The Future of Food Retailing in the U.S

SUMMARY

Consumer surveys show economic pressures are taking a toll on how Americans grocery shop: 2008 and beyond promise to be challenging years for food retailers as consumers cut back spending in the face of tightening household budgets. At the same time, changing demographics, greater health awareness and channel surfing are impacting where and how consumers shop for food. Meanwhile, although supermarkets are still the dominant force in food retailing, economic, demographic, lifestyle and technological changes are creating a fertile environment for new concepts-from Safeway's Lifestyle Stores to Tesco's 2007 launch of its Fresh & Easy convenience store chain-that promise to entice food shoppers, capture market share and indeed re-invent the grocery industry. In the process, many food retailers are morphing into foodservice operators as they take back market share lost to restaurants, whether through enhanced prepared food selections or through actual in-store eateries.

The Future of Food Retailing in the U.S. analyzes these and other market-altering shifts in retail food channels, identifying the following Top 10 Trends: Multi-Channel Shopping, Retailers as Restaurateurs, Lifestyle Stores and Emerging Formats, Thinking Small (in terms of store size), Store Brand Building, Focusing on Fresh and Natural/Organic, Health and Wellness, Going Green, Tapping Ethnic Markets and In-Store Media. For each of these trends, the report provides detailed analysis and case histories, pinpointing opportunities and strategies retailers and consumer packaged goods marketers can use to protect and grow their businesses during 2008 and beyond.

Within this analysis, the highly competitive retail marketplace for foods and beverages is examined across all channels including Traditional Grocery (supermarkets, ethnic supermarkets, natural food stores, limited assortment stores such as ALDI, traditional small grocery stores and gourmet/specialty stores), Value (supercenters, mass merchandisers, warehouse clubs and dollar stores), Convenience (convenience stores, drugstores and vending machines) and Emerging (including farmers' markets, online retailing, European food halls and meal-assembly kitchens). Also covered are in-store merchandising trends, category sales trends, and trends in new product development, as well as trends in consumer food consumption, shopping behavior, attitudes and demographics.

Report Methodology

The information in this report was obtained from both primary and secondary research. Primary research entailed consultation with industry sources and on-site examination of retail venues. Secondary research entailed data-gathering from relevant trade and business sources. These sources include Information Resources, Inc.'s (IRI) InfoScan Review scanner data for mass-market outlets (supermarkets, drugstores, and mass merchandisers except Wal-Mart); trade publications such as Progressive Grocer and Convenience Store News; industry associations including The Food Marketing Institute and the National Association of Convenience Stores; annual reports, 10Ks, and other financial releases from public companies; and retailer profiles in trade and consumer publications. Our analysis of consumer behavior and demographics derives from the Simmons Market Research Bureau (New York, New York) Spring 2007 adult consumer survey, which is based on 25,375 respondents, and from BIGresearch's January 2008 Consumer Intentions and Actions Study, which is based on 8,447 respondents.

TABLE OF CONTENTS

Chapter 1: Executive Summary

• Scope and Methodology
  • Scope of Report
  • Report Methodology
• Consumer Demographics and Shopping Behavior
  • Economic Slowdown Changing How People Shop
  • Shifting Demographics Reshaping American Shopping and Eating Patterns
  • Consumers Cooking in More, Dining Out Less
  • Shopping Behavior and Attitudes
  • Most Americans Trying to Eat Healthier
  • Figure 1-1: Consumer Attitudes About Healthy Foods and Time Constraints, 2007 (percent of U.S. adults)
• Retail Trends and Opportunities
  • Trend #1: Multi-Channel Shopping
  • Trend #2: Retailers as Restaurateurs
  • Trend #3: Lifestyle Stores and Emerging Formats
  • Trend #4: Thinking Small
  • Trend #5: Store Brand Building
  • Trend #6: Focusing on Fresh
  • Trend #7: Health and Wellness
  • Trend #8: Going Green
  • Trend #9: Tapping Ethnic Markets
  • Trend #10: In-Store Media
• Retail Trends by Channel
  • Supermarkets Shifting to "Fresh Formats"
  • Supercenter Format Maturing
  • Warehouse Clubs: Room to Grow
  • Dollar Stores Adding More Food to Their Product Mix
  • Convenience Stores Changing with the Times
  • Drugstores Also Competing on Convenience Front
  • Vending Machines Offer Convenience, 24/7
  • Making Online Grocery Shopping Click
  • Farmers' Markets Are Flourishing
  • Figure 1-2: Growth in Number of Farmers' Markets, 1994-2006

Chapter 2: Consumer Demographics and Shopping Behavior

• Overview
• Economic Slowdown Changing How People Shop
• Good Value the Most Important Factor in Choosing a Grocery Store

• Consumer Demographics
  • Shifting Demographics Reshaping American Shopping and Eating Patterns
  • Demographic Shifts Suggest Market Opportunities
  • Families with Young Children
  • Hispanics
  • Lower-Income Households
  • Consumers Age 55+
  • Figure 2-1: Projected Percentage Population Growth by Age Group, 2005-2015
  • Table 2-1a: Projected Population of the United States: By Age and Race/Ethnicity, 2000-2020 (in thousands)
  • Table 2-1b: Percentage Change in Projected Population of the United States: By Age and Race/Ethnicity, 2000-2020
  • Tapping into America's Cultural Diversity
  • Hispanics Growing Rapidly in Population and Buying Power
  • African Americans Over 40 Million Strong
  • Asian Americans the Most Diverse Group
  • Consumers of Kosher and Halal Foods
• Meal Procurement Trends
  • Consumers Cooking in More, Dining Out Less
  • Eating On-the-Go Grows
  • Desktop Dining the New Way of Life
• Shopping Trends
  • Channel Surfing
  • Table 2-2: Percentage of U.S. Adults Shopping by Channel: 2005-2007
  • Shopping Frequency Declining
  • Table 2-3: Average Trips Per Shopper Per Month by Channel, 2007 vs. 2006
  • Channel Preferences
  • Table 2-4: Primary Store Preferences, 2008 (% of U.S. adults)
  • Wal-Mart, Kroger Are Favorite Stores for Groceries
  • Table 2-5: Shoppers' Favorite Stores for Groceries, 2008 (% of adult shoppers)
  • Shopping Trip Patterns
  • Shopping Modes
  • Most Consumers Not Loyal to Their Store
• Consumer Behavior and Attitudes
  • Methodology
  • Shopping Behavior and Attitudes
  • Kids' Influence on Shopping
  • Shopping and Environmental Issues
  • Consumer Attitudes Toward Food and Cooking
  • Ethnic Food Enthusiasts Growing
  • Figure 2-2: Trended Number of Foreign Food Enthusiasts, 2005-2007 (in millions)
  • Adding Gourmet Flair
  • Figure 2-3: Trended Number of U.S. Gourmet Food Enthusiasts, 2005-2007 (in millions of U.S. adults)
  • Most Americans, Though Time-Pressed, Are Trying to Eat Healthier
  • Figure 2-4: Consumer Attitudes About Healthy Foods and Time Constraints, 2007 (percent of U.S. adults)
  • Attitudes Toward Healthy Foods and Time Constraints
  • Shopper Demographics by Channel
  • Supermarket Shoppers Mostly Average
  • Whole Foods or Trader Joe's Shoppers Upscale, Educated, Affluent
  • Wal-Mart Supercenters Attract Lower-Middle- to Middle-Class Families
  • Core Mass-Merchandiser Shoppers Female, White and Middle-Age
  • Warehouse Club Shoppers Educated, Upper-Middle-Class to Affluent
  • Drugstores Attract Older Shoppers
  • Convenience Store Shoppers Young, Time-Pressed
  • Dollar Store Shoppers Older, Female
  • The Impact of In-Store Advertising
  • Table 2-6a: Shopper Indexes by Retail Channel by Shopping Behavior and Attitudes, 2007 (U.S. adults)
  • Table 2-6b: Shopper Indexes by Retail Channel by Shopping Behavior and Attitudes, 2007 (U.S. adults)
  • Table 2-7a: Shopper Indexes by Retail Channel by Attitudes About Food and Cooking, 2007 (U.S. adults)
  • Table 2-7b: Shopper Indexes by Retail Channel by Attitudes About Food and Cooking, 2007 (U.S. adults)
  • Table 2-8a: Shopper Indexes by Retail Channel by Attitudes About Nutrition and Time Constraints, 2007 (U.S. adults)
  • Table 2-8b: Shopper Indexes by Retail Channel by Attitudes About Nutrition and Time Constraints, 2007 (U.S. adults)
  • Table 2-9: Top Demographic Indicators (Indexes) by Retail Channel, 2007 (U.S. Adults)
  • Table 2-10a: Shopper Indexes by Retail Channel by In-Store Advertising Impact, 2007 (U.S. adults)
  • Table 2-10b: Shopper Indexes by Retail Channel by In-Store Advertising Impact, 2007 (U.S. adults)

Chapter 3: Retail Trends and Opportunities

• Introduction
  • Definition of Retail Channels
  • Total Grocery Sales $859 Billion in 2006
  • Total Grocery Sales Will Top $1 Trillion by 2011
  • Food and Beverages Account for 56% of Total Grocery Sales
  • Supermarkets Account for 56% of 2007 Food and Beverage Sales
  • The Top 20 U.S. Food Retailers
  • Recent Mergers and Acquisitions
  • Table 3-1a: Retail Food and Beverage Channel Statistical Overview: Estimated Share of Food & Beverage Market and Average Food & Beverage Sales Per Store, 2007
  • Table 3-1b: Retail Food and Beverage Channel Statistical Overview: Typical Store Size, Typical Number of Grocery SKUs and Key Customers, 2007
• Trend #1: Multi-Channel Shopping
  • Consumers Shopping a Growing Range of Retail Venues
  • The Big Picture
  • Figure 3-1: Number of Consumer Packaged Goods Channels Shopped: By Percent of Consumers, 2007
• Trend #2: Retailers As Restaurateurs
  • Food Retailers Moving into Foodservice
  • Figure 3-2: Supermarket Shopper Interest in Ready-to-Eat Meal Solutions, 2007 (percent)
  • Range of Retailer-Prepared Foods Rapidly Proliferating
  • Turning Grocery Stores into Restaurants
  • Faster Food-To-Go
  • Using Technology to Speed up Service
  • The Road Ahead: Hybrid Retailers
• Trend #3: Lifestyle Stores and Emerging Formats
  • Food Shopping as Distinctive Experience
  • Reinventing Store Formats
  • Store Layouts Are Carefully Planned
  • Re-Examining the Center Store
  • Editing SKUs
  • "Clean Floor" Policies Limit Marketers' Displays
  • Niche Formats
  • Improving the Shopping Experience
  • Self-Service Checkout is Growing
  • The Stores of the Future
• Trend #4: Thinking Small
  • Convenience Needs Spur Shift to Smaller Stores
  • Tesco's U.S. Entry Heralds Seismic Market Shifts
• Trend #5: Store Brand Building
  • Creating a Store Identity Consumers Connect With
  • Private Label Ripe with Opportunities
  • A Key Marketing Strategy
  • Sourcing and Development
• Trend #6: Focusing on Fresh and Natural/Organic
  • Food Retailers Banking on Fresh, Locally Grown and Natural/Organic Foods
  • Natural/Organic Foods Still a Huge Opportunity
  • Natural and Organic in Today's Market
  • Room to Grow
  • Local and Artisanal Foods Are Growing Trends
  • Varietal and Artisanal
• Trend #7: Health and Wellness
  • Organic/Natural Merging with Broader Wellness Concerns
  • Growing Health Awareness, Ongoing Trends
  • Retailers Adding Nutrition Ratings
  • Food Safety a Growing Issue
  • Single-Serve Portions
• Trend #8: Going Green
  • Ethical Consumerism on the Rise
  • Industrywide Changes
  • Fair Trade
  • Sustainability Initiatives
  • PR and Profits
  • No Longer Just a Niche
  • Plastic or Paper?
  • Bottled Water Backlash
  • Interest in Green Issues Will Only Build
• Trend #9: Tapping Ethnic Markets
  • An Ever-Expanding Range of More Exotic Fare
  • Hispanic Market Targeting
  • Bashas' Food City
  • Minyard's Carnival
  • Rancho Liborio
  • Publix's Sabor
  • Wal-Mart Also Targeting Latinos
• Trend #10: In-Store Media
  • Growth in Retailer-Controlled Media Tracking Technological Advances
  • On-Cart Capabilities
  • Radio Frequency Identification Stalls Out
  • Future of Biometric Payment Kiosks Uncertain
  • Word-of-Mouth Goes High Tech
• Merchandise Opportunities
  • RTD Tea/Coffee Leads High-Growth Food and Beverage Categories
  • Figure 3-3: Top 10 Growth Categories in Dollar Sales Percentage Change: 2007 vs. 2006
  • "Upscale," "Natural" Lead New Product Claims
  • Table 3-2: Top Ten Food and Beverage Product Claims: By Number of New Product Reports, 2003, 2006 and 2007
  • Upscale/Gourmet Positioning
  • Retailers and Marketers on Board

Chapter 4: Grocery Channel Trends

• Grocery Channel Leads in Food Sales
• Kroger, Safeway and Supervalu the Leading Supermarket Operators
• Table 4-1a: Top 10 U.S. Supermarket Chains by Retail Dollar Sales, 2006 (in millions)
• Table 4-1b: Top 10 U.S. Supermarket Chains by Number or Supermarket Units, 2005 vs.2006
• Kroger: Solid Strategy Means Solid Gains
• Safeway - Lifestyle 2.0
• On the Block?
• Supervalu Becomes a Major Retailer Through Albertsons Merger
• Publix Wins Customer Praise
• Ahold USA Goes Leaner and Meaner
• Delhaize America Innovates for Growth
• H. E. Butt Grocery Testing New Concepts
• A&P on the Ups
• Winn-Dixie Fighting an Uphill Battle
• Giant Eagle Tests New Formats
• Focus on Smaller Independent Supermarkets
• Supermarkets Lead in All Food & Beverage Categories
• Many Supermarkets Shift to "Fresh Formats"
• Table 4-2: Percentage of Traditional Supermarkets Offering Meal Solutions: By Type, 2007 (percent)
• Playing Both Ends Against the Middle
• Limited Assortment Chains Making Waves
• Ethnic Food Markets Evolving
• Focus on Natural Food Stores
• Whole Foods: A Natural Leader
• The Whole Foods Shopping Experience
• Bigger and Bigger-and Smaller
• Focus on Gourmet/Specialty Food Stores
• The Trader Joe's Experience

Chapter 5: Value Channel Trends

• Supercenters
  • The Supercenter Format Matures
  • Focus on Wal-Mart: The Nation's Largest Food Retailer
  • The Supercenter Push
  • Wal-Mart Slipping?
  • Economies of Scale
  • Private-Label Pursuits
  • Fresh and Organic
  • Market Segmentation
  • Tapping Hispanics
  • Looking Ahead
  • Moving on Target
  • Meijer: The Regional Supercenter Pioneer
  • Kmart Still Struggling to Find a Path
• Warehouse Clubs
  • Ongoing Expansion Based on Unique Appeals
  • In-Store Cachet
  • Room to Grow
  • Costco Wholesale Corp.
  • The Merchandise Mix
  • Private Label and Organic
  • Sam's Club
  • A New Attitude
  • BJ's Wholesale Club
• Dollar Stores
  • Adding More Food to Their Product Mix
  • Dollar General
  • Family Dollar
  • Dollar Tree

Chapter 6: Convenience Channel Trends

• Convenience Stores
• Changing with the Times
• Emphasizing Foodservice
• 7-Eleven Switching to Franchise Culture
• The British Invasion: A Fresh Approach from Tesco's Fresh & Easy
• Focus on Fresh, Healthy
• Big Brands + Private Label
• Keeping Costs Down
• Investors Nervous
• An Impressive Business Model…
• But a Slow Start
• Looking Ahead
• Other Fresh Ideas in C-Store Retailing
• Alimentation Couche-Tard, Inc.
• Famima!!
• Marvelous Market
• MoCo Market
• NexStore Marketplace
• Sheetz, Inc.
• Wawa, Inc.
• Is Wal-Mart in the Running?
• Home Depot Convenience Stores Stall
• Drugstores
  • Competing on the Convenience Front
• Vending Machines
  • Offering Convenience, 24/7
  • New Vending Developments
  • Healthier Vended Items for Schools and Workplaces
  • Fully Automated, Self-Checkout "Mini-Marts"
  • Different Payment Methods
  • Ethnic Foods Vending Machines

Chapter 7: Emerging Channel Trends

• Making Online Grocery Shopping Click
• The FreshDirect Model
• Websites Increasingly Vital for Consumer Packaged Goods Marketers
• Farmers' Markets Are Flourishing
• Figure 7-1: Growth in Number of Farmers' Markets, 1994-2006
• Two Types of Farmers' Markets
• The Markets in Off-Season
• Farmers' Markets Face a Crop of Challenges
• Community Supported Agriculture Programs (CSAs)
• European Food Halls
• Meal Assembly Kitchens: Cooking Out-Eating In
• Figure 7-2: Growth in Number of Meal Assembly Kitchens, 2002-2007
• Other Alternative Channels Target Impulse Sales
• Grocery Retailing in the Year 2022
• Made In Transit Factories?

Appendix: Addresses of Selected Industry Associations and Retailers