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Six big trends reshaping the grocery industry this year

Oh what a far.

Happy new year! I bet it’s been a while since you heard that one. Regardless that we’re four months into the year, there are some interesting trends emerging. Some have been percolating for a while. Others are new. All of them will affect your business soon. Let’s begin:

1. We’ve hit the wall on spending. Today, Canadians are focused on their personal balance sheets. Thirty-four per cent tell Nielsen they’re using spare cash to pay off debt, while 24% are saving all extra cash, with health, debt and utility bills their top concerns. Nearly one-third plan to spend less on consumer packaged goods (CPG) this year. Thanks to rising gas prices, expect consumers to tighten spending further. Why? A 50-cent-per-litre increase in gas could mean an extra $125 to the monthly household bud- get. That’s an extra week of groceries for some people.

2. Dollar sales are getting a boost. In the fourth quarter of 2010, dollar sales lagged unit sales. In other words, price deflation. Dollars are still being impacted by volatile feature pricing but we can expect a return to higher dollar growth in the second half of the year. The reason: rising commodity and transportation costs being passed on to consumers through higher retail prices.

3. One-stop, and then home. We’re seeing Canadians make fewer shopping trips. But they’re spending more per basket. That said, declining shopping trips continue to plague major CPG channels. Grocery trips, for example, are down 3%, while spending per trip is up 2%. And, as more non-food retailers focus on food, what’s in our baskets is changing across channels. Case in point: food spend in drugstores is up 8%, and in mass merchandisers it’s up a whopping 12%. Consumers are still seeking out the one- stop shop. And as gas prices climb, we’ll see more of it.

4. Discount growth: from fast to slower. Consumers steeped in the recession have an insatiable thirst for value. As a result, discount retailers are capturing more than one-third of grocery and drug sales, while conventional retailers continue to lose shopping trips. Even so, discounter growth has stalled. Yes, consumers are buying more at these stores, but with aggressive promotional pricing on behalf of the discount retailers, dollar growth in the discount segment is soft. But don’t expect retailers to switch back to traditional formats. We’ll see a tremendous amount of activity in opening and converting stores to discount ahead of Target’s expansion into Canada in 2013.

5. Promotions are still a problem. Last year, Canadians got used to big deals from retailers and manufacturers. No surprise, then, that consumers still want big deals. One-third say they are willing to switch stores for savings. Purchases of CPG products on feature price are up 8% from just a year ago. Companies need to manage price discounts in order to sustain dollar growth.

6. Store brands: lagging but an opportunity. Private label development over the past year has remained static, with private label registering $11.3 billion in industry sales, down slightly from the previous year. The lag can, at least in part, be attributed to consumers satisfying their need for value from aggressively promoted national brands. Still, this year presents a chance for private label to grow. That’s because consumers faced with rising house- hold costs are more motivated to buy less expensive items.

Yes, 2011 is turning into a game-changer. As we move through summer and fall, keep these six trends in mind. But remember: motivating consumers to buy through discounts is not sustainable. You need to meet their desire for value, yet maintain sustainable pricing. Consider adopting this new year’s resolution: “Think differently.”

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