New Forces of Change Impact Snacking
NASHVILLE, Tenn. — Convenience stores are prime snacking destinations, but in today's shifting retail market, there are two forces of change at play: the next generation and the reshaping of retail.
Paying attention to, and responding to, these forces will help c-store operators remain competitive, according to Jason English, managing director of equity research at Goldman Sachs, who presented at McLane Co. Inc.'s 2017 National Trade Show, held Sept 19-21.
Not surprisingly, savvy retailers should keep an eye on millennials. While baby boomers were the main marketing target a decade ago, it is the millennial generation that is the largest generation in U.S. history. Millennials are also increasing the size of their households as they marry and have families, and their growing income means their purchasing power is growing as well, English pointed out during his breakout session on snacking at the convenience distributor's show in Nashville.
"We expect millennials to drive nearly all the food industry's growth this decade," he said.
This especially applies to the snacks category due to the way consumers increasingly snack at various times instead of sticking to three square meals per day. The lines between eating occasions are blurring, and the types of food people eat at each occasion are no longer so distinct.
Another change can be found in the meaning of health and its evolving role in food.
"It's an evergreen theme," English said. "But how it comes to life has been different. It's changed dramatically."
Today, items that are less processed and more "real" resonate with consumers, who appreciate freshness and avoid engineered products. In the past, many brands developed snacks in a certain way to lower the cost, but consumers are now turning away from ingredient lists full of things they can't pronounce.
"Real, basic foods are resonating," English said.
This includes products that are natural and organic, attributes that have proven to be more than just a fad due to their longevity. These items overindex with millennials.
Along with being the most ethnically diverse generation, millennials are also very pro variety and ethnic foods.
One thing, however, that millennials are not is anti-brand. Goldman Sachs research shows that brand agnosticism doesn't truly exist; it's just that millennials are particular about the brands they value. They prefer premium over mainstream, and snack items over many competing consumable products. Big brands are also losing share as favored smaller brands gain it.
Retail itself is also changing with the rise of ecommerce, but the grocery sector is lagging behind. A common belief is that food cannot be sold online like books or electronics. Additionally, thin profit margins and the lack of population density in many areas of the country make online-grocery models less practical.
Yet foodservice and snack retailers should not ignore the variety of online competition, such as Amazon Go, or the numerous meal kit delivery and click-and-collect services. While it's true that the abundance of retail locations means a major shift to online ordering is unlikely, even moving 10 percent of the volume online would result in closed brick-and-mortar stores, according to English.
People can debate the "velocity and ferociousness of the change, not the direction change," he said.