Dive Brief:
- Market research firm Nielsen reported a $3 billion decline in fast-moving consumer goods at U.S. grocery stores compared to last year, according to an organizational release.
- Reasons for the decline include price deflation, changing consumer preferences and an Easter holiday that shifted from the first quarter last year to the second quarter this year.
- On a more positive note, Nielsen said employment rates are looking up, as average incomes are increasing and consumer confidence is growing quarter over quarter.
Dive Insight:
Slow sales have caused a lot of manufacturers to decrease their once-plentiful marketing and advertising budgets, which could compound the problem in the months ahead. CPG companies in particular have been hit by slowing center store sales. Retailers are trying — in some cases struggling — to find the right balance between fast-growing fresh products and packaged goods.
Still, the Nielsen report noted reasons for retailers to be optimistic. The Easter holiday shift, which retailers like Publix and Kroger noted in their recent earnings slips, doesn't indicate any deeper issues in the industry, and will likely provide a bump to second quarter numbers. And price deflation, which impacted numerous categories — most notably eggs, dairy and fresh meat and produce — is beginning to ease, according to reports. Nielsen points out that deflation actually masked gains in sales and volume in categories like deli and produce. All told, price deflation and the Easter holiday shift accounted for more than half of first-quarter sales declines.
Consumers' shift away from center store aisles has been a challenge for retailers and manufacturers. According to Nielsen, sales of frozen foods declined by $332 million in the first quarter of this year. That's a massive drop for a legacy category in retail, and it indicates just how much freshness and health factor into shoppers' buying decisions.
Supermarkets are adapting by investing more in bakery, produce, deli and prepared meals, and they're building out their fresh departments. Retailers like Mariano's in Chicago, meanwhile, are beginning to shrink their center store aisles.
But retailers shouldn't neglect grocery departments, since there's growth to be had in local products and innovative new offerings. As manufacturers update their product formulations and marketing to incorporate on-trend messages and ingredients, they could very well win back some of the market share they've lost.