Competition in fresh is fierce, and the biggest players redirecting perimeter sales from grocery are as smart as they are stealthy. It’s not online. It’s not the gourmet c-store that just opened down the street. The heat is coming from inside.
The exciting innovation and remarkable perimeter growth—particularly in produce—that defined the beginning of the decade didn’t go unnoticed.
“We’ve seen a renaissance in other departments of the store—frozen and refrigerated packaged goods, for example,” says Jonna Parker, principal with IRI’s Fresh Center of Excellence. “The premium halo of freshness and transparency that used to be synonymous with the fresh perimeter is now enjoyed by packaged goods with that same fresh halo.”
A leading provider of big data, predictive analytics and forward-looking insights, Chicago-based IRI shared with WGB its total U.S. multioutlet fresh perimeter sales data and market analysis for the 52 weeks ending June 16. (All proceeding figures reflect IRI data for that time period, unless otherwise stated.)
Its research finds that despite the fresh perimeter growing more than $7 billion since 2014, growth is slowing. While total store sales continue to rise—up $13 billion to $803 billion vs. last year—total fresh perimeter sales were up just $1.6 billion to $180 billion vs. last year. The perimeter has been slower to respond to the rapidly changing needs of today’s consumers, whereas other areas of the store have escalated innovation. “Fresh is still largely commodity-based,” Parker says. “It is still growing—it’s just not the same growth we saw in the early part of the decade.”
Parker points to a recent study that found that sales in fresh as a percentage of total store sales have less to do with how much space is devoted to fresh product and everything to do with how and what is merchandised.
“Retailers need to surprise and delight to capture loyalty while continuing to focus on what today’s consumer wants,” Parker says. “They need to recognize that it’s not enough to simply offer trends in plant-based or spicy flavors—it’s test, learn and grow to be successful.”
“Grocers also need to be fast and nimble,” she says. “Like our CEO always says, ‘It’s not big eats small. It’s fast eats slow.’ ”
So what do consumers want? “We always talk health, convenience and indulgence,” says Parker. IRI finds that the five fastest-growing fresh categories offer one or more of these attributes, with sales of prepackaged refrigerated meat up $64 million to $193 million; deli prepared appetizers up $42 million to $205 million; fresh berries up $41 million to $230 million; prepackaged refrigerated entrees up $35 million to $260 million; and fresh bakery cakes up $26 million to $226 million.
Produce Leads the Perimeter
The fresh perimeter departments make up a quarter of total food and beverage multioutlet sales, with produce and meat leading the way with about $60 billion each in sales this year.
In terms of produce, sales of fruit were down 0.5% and vegetables were up 2.6%. “It’s an industry focused more on farming than innovation,” Parker says of the department’s modest gains this year. And while there has been some fresh produce innovation in the past year, IRI overall sees an industry slow to change.
Conversely, frozen-food manufacturers jumped on the highly popular vegetable crumbles, rices and noodles, while the supermarket mega brands in produce weren’t early adopters across the board. “There’s a renaissance in frozen, especially with younger shoppers for whom frozen has no negative connotation,” says Parker.
However, certain vegetables, including fresh Brussels sprouts, root vegetables, broccoli, cabbage and garlic, continue to trend upward. Sales of Brussels sprouts are up 43% vs. three years ago, while root vegetables (21.7%), broccoli (20.5%), cabbage (19.2%) and fresh garlic (14.4%) are also up significantly for the same time period.
“Fresh fruit is struggling year over year,” Parker says. “Some of it is supply, but if you look at apples, bananas and other traditional commodities, there hasn’t been a lot of consumer-based innovation.”
There has also been a shift in organics. “The increased supply of organics in well-developed categories means those categories can’t command as much of a price premium as they once did,” says Parker. “Organic is still an important trend, but it’s not necessarily delivering the dollars or the new consumers it has in the past.”
And while retailers continue to look for ways to reduce packaging in produce, Parker cautions: “Packaged produce is really what drives sales in produce.”
“While we need thoughtfulness around packaging reduction, some of the most innovative products in produce have to come in a package,” she says. “We need good packaging and marketing for the future of the department.”
More Than a Bed of Roses
“Floral is an interesting department,” says Parker. “It’s still in its infancy in terms of management by retailers. It’s essentially where the rest of the fresh departments were 20 years ago.”
While IRI sees a handful of grocers rolling out innovative floral programs that trigger sales spikes, the category would benefit from greater disruption.
“Change can impact the entire nation,” says Parker, who urges retailers to go beyond a rose program and be thoughtful and strategic in their in-store offerings to better compete with online purveyors.
Floral sales increased in the past year, with total department sales up 3.9% to $5.2 billion. Balloons led the way with 66% growth, followed by arrangements, sales of which were up 13% this year. Roses and bouquet sales also saw growth, up 10% and 7%, respectively.
Impulse sales are also critical to driving floral. “Trader Joe’s led the way in terms of making flowers a must-have and tying the buy to every day and other seasons,” says Parker. “Retailers need to look at incorporating floral as part of the total store and showing customers that for $5, they can brighten someone’s day.”
Graduations, Mermaids and More
Sales of fresh and packaged bakery were up nearly 2% vs. a year ago to $29.6 billion. While sales in fresh in-store bakery were up 11.4% and sales of packaged baked goods were down 0.9% this year, packaged goods represent the lion’s share of the baked goods category.
“Even the flattest trend in packaged baked goods still adds more dollars to the bottom line than fresh baked goods,” says Parker. “However, retailers are paying much closer attention to the fresh side of the business, because that’s where the innovation is.”
She sees grocers wanting greater control over getting new bakery products to market faster. “Not that they’re baking in the back of the house. They often work with third-party manufacturers, but some large, influential chains realize if you put our own non-UPC code on an item, it can roll it out faster,” Parker says.
When it comes to making a statement in bakery, a little creativity can go a long way. While holidays, graduation season and birthdays are obvious opportunities for the department, Parker encourages grocers to think outside the cake box and traditional consumption occasions.
She points to Cincinnati-based The Kroger Co., which ran a wildly successful mermaid event in some of its in-store bakeries that featured purple and aqua cupcakes and cookies under a huge mermaid sign. “They made a conscious effort to do something different,” says Parker.
Limited-time offers and whimsical merchandising can drive sales in bakery, she adds. So can tying the department to the rest of the store: For example, customers who buy decorated cakes can be offered coupons to buy disposable plates, cups and other party supplies.
Deli Charcuterie in Demand
“Grab-and-go contributed $200 million in incremental dollar sales to deli meats,” says James Carlson, consultant and team leader for IRI’s Fresh Center of Excellence. Consumers continue to demand more convenient options and prefer not to wait in line to get them, he says.
IRI also sees growth in specialty meats, such as dry-cured pepperoni, salami and other European-style offerings. Pepperoni sales are up 15% this year and 36% vs. three years ago. Salami is also a strong seller, up 14% this year and a whopping 41% vs. three years ago.
Carlson sees grocers such as Kroger-owned Mariano’s in Chicago creating store-within-a-store destinations for charcuterie. “Mariano’s tapped into the premium high-end shopper market by creating a unique space within the store for specialty meats and cheeses,” he says.
Offering an experiential visit to the deli department is the key to preventing the market from becoming stale, says Carlson, who adds that IRI research finds shoppers want a refreshing, more exciting experience in the deli, as well as more flavors and spices from the deli meat category.
Specialty Cheese for Every Day
Fueled by trends in protein snacking and at-home charcuterie boards, sales of deli cheese were up this year, reaching $5.9 billion. While sales of deli presliced were down slightly (representing $350 million) and sales of deli service were up slightly (representing $1.7 billion), this year’s story is the specialty cheese category, which reached $3.8 billion in dollar sales.
“Specialty cheese sales are definitely tied to the charcuterie trend,” says Parker. “It’s about making specialty cheese an everyday snack, and the packaged industry is doing a better job of making snackable, ready-to-go options that include specialty cheese.”
In-store apps and interactive signage that explain how to build a better cheese board are also breaking down the complexities and building up the enthusiasm for at-home usage, says Parker. “Before, specialty cheese was so expansive, it was almost overwhelming,” she says. Suppliers have furthered the cause with easy-to-implement programs.
Health and Indulgence in Deli Prepared
“The growth in deli prepared continues to mirror those trends in convenience, health and indulgence,” says Maureen Bergeman, consultant for IRI. “Chicken and seafood are key drivers,” she says, pointing to the trend in high-protein diets. At the same, Bergeman says indulgence foods are also resonating, with more decadent appetizers, such as egg rolls and jalapeno poppers, showing strong sales.
In terms of growth, breakfast, holiday meals, appetizers and dips/sauces lead the subcategories, contributing to the total sales of deli prepared foods, which reached $12.6 billion this year, up 2.4%.
However, deli prepared foods is another category where customers are seeking what’s new and exciting. “Deli prepared foods has gotten very homogeneous,” says Parker. “There are sandwich stations, sushi and pizza—which you can get everywhere from the gas station to a gourmet grocery store.
“Meeting the consumers’ needs is the biggest thing,” she says. The majority of deli prepared foods are one to two servings or huge family portions of the same foods. Very few are focused on healthy offerings for kids and families.
“Deli prepared foods is missing out on meeting the needs of parts of the population that other departments are delivering on. It needs to shift to satisfying young urban singles and families with kids,” Parker says.
Seafood Swims With Healthy Halo
“The growth in seafood is really remarkable,” says Parker. “It’s definitely on-trend with the health halo, and retailers are focusing on it.” IRI finds that fresh and refrigerated packaged seafood reached $5.3 billion in the past year, up 3.4% vs. the previous year and 6.5% vs. three years ago.
Further fueling the seafood trend is the diversity of consumers purchasing product. “One of the consumer groups really interested in seafood is low- to moderate-income households, especially in the South,” says Parker. “Single households are also gravitating to seafood. We believe any region can be successful with seafood.”
While there’s been a decline in traditional whitefish such as tilapia (down 5.5%) and flounder (down 6.7%) this year, other more distinctive finfish such as salmon are strong sellers.
Wild-caught salmon is also contributing to the trend. The Alaska Seafood Marketing Institute reports that wild-caught salmon is the most important selling attribute for its customer base.
“Salmon comes in so many forms, it’s almost become a dietary staple across the country,” says Parker. “Salmon remains strong because there’s nothing like it, and tuna has the same opportunity as it is also unique.”
Sales of salmon were up 7% this year and up 21% vs. three years ago. Tuna is up 5.2% this year, after several years of declining sales. Meanwhile, sales of mahi-mahi soared, up 44% for the 52 weeks ending June 16. The sales surge is likely due to lower market prices after highs a year or two ago, Parker says.
The Gap in Meat Knowledge
While meat is second only to produce in its contribution to the perimeter’s bottom line, sales were flat again this year. “Even chicken is starting to flatline,” says Parker, who adds that a chicken surplus has led to aggressive pricing in the category. Also, the African swine fever is disrupting the pork supply in the U.S., further impacting meat sales.
“We can’t afford to stay status quo with our approach to meat sales,” she says. “There’s such a tremendous opportunity, but we need to overcome consumers’ poor education and lack of awareness of meat cuts and preparation techniques. We have a gap in knowledge that is going to hold us back. We need to help consumers find unique and interesting ways to cook meat.”
And while the boom in plant-based continues, sales are “still a drop in the bucket compared to total meat sales,” says Parker.
Prepackaged and preweighted meats that play well with the meal kit trend are experiencing growth, according to IRI. “Consumers still love beef, and they want to try different preparations,” says Parker. Retailers are also getting creative with fresh wings and thighs, as well as with pork tenderloin offerings.
“We definitely see where marinated pork tenderloin has had strong growth,” says Parker. “Consumers have mixed experience with pork, but we see brighter days ahead.
“Turkey saw a tough year for whole birds,” Parker continues. Sales of whole turkeys were down 11% this year and down nearly 20% vs. three years ago.
“The turkey category can’t live and die by one day. Almost every major retailer was down in volume sales for whole-bird turkeys this Thanksgiving,” says Parker. “Turkey is not just a commodity business. We need to rethink the holidays and how to connect turkey to the rest of the store all year-round.”
Sizing Up the Competition
As the fresh perimeter continues to compete with other departments in-store for share of stomach, it also faces increasingly intense competition from other store formats.
“Shoppers are expanding their consideration set when shopping for fresh foods to smaller and more niche outlets,” Parker said in the IRI webinar Balancing the Store Size Pendulum.
Across all outlets, grocery has the lion’s share of perishable and perimeter food sales (64%), but IRI sees that margin eroding as purchases shift to other channels, such as convenience/gas, dollar stores and digital.
IRI reports that 23% of households purchased fresh foods from dollar stores, 19% from convenience/gas and 10% at Trader Joe’s for the 52 weeks ending March 31, 2019. Ten percent of households also purchased fresh foods online.
Consumers, particularly those in their prime spending years of 40-54, say they are buying more fresh foods from smaller format stores and online, according to IRI, which “fully expects” to see dollar and convenience stores continue to expand fresh food sales year over year.