CHICAGO — In the face of fierce marketplace competition and anemic growth of consumer packaged goods (CPG), retailers should seek out a clear understanding of the rapidly changing CPG marketplace and the latest growth opportunities, according to a new report from IRI that takes a closer look at how consumers' shopping patterns and emerging marketing programs are impacting retail channel trends.
"It is becoming harder and harder to find growth opportunities in the CPG marketplace," said Susan Viamari, vice president of thought leadership for IRI. "The path to purchase has forever changed. Shoppers are becoming increasingly demanding and embracing an omnichannel environment. And they are funneling their spending to channels and retail banners that best deliver on their expectations. That's why it is imperative for retailers and manufacturers alike to have a clear perspective on which channels and departments are performing well, so they can figure out which white-space opportunities will lead to growth."
IRI Channel Performance Report provides five key insights regarding channel trends, including:
1. Just-in-time shopping is impacting retail formats and channel selection. Quick trips make up more than half of all shopping trips. While this fact has not changed much over the past several years, retailers are investing heavily in experimenting with new store formats as they seek out new paths to profitability in the face of extremely thin margins and intense competitions. Smaller store formats, click-and-collect and subscription-based e-commerce programs are increasingly prevalent, and the rise of younger and more ethnically diverse generations, millennials in particular, is also feeding change. Over the past three years, overall trips to grocery fell 1.7 percent, but in 2016 alone, trips to grocery rose 1.3 percent. Club and dollar channels are also seeing trips rise, while mass market/supermarket and drug stores are seeing multi-year declines, according to IRI.
2. Grocery sales outperformed, yet remained flat. During the past year, CPG industry sales topped $760 billion. The grocery channel accounted for 41 percent of dollar sales and 51 percent of unit sales and outperformed competing channels for the year, despite being flat. This above-average year-over-year performance marks a change for the CPG industry, as club and dollar outperformed grocery in average annual growth when measured over a three-year period. From 2013 to 2016, club channel dollar sales rose 2.6 percent annually, and dollar channel sales climbed 2.5 percent per year on average. In the same time period, grocery sales grew 1.6 percent and industry sales rose 1.8 percent.
3. E-commerce is making its mark. E-commerce share of CPG sales continues to hover in the single-digit range, around 8 percent, but growth is fast and furious. Traditional brick-and-mortar retailers are scrambling to protect and grow their share of a CPG pie that is not growing much larger. Across channels, retailers are honing their competitive skills and building out high-traffic aisles and departments, including snacks, beverages and frozen foods. This metamorphosis is expected to continue in coming years as retailers continue to tinker with new formats and programs.
4. Where different generations shop makes a difference. Although no two shoppers are completely alike, generational differences are frequently significant. Millennials and members of generation X prefer shopping in the mass market/supercenter channel and spend 44 percent and 16 percent more of their CPG dollars in this channel, respectively, than the average shopper. Younger baby boomers show above-average spending in the convenience channel, and seniors and retirees spend more heavily at drug stores.
5. Retailers are attracting shoppers with new store formats and personalization programs. Since growth has slowed, many retailers are downsizing and shifting toward smaller formats under 50,000 square feet, instead of 110,000-plus square feet. This allows them to move into more densely populated and underserved areas and combat online competition in areas like convenience, turnaround time and delivery. Retailers are investing in personalization programs designed to attract and retain key shoppers, and using loyalty programs, social media and mobile apps to know more about their customers than ever before, and tailor their offerings to specific tastes and behaviors. A store that finds that many of its customers are "foodies" might offer more gourmet and ethnic options. Changes in presentation and targeted marketing campaigns can help a store gain many new loyal customers, the report found.
"The pace of change in the CPG industry is quickening on a seemingly day-to-day basis," Viamari said. "Personalization has become a key to breaking through the marketplace noise. Shoppers demand to be recognized as individuals — with unique needs and wants — and they will vote with their wallets to reward CPGs that deliver solutions and marketing stories that resonate in their world."