Industry research has provided mixed messages about whether the center store is failing or thriving. On one hand, shoppers are increasingly sticking to the perimeter of the store, but on the other, product innovation and healthier items are giving the category a significant boost. The truth is that even baskets that are filled primarily with fresh items will usually need products such as grains to balance a meal, and more and more consumers are looking for shelf-stable and frozen items that offer a quick hunger fix that’s also healthy, as well as diet-specific treats and snacks.
The report The Center Store Revolution: Innovation Drives Trips and Category Growth, from St. Petersburg, Fla.-based consumer data and insights firm Catalina, shows that although center store trips were down one trip per shopper per store from 2016 last year, more than 99% of all shoppers purchased items from the center of the store in 2017, spending an average of about $1,408 in the section annually; 81% of all baskets contained at least one center store item.
Providing New Experiences
Also, shoppers are often looking for something new in the category, “whether it’s healthier drinks, fresher frozen foods or exciting new flavors” the report says. As such, Marta Cyhan, head of marketing for Catalina, declares center store to be “alive and well.” Although about eight in 10 baskets contained at least one center store item, many of the consumers involved in the study were looking for a new experience, she says.
“A new generation of brands and subcategories are reinvigorating the center store by appealing to lifestyle and ingredient-based preferences,” Cyhan says.
Adapting to Evolving Demand
In addition to new experiences, the report shows shoppers are also increasing demand for products with labels such as sustainable, organic and GMO-free, which consumers see as indicating higher quality and also yield a higher price point. Retailers and brands that understand the underlying motivations driving today’s shoppers and work to meet those evolving needs with product innovation will be a “growth engine for the center store,” Cyhan says.
The standout upside for retailers, according to the report, is that they have a shining opportunity to drive growth and trips as they continue to follow the evolution by adapting to shopper demand through new and refreshed categories, “all fueled by shopper relevant innovations.”
Products that are driving the category, according to the report, are nonfat and low-fat ice cream, which generated half a million new trips and a 67% increase in dollar sales in 2017; value-priced frozen dinners; sparkling water; ready-made coffee drinks; dried meat snacks; vinegars, which have been boosted by a renewed interest in apple cider vinegar as a wellness remedy; and a variety of candy and snack subcategories, which in addition to the usual sweet and salty options include healthier alternatives such as veggie, bean and plantain chips.
New York-based research firm Nielsen points out that ice cream is an excellent example of how certain categories can drive center store growth through personalized products that meet specific needs. While the category as a whole has not seen significant growth in recent years, according to Nielsen data, ice cream boasting certain attributes has proved more successful. For example, revenue growth for ice cream that qualifies as a “good source of protein” increased by 53% last year and, although it represents only about 3% of the category, is a good indicator of how retailers can add products and shelf space to give a category a boost.
Also, ice cream containing sugar substitutes, making up 18% of the category, saw 28% growth; ice cream billed as a “good source of fiber,” making up 4% of the category, saw 89% growth; and vegan ice cream, representing 2% of the category, saw 23.4% growth.
Some of the fastest-growing wellness claims lie in center store, according to Nielsen, which retailers must stay apprised of to take full advantage of center store opportunities. These include attributes such as grain-free, cruelty-free, corn-free and grass-fed. The roundup also includes buzzwords such as chia, quinoa, low-glycemic and stevia, with calorie claims being a driver across the board.
How Top CPG Companies Are Driving Sales
Research conducted through a joint effort between the Boston Consulting Group and Chicago-based research firm IRI pointed out three tactics that the industry’s top-performing manufacturers use to generate growth in the category, which are:
- Differentiate offerings by using data to identify a product’s core consumers and that demographic’s preferences.
- Target consumers with greater precision by using relevant knowledge to address those identified preferences.
- Complement organic growth with inorganic growth by investing in smaller, fast-growing brands that allow companies to fill portfolio gaps and acquire new capabilities.
The industry is facing an evolving retail landscape and changing consumer purchasing preferences, which is pushing CPG companies to regularly revisit their strategies, says Krishnakumar "KK" Davey, president of IRI Strategic Analytics. Companies that use data-driven strategies to understand their consumers and what’s driving growth are poised to “identify and take advantage of new opportunities whenever they arise,” he says.
This “new frontier of consumer connection,” as IRI puts it, has allowed smaller companies to outpace their larger counterparts. IRI data shows that the revenues of larger CPG companies have remained relatively flat, with only 1.2% year-over-year growth, while smaller companies’ market share is growing by about 2.3%. over the past five years. Larger companies have ceded a whopping $15 billion in sales to smaller competitors, which, as the report says, shows that “scale no longer serves as the primary basis of competition.”
Brands Give Retailers Competitive Edge Against Lidl
While a new Lidl opening in an area may seem formidable to nearby retailers, research from Catalina found that although nearby supermarkets tended to lose about 7% of sales during the first month of a new Lidl entering the area, the impact declined rapidly to only 2% of sales by month four.
The report Defending Supermarket Share When Lidl Comes to Town, which looked at shopper behavior at 83 supermarkets within 30 miles of Lidl stores that opened in 2017 in a 16-week period, showed that the availability of name-brand products gave retailers a competitive edge over Lidl’s heavy emphasis on private label. The percentage of sales decline among brand name items versus private label at said retailers was approximately 3.4 times less than for private label items.
As such, produce, beer and wine stood out as the categories that received the biggest blow from a new Lidl opening nearby, while center store aisles saw much less of an impact.
“Well-recognized brands can provide a strong competitive advantage against new retail models, including Lidl, that emphasize private labels over name brands,” says Tom Corley, chief global retail officer and president of U.S. retail for Catalina. “Retailers should work with their manufacturing partners to fully leverage that advantage.”