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The growing importance of convenience in packaged food has helped drive growth in segments like snacks, which grew nearly twice as fast as total packaged food from 2012 to 2017. More recently, however, new convenience-based formats have emerged to threaten sales of traditional centre-store packaged food products. These factors contributed to relatively weak growth in packaged food, with value sales growing by only 1% in 2017.
Meal kits, foodservice and prepared foods represent a significant threat to packaged food sales as a more convenient substitute. Companies like Blue Apron and HelloFresh have exploded onto the scene, delivering pre-portioned ingredients and easy-to-prepare recipes directly to consumers. This makes it easier than ever for people to cook a healthy meal at home and has helped these companies drive dramatic growth. By 2017, Blue Apron and HelloFresh alone recorded US sales of USD900 million and USD600 million (projected), respectively – up from essentially zero in 2014.
Sensing this potential threat, several grocery retailers launched their own meal kits in 2017, including Kroger (Prep + Pared), Publix (Aprons), Amazon (Martha & Marley Spoon) and Albertsons Cos, which acquired meal kit company Plated in September 2017. Outside of meal kits, grocery retailers are also innovating with fresh prepared food and in-store foodservice offerings. Following a model pioneered by high-end grocery retailers like Whole Foods Market, many retailers are building new stores and renovating existing sites to include in-store eateries and bars. Kroger even opened its first standalone restaurant – Kitchen 1883 – in November 2017 and established a new Hospitality Division focused on culinary initiatives outside store delis (including Prep + Pared meal kits). In a competitive grocery retail market, features like these add value to the grocery shopping experience and make the store a prime destination. This growing prevalence of meal kits and prepared foods has cut into demand for traditional centre-store packaged food categories and contributed to slow packaged food growth in 2017.
As consumers increasingly prioritise convenience, internet retailing also saw dramatic growth across packaged food in 2017. The continued evolution of digital commerce is transforming the in-store experience at US grocery retailers. On one hand, consumers are making fewer trips to physical store locations. The growth of delivery companies like Instacart, Shipt and Google Express, alongside direct-to-consumer companies like Fresh Direct, Peapod and AmazonFresh, has made it easier than ever for consumers to get groceries delivered directly to their doorstep. Simultaneously, the “click and collect” model in which consumers order groceries online and then pick them up at a local store has exploded. Walmart, for instance, launched an online grocery pickup service in its 1,000th store in September 2017 – up from only 250 locations in May 2016 – and plans to have more than 2,000 locations by the end of 2018. While these efforts by the largest US grocery retailer are impressive, they are not in isolation. Others like Kroger, H-E-B, Meijer, Target, Giant Eagle and Publix have rolled out similar programmes with significant expansion plans.
At the same time, new in-store technologies have made shopping more efficient. Self-checkouts and scan-and-go smartphone apps have expanded in the grocery retail landscape, leading consumers to spend less time in stores. Walmart remains a leader in this area, with the company hiring more than 17,000 shelf-checkout hosts to staff sites in nearly 4,200 stores over the past two years. At Sam’s Club, the Scan & Go platform (using mobile devices) has rung up more than USD1 billion in sales since its launch and more than doubled in 2017.
All of these factors are dramatically changing how consumers shop for packaged food. Consumers are visiting stores less frequently and for shorter durations, with a growing number of people no longer prepared to wait in traditional check-out lines. This has significant implications for impulse-based sales, which are largely dependent on shoppers spending time inside the store. This had a noticeable impact on sales of snacks in 2017, which posted its lowest growth rate since the recession, and has challenged manufacturers to find new ways of driving impulse sales in an increasingly digital environment.
This article is featured in the May/June issue of Candy and Snack TODAY.