Extremely slow CPG growth plagues 2017 — and is likely to continue
- According to Euromonitor International, U.S. packaged food sales will grow just 1.2% in 2017, reports FoodNavigator-USA. This is below the average growth rate of 1.7% for the past five years and much lower than growth rates of 3% or more seen prior to the Great Recession.
- Factors contributing to what the researchers called “pretty anemic” growth are food price deflation and consumer shifts toward more fresh foods, foodservice and emerging meal kit services.
- Some of the strongest performing categories are savory snacks (+2.1%) and confectionery (+1.7%), which are being driven in part by growth in higher-end premium brands. Dairy sales are expected to grow just 0.5%, with cow milk and yogurt struggling as more consumers turn to plant-based alternatives.
Slow growth in the consumer packaged goods sector shouldn't come as much of a surprise. One need only look at how some CPG stocks have performed this year to know that growth has been elusive. Besides little let up in food price deflation, some overarching grocery and consumer trends don’t bode well for Big Food either.
Consumer satisfaction with many CPG companies is on the decline. Only a handful of large food and beverage companies made progress on the recently released American Customer Satisfaction Index report on nondurable products. Overall, packaged food scores fell 2.4% to an average score of 81 out of 100. The waning satisfaction is the result of a growing demand for higher-quality, fresh, natural and organic products.
Center store sales have stagnated as shopper demand for fresh foods and better-for-you groceries has grown, spurring supermarkets to develop best-in-class perimeter departments. These store sections include fresh produce, fresh meat and seafood, and in-store artisan bakeries.
Shoppers are shifting their food dollars away from grocery to spend more money on eating out too. Foodservice share of spending now represents more than half of all U.S. food sales, according to a study published by Acosta and Technomic Inc. In an effort to capture more of these dining out dollars, grocery stores increasingly are highlighting margin-enhancing value-added products — like prepared foods, meal kits and foodservice departments — to help boost their sales and profit performance too.
Consumer buying patterns also are shifting away from meal ingredients to meal solutions, in part contributing toward the upsurge in meal kits. In 2015, fewer than 60% of dinners served at home were actually cooked there. Nielsen data finds that one in four U.S. adults has purchased a meal kit in the last year, and the meal kit delivery services market has ballooned to $5 billion in sales, according to Packaged Facts. Continued growth is expected as more consumers seek easy and convenient ways to get dinner on the table.
These kinds of consumer and grocery trends are tempering CPG sales in profound ways, and more of the same should be expected going forward. While food prices are expected to creep up, higher prices alone won’t save packaged goods companies. Instead, more likely avenues of growth include product innovation, portfolio diversification and, more than likely, acquisition — with an eye toward developing in-demand and on-trend brands and businesses.
Follow Sandy Skrovan on Twitter