Where the Grocery budget is spent

Aug 6, 2014

As an exhibitor at Fine Food Australia you will be looking to expose your product, equipment or service to a wide range of potential buyers. That’s the rationale behind well established shows like this one. By the way, Fine Food Australia is having its 30th birthday, proof that over the years many companies have trusted the event to be their launch platform.

However the show lasts for four days, and while there is excitement and buzz about being in a venue with 25,000 trade visitors through the doors, there is planning to be done in order to capitalise on your investment after the show concludes.

Many products presented and exhibited over the years are aimed at the retail consumer. Some have been revolutionary, such as chilled sandwich spreads ranged in the dairy case, whilst others have been innovative, but unable for whatever reason to kick on and sustain long term distribution.

Where consumers shop

Without a doubt supermarkets are the major source of shopping for food and grocery items and are ahead of specialty operators such as gourmet delis, butchers and fishmongers. If you have products that you want consumers to buy in large quantities then supermarkets is the channel to pursue.

While completely accurate market shares have not been available for some time due to the guarded nature of the way the Woolworths and Coles operate, it is fair to say that between the two they account for around 76 per cent of the market for packaged groceries. Gaining distribution in either or both of the two majors will usually be necessary for any new brand.

However a recent Shopper Pulse report from research company Colmar Brunton paints a picture of the location of the regular grocery shop for fresh foods. Antipasto products, specialty cheese and cured deli meats all score over 80 per cent purchase rates for supermarkets rather than specialty stores. Fresh fish scores lower with 69 per cent of shoppers happy to buy at the supermarket.

Australian consumers are among the most promiscuous compared to other countries when it comes to shopping for groceries. Over two thirds of grocery shoppers regularly visit Coles and Woolworths/Safeway and 25 per cent are regularly visiting Aldi and 13 per cent have shopped at IGA. However when it comes to the question of which is the main choice the scores are: Coles 41 per cent, Woolworths/Safeway 40 per cent Aldi 7 per cent and IGA 2 per cent.

These shares of the grocery budget are occurring at a time when consumers are making more frequent trips and in many cases buying ‘tonight’s dinner in store in the late afternoon. Products that help solve the dinner dilemma are winners.

What the supermarkets are looking for in a new line is innovation, but of course they need it to be supported with promotional activity to pull through demand. As a point of caution, whilst space on supermarket shelves is limited, the larger problem can be pick slots at the distribution centres to get product into the system. First time suppliers to the major grocers will need to adjust expectations of when product will be ordered after the buyer accepts it.

The larger grocery departments in terms of annual sales, according to the Retail World 2013 annual report, were Dairy /Chiller at $5.9 billion in sales. Cigarettes came second while other high dollar contributors in food and beverage areas were Beverages Cold $4.89 billion, Frozen Foods including fish $2.79 billion and Confectionery worth $2.29 billion annually.

Competitive forces are leading to a reduction in the ranges carried by some retailers and increased emphasis on private label. Metcash, the wholesaler that supplies IGA stores, is currently working on a premium private label offer which will give it a three tier approach to offering private label through its IGA stores of which there are over 1200. This new label will be added to its Black & Gold and No Frills offers.

Beverage market sees shift to water

The non-alcoholic cold beverage market is big business at close to $5billion in sales annually. Shopper Pulse found that over a 12 month period non cola flavoured soft drinks showed a 23 per cent decline in sales while water gained, growing 18 per cent.

This was based on a statistically significant number of panellists reporting their purchase habits, buying more, the same or less than 12 months ago. It is worth noting that even the soft drinks cola segment showed declining consumption.

Based on this research from the field even the powerhouse performers of energy and sports drinks show consumers nominating lower consumption. Sports drinks category was the best performer in the petrol /convenience channel, whilst Coles and Woolworths scored well across all the beverage sub segments.

IGA which was recently rated as holding around a 9 per cent market share nationally, had lower shares in the sub categories such as Juice 7 per cent, plain water 6 per cent and energy drinks at 4 per cent share.

While supermarkets dominate, there is still opportunity in petrol convenience which according to its industry body, Australasian Association of Convenience Stores State of Industry report, beat grocery on percentage sales growth over 12 months.

Half price promotions and the frugal consumer

For the past five years Coles and Woolworths have been pushing weekly half price promotions. Now consumers have ‘specials fatigue’ and are more selective with regard to which ones they cherry pick. The result is lower volumes on many promotions. That is not to say that consumers are not still concerned with savings; they have now tired to some extent of the same old offers. Innovation is needed when agreeing to the method of promoting products that are not market leaders in their category.

At the same time, new lines that aren’t necessarily low priced will still succeed but the product offer must be right and meet a need. As part of the methodology of putting new products on shelf, the supermarkets, both chains and independents, will have their own varied emphasis on supporting local brands and locally grown and produced product.

It is worth emphasising the provenance or uniqueness of products to supermarket buyers when the opportunity arises.

If you are exhibiting for the first time and need to obtain distribution it will pay to undertake some advanced work and make decisions on how you plan to go to market. If you don’t have a large sales team or perhaps none at all, distributors or sales agencies are your options.

Distributors buy and sell your stock whereas the sales agencies generally represent products by providing merchandising at store level. Companies range from small niche specialists to large scale operations covering grocery, petrol convenience and foodservice channel.

Written by David Burton

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