Food retailing has changed greatly over the last decade, and perhaps nowhere can that be seen more clearly than through the Food Marketing Institute’s “Worry Index,” a polling of anxieties that keep executives up at night, so to speak.
“One of the most distinguishing facts about this year’s list is that half of the items listed in 2015 weren’t even on the list as recently as 2005 when we first started asking this worry question,” FMI President and CEO Leslie Sarasin said during her presentation at the ROFDA 2015 Fall Conference. “I think this simply serves to codify what we all feel in our guts in this business about the pace of change this industry is confronting. The changes are bigger and they’re moving faster than ever before.”
The 2015 top 10 list of worries (reflecting their impact in 2014) saw a few traditional anxieties lose intensity, some old concerns return and some new alarms surface. 2015’s top concerns are:
• Healthcare costs
• Food safety
• Healthcare, Affordable Carte Act implementation
• Cyber security
• Staffing, hiring, retention
• Local, state and national governmental regulations
• Competition from other food retailers
• Credit card/debit card interchange fees/cost
• Consumer health and wellness trends
• Competition from non-traditional food retailers
As noted above, healthcare costs again top the list of impactful concerns in 2015.
“Of course, food retail is very labor intensive as an industry and operating on a razor-thin profit margin, so it’s no surprise that rising personnel expenses like healthcare costs retained its top position on the Worry Index,” Sarasin said. “After ranking No. 3 in 2013, it’s been the top concern for the past two years.
“What is surprising in the 2015 list is the significant drop in concern about competition,” she added. “Now food retail has always been a highly competitive industry and competition worries have traditionally been, if not rated No. 1, at least hovered near the top of the Worry Index. This year’s list tells quite the different story.”
A few years ago, FMI began differentiating between traditional competition and non-traditional competition in the index as recognition that the field of competitive venues was broadening.
Those seen “as competitors are different than they may have been a few years ago,” Sarasin said. “But the anxiety-producing power of non-traditional competition marked as the No. 1 concern in 2013 and No. 3 in 2014 slipped significantly in the 2015 polling, dropping to the bottom of the top 10. Competition from other retailers was a bit steadier, but even it slipped a bit, moving from the No. 4 concern in 2013 and 2014 down to tie for sixth place in 2015.”
Food safety, added to the list in 2005, has witnessed a steady increase as an area of concern. It was the No. 6 issue in 2013, cracked the top five at No. 5 in 2014 and in 2015 barely missed top billing with a close second-place finish.
Likewise, consumer health and wellness trends continue their steady climb up the list of concerns—moving from 12th place in 2013 to 10th place in 2014 and holding in the eighth spot in 2015.
In recent years, the issue of staffing, hiring and retention has been overshadowed by other concerns and had fallen out of the top five industry worries, but 2015 saw its return to records last recorded a decade ago, according to Sarasin.
“Reflecting the splash made in both financial and media circles,” she said, “cyber security issues crashed the list at No. 3, a troubling, impressive showing for a relative newcomer to the list of worries.
“So, while all the factors in the Worry Index affect operations to varying degrees, only a few, namely customer preferences and staff concerns, are driven by factors internal to the store. The larger majority of the top 10 concerns are the result of actions and determination of external factors—things that you really don’t have a whole lot of control over; things from governmental agencies, financial institutions, hackers, competitors—people that you really don’t have much control over. So, while food retailers may appear to be less anxious about their competition, they are more concerned about the externally driven factors that directly affect their ability to compete.”
Sarasin pointed out another reason that competition may have “slid in a bit” in the Worry Index is because some competitors are merging.
“In recent years we’ve seen an an incredible amount of consolidation in the supermarket industry…” she said, noting the Kroger/Harris Teeter and Albertsons/Safeway mergers, specifically. “…Clearly there’s been a great deal of movement, shuffling and rearranging among the top companies.”
In the early 1990s, the top 20 grocers accounted for 40 percent of the market. All the others covered the remaining 60 percent of the grocery sales. By 2013, those numbers had more than flipped with the top 20 grocers responsible for 65 percent of the market and all the others scrambling for the remaining 35 percent of sales. The top eight grocers now account for roughly the same amount of market once held by the top 20.
Sarasin said, “Industry worries about competition, both traditional and non-traditional, feel different in an environment like this. Questions about the competition have become more about who’s buying whom, which groups are merging, how will their business model change as combined entities and, if two are becoming one, which one are they?
“Those are some of the common threads of worry running through the industry that are somewhat hidden from public eye. These are the things we talk about among ourselves.”
FMI asked food retail leaders about the strategies they’re using to distinguish their company and set it apart from the rest of the field, as well as how successful they felt the strategies they were employing actually have been.
Again, in 2015, perishables topped the list with every single retailer FMI talked to, reporting the use of that point of distinction in their stores. It also received the highest marks in terms of success rate.
“But once we get beyond perishables the field becomes a bit more diverse,” Sarasin said. “Ninety-eight percent reported using an emphasis on organic as a means of distinguishing their company from the field, but that strategy didn’t appear to be as successful, tying for a fourth place in terms of success. The next three strategies—private brands, prepared foods and social media—all tied for third with 90 percent of retailers saying they were emphasizing these aspects of their business. Their success ratings varied, with prepared foods appearing the second most differentiated strategy and social media bringing up the bottom of the top five, proving to be the most difficult strategy of the top five to execute.”
The top five rounded out with consumer wellness and family health being popular strategies, barely missing a tie with the three above it and tying with organics for fourth place regarding success in execution.
Two strategies—technology investment and ethnic products—have dropped out of the top five and have been replaced with organic and prepared foods.
“Perishables, private brands and wellness continue to be strong strategies for setting yourself apart from the field,” Sarasin added.
Prepared foods also a reliable strategy
In 1995, there was a 60/40 split in food dollars spent by North Americans—with a 60 percent share going to grocery and a 40 percent spend in restaurants, foodservice and drinking establishments, according to Sarasin. By 2014, that split was closer to 50/50, demonstrating what The Hartman Group calls a move from the cooking culture to an eating culture.
“This data also has resulted in some false claims by the restaurant industry that they’ve overtaken grocery stores with a a split of food spend,” Sarasin said “…Even the economists at the National Restaurant Association say that’s an error because a healthy portion of the dollars counted in the foodservice column were actually spent in a grocery store, but for foodservice-type products. It’s also given rise to what’s affectionately getting called the ‘grocerant’ phenomenon—an article citing that the best restaurant in town is perhaps the one in the local supermarket. The trend line points to ready-to-eats and prepared foods being a relatively reliable strategy to emphasize if you want to distinguish your brand in your market.”
Sarasin said, “I would suggest to you shifting consumer trends and the change in customer shopping patterns are what we see as a result. The looming customer trends affect the success rate of our differentiation strategies and impact the depth of our anxieties.”
Citing FMI’s U.S. Grocery Shopper Trends study, Sarasin noted that, in 2014, FMI identified two new trends happening in the industry: a diversification of the primary store and a fragmentation of the primary shopper.
“For years, decades, even centuries, the distribution of household duties meant that one person in the household did the menu planning, did the compiling of the shopping list, did the shopping and for the most part did all the cooking, too,” Sarasin said. “A greater number of dual-income families and an increase in the number of men who cook, the decrease of the number of families with children under the age of 18 in the home and shifts in the cultural attitudes about the distribution of household duties have all contributed to a substantial change in who grocery shops. There is, I would suggest, a revolution going on in the American home.”
The target market for grocers was once very clear. As Sarasin pointed out, “It was mom, she was age 22 to 40. She shopped for herself, her spouse and her 2.6 children. She ruled, because if you reached her you reached half the homes in America and a major chunk of the population. But now household decisions about food, who plans, who shops, who cooks have moved from a monarchy to what I think is much more of a democracy.”
The bottom line: food retailers’ target audience is more diverse than it’s ever been.
“We’ve gone from one target audience, one target group, to multiple target groups, all of which are moving and changing even as we take aim,” Sarasin said.
Today, a quarter of food retail shoppers are from single households and a little more than half are from multi-person households dividing their labor into primary and secondary shopping.
“While that may sound very traditional, if you look at the gender split it’s not as old-school as it appears,” Sarasin said. “In fact, it actually is moving in a more shared shopper direction… Our members are seeing the same level of traffic in their stores—it’s just from different people in the same households who are in the store shopping. Almost a quarter of our shoppers fall into the shared shopper group with grocery shopping responsibilities split evenly. Interestingly, there’s little overall difference in reported weekly spending across shopper types, which indicates that all of these people in the household who are shopping are talking to each other and they know how much they normally spend; they’re just dividing up who’s actually doing the spending.”
The changing proposition
For years, knowing what was on the customer’s mind and knowing the equation of shopper decisions about stored product was a relatively simple proposition. It had three factors: price, convenience and taste.
“Give a shopper a convenient product that tastes good and at a fair price and you have a sale,” Sarasin said.
However, the shopper value equation grew a bit more complex with the addition of health and wellness concerns.
“The customer was looking for stores and products that could help him or her achieve the wellness goals for the family, so they had more on their minds than they previously had when they were trying to figure out what they were going to buy and where they were going to buy it,” Sarasin said.
Today, according to Sarasin, the shopper decision equation is more complex than ever: is it healthy, is it organic, is it locally sourced, was it ethically produced and is it safe both now and in the long run? Overarching all of these concerns is the fact that consumer awareness of food safety has grown.
“Now the good news is—food safety tends not to be front of mind since consumers trust the food their retailers sell is going to be safe. They have tremendous confidence in their local grocers, but food safety is always there sort of resting on the edge of the customer consciousness,” Sarasin said. “The bottom line is that the word ‘value’ has taken much more than an economic meaning in food retail circles. The list of attributes shoppers are looking for in a food retailer gives evidence to the growing concerns on the minds of customers.
“Traditional consideration such as economic value, convenience, good selection, a clean store—these are all things that were so important in the past and we lump those into sort of the personal benefit zone… and those things still carry today.
“But other concerns…social responsibility…environmental consideration are growing and showing no signs of lessening in the future.”
*Editor’s note: Find more ROFDA 2015 Fall Conference coverage online and in the January print editions of The Shelby Report.