just the produce that’s growing.
Most of the sales increases posted last year in U.S. grocery stores came from increased interest and revenues from the perimeter of the store, analysts from IRI told executives at the Food Marketing Institute's Midwinter Executive Conference in Scottsdale, AZ.
Sales growth on the perimeter over the last four years was 3.8% — 2.7 times greater than increases posted for the whole store, according to Sally Lyons Wyatt, IRI's executive vice president and practice leader. Produce drove the largest share of the growth, posting $62.5 billion in sales, but all of the perimeter departments contributed: Meats brought in $48.2 billion, seafood was worth $11.3 billion, and bakery grew, coming in at $6.4 billion. In fact, Wyatt said, the only perimeter department that didn’t show revenue increases was meat — which saw more sales, but lower prices due to deflation.
These increases are not a one-time bump, Wyatt said. More interest in the perimeter of the store is fueled by long-term consumer trends that the firm has tracked. These movements are not only likely to be sustained over time, but grocery retailers’ perimeter departments are the least likely to see negative impacts from the rise of online shopping.
“We’re in the early stages,” Wyatt said at a panel discussion explaining the study results. “The time is now to build on a good foundation for growth.”
Here are five trends identified by IRI analysts that bring a fresh approach to profitability to the grocery store's perimeter.
Consumers are increasingly changing their attitude toward health and self-care.
Instead of a reactive approach to wellness — making lifestyle changes in response to a medical issue — many consumers are becoming increasingly proactive. This isn’t just about eating better, Wyatt said, but 36% of consumers surveyed by IRI said that lifestyle changes like drinking water and eating more fruits and vegetables are the most important thing they're doing to take care of their personal health.
“The reason we call this ‘holistic health’ is it’s increasingly more difficult to know where one activity ends and another begins,” Wyatt said. “They take a 360-degree view of all activities they’re involved with to better embrace their health.”
Sales of fruits, vegetables, herbs and spices that are seen as better-for-you have been increasing — especially those known as superfoods. Turmeric has seen the highest rate of growth during the last year at 14.5%, but big gains were also posted in garlic (11.8%), broccoli and asparagus (9.8%), kale and other leafy vegetables (9.7%) and citrus fruits (9.4%).
More stores are now embracing dietitians and other healthy eating experts to provide guidance to consumers who are trying to achieve healthier lifestyles. There are increasing opportunities for stores to collaborate with others in the wellness space to make grocery’s healthy halo shine brighter, Wyatt said, including recipe and menu suggestions, as well as lifestyle advice.
While this is a major trend, Wyatt pointed out that only about 30% of consumers say they find holistic health important when they go to the grocery store.
“That means 70% need to be educated,” she said, suggesting signage, tastings and awareness campaigns.
Atomization of personalization
Today, an abundance of data — collected through web clicks, loyalty programs, social media, mobile apps, and more — tells retailers more about their customers than ever before. Many online companies have harnessed available data to give consumers personalized offers and recommendations, while consumers can customize many of the experiences they have today.
Wyatt said grocery retailers need to do the same thing: Hyper-target their shoppers, offer them something personal, and use data to provide the fresh items that a community wants in-store.
“Knowing more about the consumer, understanding where that impact comes, can drive sales,” Wyatt said.
For example, one store was trying to target foodies, she said. They knew that about 21% of the population were already foodies, and had a propensity to try new things and purchase ethnic food. But a closer look at demographics and consumer behavior found there was a higher percentage of nearby shoppers who fit into that category. With some changes in presentation and targeted marketing campaigns, the store gained many new loyal customers.
But it’s not just about delving into data. Stores can also work to give shoppers something that feels more their own. This can come in many forms, Wyatt said, from training employees to provide more personal interactions to stations where shoppers can sample and choose different tomatoes or build their own trail mix from several bulk ingredients.
Store offerings that allow more personalization go a long way toward attracting shoppers that crave personalization. This includes offerings like having a robust selection of produce used in ethnic foods, prepackaged kits containing the ingredients needed to make guacamole, or herb plants that shoppers can grow at home.
Social and cultural alignment
The food industry is becoming full of buzzwords like “sustainable,” “cage-free,” “non-GMO” and “antibiotic-free” — and this sentiment is driving growth, Steven Ramsey, IRI executive vice president, said at the presentation.
“This is the next wave,” he said. “It’s about how the food is developed, the impact to the community, the welfare of animals.”
The amount of social sentiment that drives behavior on many key issues has at least doubled in 2016, Ramsey said. Meat certification and claims increased by a social sentiment factor of 223%. Animal welfare social sentiment is up 120%, while fair food and wages are up 104%.
These products are driving growth, Ramsey said. It’s one of the things consumers often talk about through social media and personal conversations, and it helps brands that take it seriously see more sales and positive sentiment.
A client that Ramsey works with is a protein processor that decided a decade ago to make some sustainability changes to its animal feed. While it was a significant investment, the company felt strongly about it. Now, IRI monitors chatter about the company throughout the internet, he said. About 75% of what people say about that company is positive — about 30% more than a major competitor in the space.
Consumers say they are willing to pay more for products that align with their personal beliefs, so retailers should be sure to stock products that align with these consumer priorities, like grass-fed beef or cage-free eggs. Ramsey said that this will only become more important to consumers, not less.
“Now we’re seeing major manufacturers take positions,” he said. “It will only force other competitors and laggards who aren’t doing that to take a step back.”
Increasingly, consumers want to know precisely where their food comes from — and shoppers' desire for local food isn’t limited to the produce section, Ramsey said. While that's important, shoppers now want to support local businesses, ranging from a neighborhood bakery to ready-to-eat prepared foods made by a local startup.
Ramsey said that retailers should welcome these aspects into their perimeters.
“It’s the retailer-manufacturer partnering that takes place now,” he said. “It’s a way for retailers to bring innovation into their stores.”
To see how well this strategy works, brick-and-mortar grocery stores should consider Amazon, Ramsey said. The online retail giant is starting to move into the grocery business in parts of the country. While Amazon can easily ship and source center-store goods anywhere, the retailer partners with farmers' markets and local businesses for perimeter components.
As startups take off, this is a good opportunity for retailers to get in at the ground level with their local businesses, Ramsey said — which will at least drive traffic and at best could be the next big thing.
The new consumerism
While 82% of American meals are consumed in the home, the vast majority of them are not completely cooked from scratch. More and more, consumers are relying on prepared foods — sometimes purchased at the grocery store, sometimes purchased from a restaurant — to round out the meal.
“This blending to get a meal on the table in an efficient matter of time is happening all of the time,” Ramsey said.
Retailers can do many things to capture these consumers. They can add to their prepared foods sections, and many are. Ramsey said that fresh prepared products — including appetizers, salads, entrees and soups — made $11.7 billion in 2016, growing 6.5% from the year before.
Retailers can also take their own products and make them more convenient, like having pre-seasoned meat that is ready to cook. Ramsey said consumers are willing to pay more for convenience, so this is a way to deliver that and show the store’s value, exposing the consumer to the kinds of tastes and ingredients they may not put together themselves. Ramsey said that growth in value-added perimeter products significantly outpaced other categories.
Mealkits play into this trend, packaging everything the consumer would want in a single place and giving the consumer the experience of cooking a meal, Ramsey said. While many of these kits are ordered online and delivered straight to the consumer, some stores have launched their own versions to be sold from the shelves.
“There are significant retailer and manufacturer opportunities to bring local back to mealkits,” he said.
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