Jefferies, a global investment bank, and AlixPartners, a global business advisory firm, recently released a study entitled Trouble in Aisle 5 that concludes, “The confluence of changing demographics, economic factors and customer preferences has the potential to create a long-term disruption across the food-industry value chain that transforms where and how consumers shop for groceries as well as what products they choose.” [“Millennials’ Grocery Consumption Patterns to Vastly Affect Food, Beverage Industry, Study Finds,” SupplyChainBrain, 3 July 2012] After surveying 2000 consumers, the researchers found that “the root cause of the impending transformation lies in changing demographics.” In another article, David Leonhart reports that demographics is going to affect areas beyond food choices and buying habits. There is “one dividing line” in America, he writes, that “has actually received too little attention. It’s the line between young and old.” [“Old vs. Young,” New York Times, 22 June 2012]
The Jeffries’ and AlixPartners’ study draws the dividing line between baby boomers and millennials. Leonhart, however, writes that you can draw the line “at the age of 65, 50 or 40. Wherever the line is, the people on either side of it end up looking very different, both economically and politically. The generation gap may not be a pop culture staple, as it was in the 1960s, but it is probably wider than it has been at any time since then.” This kind of demographic bifurcation can create real challenges for retailers trying to maximize profits. This can be especially tricky for grocers who have limited shelf space but significant numbers of customers looking for very different items. The article on the Jeffries and AlixPartners study continues:
“Over the next decade the baton will be passed from one mega-generation to another as ‘millennials’ (born between 1982 and 2001) come of age and ‘baby boomers’ (born between 1946 and 1964) enter the next phase of their lives and spending patterns. As a result, established food brands and traditional grocery stores will be pressured at both ends by sets of consumers with very different value equations. ‘We envision an environment that will require increased nimbleness and a relentless focus on the consumer for established food manufacturers and retailers, and the potential for rapid growth for new concepts and products,’ said David Garfield, managing director at AlixPartners and head of the firm’s Consumer Products Practice. ‘Millennials clearly present significant challenges, and food-makers and traditional grocery retailers need to start making changes now to address the emerging needs of this demographic group, as in many ways we’re just in the second inning of this ball game,’ said Scott Mushkin, managing director and senior equity research analyst covering Food & Drug Retailing and Packaged Food at Jefferies.”
The Jeffries’ and AlixPartners’ analysts conclude that income levels of millennials are on the rise just as baby boomers are starting to retire and finding themselves living on fixed incomes. As a result, “the study finds, food-at-home spending by Millennials is set to jump by $50bn annually through 2020. By contrast, the baby boomer generation, which has had an outsized influence on consumer trends for decades, will fall to below 20 percent of the population in the next eight years. … Overall, says the study, at-home food spending by boomers could fall by as much as $15bn per year through 2020.” So what does this really mean? The article explains:
“The study found that millennials have strikingly different attitudes towards consumption than their baby boomer parents and grandparents, which will put great pressure on the traditional model of homogeneous brands provided by traditional grocery retailers. ‘The at-home food industry is just beginning to feel the impact of this major demographic shift as millennials rise in prominence and baby boomers adjust to meet the requirements of age and a fixed income,’ said Mushkin. ‘The bottom line for food-at-home industry stalwarts is that big changes are coming, and companies who don’t fully understand those changes risk being marginalized.'”
One of the biggest differences the study found was that millennials are all about convenience and instant gratification (i.e., “they expect to get what they want, when and where they want it, and they know they have options for both products and retailers”). The article continues:
“Tied to the group’s focus on convenience, millennials are much less loyal to both food brands and traditional grocery stores and much more willing to explore different distribution models (online shopping, smartphone shopping, delivery services, etc.) and spread their shopping across different brands and channels (mass merchants, club stores, drug stores, convenience stores, online, etc.) to fulfill their consumable needs.”
One company that has taken notice of changing tastes is McCormick & Company. “The firm, which produces regional flavor forecasts each year to inspire food manufacturers and restaurant chains, has produced its first global flavor forecast.” [“McCormick blazes culinary trail with 2012 flavor forecast,” by Elaine Watson, Foodnavigator-usa.com, 11 January 2012] Watson reports that the global flavor forecast was “developed by an international group of chefs, sensory scientists, trend trackers and food technologists.” The forecast highlighted six culinary trends, which are:
“Honoring Roots: Taking heritage flavors and applying a fresh perspective.
- Cumin and sofrito
- Korean pepper paste with sesame, Asian pear and garlic
“Quest for the Ultimate: For those on a quest to achieve the ultimate taste experence.
- Meyer lemon with lemon thyme, limoncello and lemon peel
- Dill with mint, melon and cucumber
“Veggies in Vogue: To tap into the growth of fresh markets.
“Simplicity Shines: Highlighting quality ingredients with unpretentious preparations.
- Ginger with coconut
- Vanilla with butter
“Flavorful Swaps: Balancing an appetite for bold flavor with a hunger for good health.
- Red tea with cinnamon and plum
- Grapefruit with red pepper
“No Boundaries: For culinary trailblazers …
- Blueberry with cardamom and corn masa
- Sweet soy with tamarind and black pepper”
In addition to trying to keep up with changes in food tastes, McCormick has also taken notice of another trend identified in the Jeffries’ and AlixPartners’ study — namely, a willingness “to explore different distribution models (online shopping, smartphone shopping, delivery services, etc.). As a result, “McCormick is on a mission to become [the] Amazon of recipes.” [“McCormick on mission to become Amazon of recipes ‘with breakthrough’ flavor print application,” by Elaine Watson, Foodnavigator-usa.com, 23 April 2012] Watson reports:
“Seasonings giant McCormick is working on a ‘flavor print’ service with MyWebGrocer it claims will replicate Amazon’s recommendation capabilities in the world of flavor, delivering personalized recipes to consumers using McCormick ingredients. … Ken Stickevers, [McCormick’s] president US consumer products, said, ‘We have formed a strategic partnership with MyWebGrocer, a company that provides the web-based backbone infrastructure to approximately half of the retailers in the United States. We partner with customers through our relationship with MyWebGrocer to provide guidance on how consumers can flavor their meals. It’s a total meal solution for the consumer and a win win for our retail partners. … In addition, we are working with MyWebGrocer to deliver a new ‘flavor print’ service that would deliver recipes based on knowledge of consumers’ behavior and purchase history.”
Stickevers indicated that McCormick’s digital marketing budget would triple this year when compared with 2010’s budget. Watson reports, “The tie up with MyWebGrocer also reflects the fact that McCormick still sees strong growth potential in mature markets such as the US, where half of the chicken and steak prepared at home is still flavored with ‘just salt and pepper or nothing at all.'” Watson also notes that “more targeted products are raising McCormick’s profile with Hispanic shoppers, who are being wooed with aggressive marketing activity, new TV advertising and a bi-lingual website.” Eric Novinson notes that McCormick is not alone in trying to entice consumers to buy spices. He reports, for example, that “Amazon’s website currently lists 23,496 seasoning products.” [“Internet Spice Wars,” The Motley Fool, 2 July 2012] Novinson continues:
“Spice market trends illustrate why offering a wide variety of seasonings matters. Kelly Gates, for Supermarket News, reports that United States shoppers are now searching for spices from specific provinces of foreign countries, as well as specific regions of the United States. Some of these blends include multiple exotic ingredients, which increases the appeal of prepared spice blends. Prepared spice blends provide convenience for shoppers, and a bottle of a blend can be cheaper than buying several individual spice bottles, but the spice maker needs to be familiar with regional tastes. McCormick has developed several regional spice blends itself, although Amazon also offers regional spice blends on its own web site. Grocery retailers have added spice blends to their own private label selections, which makes McCormick’s situation trickier. John J. Pierce, at Private Label Magazine, reports that The Fresh Market provides in depth food preparation advice on some of its private label spice packages, and discounter Target has launched its own spice blends. Customers’ broadening tastes could give McCormick an advantage over Target and other discounters, because McCormick sells a very wide variety of spices and lists many recipes on its web site. As for The Fresh Market and other specialty retailers, McCormick’s arrangement with MyFreshGrocer is very important here, as an Internet recipe recommendation service can provide much more information than a spice container label.”
Anybody following the retail sector knows that traditional brick-and-mortar stores are struggling as they become showrooms for online retailers selling the same products (see my posts entitled Showrooming and Product Customization and The Battle Against “Showrooming” Continues). Novinson reports, however, that “McCormick’s website and supermarket displays don’t seem like they will become showrooms for Amazon just yet.” He concludes:
“A shopper who wants to get food to taste just like her family used to make it, or just like it tasted in a restaurant, may be willing to pay a higher price because of McCormick’s brand name. The big box retailers that were the most vulnerable to Amazon sold electronics, books, and other items that were exactly the same as cheaper online products. McCormick’s internet marketing efforts seem like they could convince shoppers who weren’t buying spices before to start seasoning their food, and shoppers who aren’t familiar with other spice makers may stay with the company they know. McCormick is also making a push into less developed countries, where fewer shoppers may be used to buying groceries on the Internet. McCormick seems like it should be able to maintain its sales in 2012, and it may even be able to improve its sales as it introduces new spices recipes to new customers.”
McCormick has invested a lot of time and money identifying adjusting to trends that will affect the food and beverage industry in the years ahead. As the Jeffries’ and AlixPartners’ analysts conclude, established food brands and traditional grocery stores will have to do the same if they are going to thrive in coming decades.