Upscale tastes, convenience drive consumables growth

DSN Retailing Today, July 11, 2005 by Mike Duff

In 2004, the food retailing business was shaken up from top to bottom, with supercenter and warehouse club retailers expanding their influence and supermarkets expanding new initiatives--for example, Wegmans near hypermarkets, Loblaws actual hypermarkets and Kroger's semi-supercenter Marketplace stores--that took them closer to the method of doing business pioneered by their cross-channel rivals.

In 2004, the initial frenzy and subsequent waning of low-carb diets impacted the food and consumables marketplace. Succeeding consumer sensibilities turned more toward a desire to "enjoy the good life," with taste buds focused on eating well and a renewed craving for meat and dairy items.

Convenience still seemed to be a factor, but the frozen category, which earlier in the year enjoyed surges of success with the bowl and skillet segments, saw less action in the latter half of 2004. Frozen dinner sales were up by double-digit numbers as was breakfast food, but the frozen category overall gained only slightly more than a half of a percentage point at mass, food and drug as charted by ACNielsen. DSN Retailing Today totals are based on numbers obtained from ACNielsen for those channels, exluding Wal-Mart, supplemented by company reports and other sources.

Convenience was clearly a factor for growth categories. Dell was up 7.1% last year following several years of solid gains. Pizza was a big leader, up 23.4%, while refrigerated entrees were up 16.3% and refrigerated chili up 15.7%.

Dairy, gaining 5.4% in 2004, also was up well above the food average. Perhaps here is a case where low-carb diets began to remind consumers about just how good some of the products they have been avoiding can be. For example, butter sales gained 21%. Margarine also was up more than the food average, but only barely, at 0.9%. Cheese sales increased, but specialty imported and natural cheeses gained at a much higher rate than other segments.

Among the results suggesting that eating well became more important than simply eating low-carb comes in the cheese category. While specialty imported and natural cheese showed percentage sales increases in the middle teens, cheese snacks, a segment that gained in association with low-carb diets, advanced an appreciable but softer 7.6% in 2004. In a similar light, egg sales advanced by 3.9%, a fair gain, but well off the 17.9% increase in 2003. Similarly, refrigerated bacon gained 4.9%, but that was after 9.4% growth in the year earlier.

Another sign that consumers are living more upscale is the strength of alcoholic beverage sales. Overall, alcoholic beverages gained 2.6% in the ACNielsen study, but wine, the sales-growth leader among the categories, gained 4.3%. In this category, as with many others, upscale segments led. Imported table wines were up 11.5%, while sangria and sake were up 11.4%. Rounding out the winning field, aperitif sales advanced by 10%.

While the recent growth of wine might be attributed to many demographics, a turnaround in the liquor category has been attributed to young people who want to experiment with new libations. Liquor gained 2.1% in 2004. Segments enjoying gains greater than the overall category included Canadian whiskey, cordials, Irish whiskey, tequila, rum and vodka. Again, some high-end products exceeded their more plebian brothers. For instance, while bourbon gained 1.8% and blended bourbon sales slipped, straight/bonded bourbon grew by 3.7%. Alcoholic cocktails, after flirting with double-digit growth two years ago, fell by 3.7% last year. Beer gained 2% driven by lights, with regular, malt liquor and near-beer segments all losing ground.

In other beverage news, coffee was down. The Starbucks effect may be in play. With the overall category shrinking by 0.1% only liquid coffee, gaining 9.8%, and ground coffee, gaining 1.9%, shrugged off the general torpor. In contrast, tea was up 4.1%, with liquid tea leading all segments with a sales growth rate of 9.8%.

In an overall grocery category up 0.2%, bottled water increased a healthy 9%, packaged milk was up by 3.7% and carbonated soft drinks managed to hit the tape ahead of the category with a 0.4% gain.

Other segments advancing ahead of the grocery department pace were baby food, up 2%; baking mixes, up 1.1%; breakfast foods, up 1.9%; desserts, gelatins and syrups, up 1.5%; dried fruit, up 1.4%; ready-serve prepared food, up 1%; shortening and oil, up 6.6%; non-canned vegetables and grains, up 2.6%; and gum, up 6.7%. A relatively new category, shelf-stable meal starters, gained 1,009.9% after a 12,212% gain in 2003. The category has gone from sales of zero in 2001 to $9.3 million in 2004.

FOOD & CONSUMABLES

2004 RETAIL SALES BY SUB-SEGMENT

% change over previous year, figures in billions

NON-FOOD GROCERY         $47.71      1.10%
DAIRY                    $47.83      8.30%
FROZEN FOODS             $35.62      3.60%
ALCOHOL                  $21.18      5.40%
FRESH MEAT                $1.54     22.90%
DRY GROCERY             $167.55      2.90%
HEALTH & BEAUTY AIDS     $51.40      0.60%
FRESH PRODUCE            $14.12      5.40%
DELI                      $5.76      9.70%
PACKAGED MEAT            $12.98      6.20%

$405.69 bil.
 3.60% from 2003

Note: Table made from pie chart.

Source: DSN Retailing Today estimates based on food statistics from
ACNielsen for the 52 week period ended 12/25/04

() Indicates decline or loss

TOP VOLUME LEADERS

(SALES IN MILLIONS)

CHAIN                         2004        2003    % CHG.

Wal-Mart (1)               $88,519     $77,044    14.89%
Kroger (2)                  51,106      49,650     2.93
Albertsons (3)              33,250      30,797    15.21
Safeway (4)                 30,834      28,860    (0.40)
Costco (5)                  23,183      20,650    12.12

TOP SPECIALISTS: SUPERCENTERS

Wal-Mart Supercenters     $133,000    $110,800    20.04%
Meijer                      13,500      12,700     6.30
SuperTarget                  6,568       5,638    16.56
Fred Meyer/
  Fry's Marketplace          6,450       5,900     9.32

TOP SPECIALISTS: SUPERMARKETS

Kroger Supermarkets        $44,906     $43,750     2.64%
Albertsons                  39,897      35,107    13.64
Safeway                     35,823      35,727     0.27
Ahold USA Supermarkets      27,385      26,957     1.59
Publix Super Markets        18,555      16,761    10.70

FOOTNOTES:

ALL FIGURES FOR U.S. OPERATIONS
ONLY, UNLESS OTHERWISE NOTED

Source: Top Volume and Specialists data compiled
from company reports, analysts' estimates and
DSN Retailing Today research.

(): Decline or loss

(1) Sales from "grocery, candy and tobacco" and
"hba" at discount stores and supercenters as
well as "food" and "sundries" at warehouse
clubs (membership fees excluded).

(2) Excludes convenience store sales, jewelry
division, manufacturing sales and gasoline
revenues.

(3) Excludes stand-alone drug store sales.

(4) Sales from U.S. retail grocery business.

(5) Food and sundry sales from U.S. clubs; excludes
membership fees.