SUMMARY: What a difference a year makes. Restaurant operators enjoyed a solid 2008, but by mid-year 2009, more than 4,000 had closed and the average guest check plunged more than 8%. Where did all the diners go? Grocery stores, supercenters and club stores—to pick up meat, seafood, produce, deli and bakery goods for a home-shared meal.

There is nothing like staying home for real comfort. – Jane Austen

Home. It’s our refuge when the world gets to be too much. The upside of a recession is that we come together around the kitchen table to share our meal and our day, taking comfort in the safe harbor of home. While that’s bad news for restaurants, from white table cloth to casual dining, it’s good news for retailers.

Through September 2009, Nielsen reported total store sales—which includes the Rx, perishables, center store grocery (UPC food & beverage), health & beauty care, and general merchandise departments—are expanding. The perishable department is growing faster than all retail sectors in the total market.

According to Nielsen, reported household deli spend for year ending September 2009 was $200—a 5% increase from last year. Bakery whipped up average annual household sales of $174 per year with a 3% increase. Fresh meat and seafood cooked up sales of $437 per year for a 4% gain, produce increased 3% based on annual average sales of $279 per household. Perishable departments are becoming one of the most productive departments at retail and channels outside of supermarkets are taking notice.

Recession reaction
What the recession has wrought, among other things, is a transfer of dollars away from dining out toward spending more on prepared meals at retail. A 2009 Nielsen survey finds that 46% of American households say they are eating out less. And the sales data supports that statement as value-priced prepared meals at retail are posting double digit increases in supermarkets, supercenters and club stores. Other recessionary strategies include reducing unnecessary spending (27%), driving less (14%), shopping for bargains (13%), using coupons (12%), combining shopping trips (8%), going out less for entertainment (6%) and purchasing more private label goods (5%).

Meaty matters
Supermarkets hold a dominant share position with perishables in the meat and seafood department with a 70% market share. More importantly, shoppers are spending more with grocers. Key factors fueling supermarket meat and seafood sales include promotions—51% of meat and seafood is purchased on sale—and prominent circular placement noted by 41% of shoppers.

Shoppers are trading down, up and side-ways as less expensive non-red-meat and seafood protein options such as turkey, chicken and pork sourced primarily from beef department sales. This trade down is occurring in both fresh and fully cooked product categories. Retailers should offer shoppers ideas to enhance the dinner menu with add-ons such as marinades, sauces and seasonings, which are posting double digit increases on both a dollar and unit basis.

Alternative channels are also making a strong push for this business. Supercenters have done a super job with new perishable formats, growing both the purchase size (up 2% to $11.80) and frequency of perishable purchases (from 18.4 to 18.7 trips per year). This holds true in particular for the meat and seafood departments, where supercenters snagged a 0.6 share point change.

Produce picks
Supermarkets hold an even stronger share of produce with more than 72% of the business and growing, posting a 0.3 share increase versus year ago. Supercenters are turning the competition green with envy capturing 12% of the market. Club stores are still underdeveloped in produce (7.9% share) versus comparable department share levels.

In the produce aisle, shoppers appear to be sticking with core vegetables as tomatoes, potatoes and corn are among the few leading categories posting dollar and unit growth. The same holds true for fruits—shoppers are less likely to experiment these days as specialty and stone fruits are down in favor of tasty favorites such as berries, cherries, grapes and avocados.

Retailers have a unique opportunity via their produce department to build their health and wellness equity and market position. The Natural Marketing Institute has identified 25% of the population as “Well Being” shoppers that are health and wellness focused, do the best job of eating right and use quality as their purchase barometer, not price or brand image. Indeed, the Nielsen sales data affirms these results as these shoppers buy 25% more produce than any other perishable sector and prefer random weight items at their freshness peak.

Deli delights
In deli, where supermarkets hold 50% of the business, all major departments are posting strong growth. Deli cold cuts and cheese are up 7% and prepared foods are up almost 5% versus year ago. Notably, supermarket dollar share erosion has been more severe than other perimeter sectors in this broad but expanding market. However, smaller formats (convenience stores, delicatessens, etc.) that offer shoppers “in and out” convenience are posing the biggest threat to supermarkets. Some of the hottest selling prepared deli items include turkey entrees, pot pies and chicken salad. At the service counter, shoppers are buying American as pre-sliced cheese is posting double-digit unit and dollar sales increases.

Retailers exploring ways to differentiate their brand should turn to the deli department, where service counts, personality shines and the area is generally underdeveloped as a driver of retail brand equity. Adopting an “alternative to eating out” strategy has paid off big time for retailers like Wegmans, which scored well in a 2009 study as a top choice for prepared meals, as well as for offering a wide range of fruits and vegetables, high-quality fresh food, well presented displays and a broad assortment of fresh meat and seafood.

Bakery boom
Retailers should not forget to finish off their meal planning strategies with dessert options. The bakery department is posting the most significant growth of any perishable sector for grocers. And just as Clemenza famously says in The Godfather; “leave the gun, take the cannoli”, that is exactly what shoppers are doing as cannolis are posting strong growth within the cakes, cookies and specialty desserts department. Supercenters are the primary threat to grocery as they have almost 16% share of this market—more than any other perishable department. Similar to deli, club stores are not a major competitor in the service-driven bakery sector, capturing about 7% of the market.

Meal planning
Everybody cooks, but in today’s world, meal planning is maturing on both web-based resources for recipes and TV chefs for inspiration and technique. Nielsen discovered that more than one million viewers watched the Food Network during prime time in 2009—a 16% increase over full-year 2008. Furthermore, meal planning is one of the largest and fastest growing online activities, with the average browser spending roughly 10 minutes online planning meals. Retailers like Meijer have developed special iPhone applications that let shoppers check specials, locate recipes, consider wine pairings, even search from their smart phones for special needs like fat free, dairy free, gluten free and high fiber.

The lead position
What does it take to succeed with perishables? Retail perishable sales leaders share a set of characteristics including heavy penetration across one or more perimeter sectors. The average department penetration among the Top 25 retailers scored 83% for produce, 80% for bakery, 79% for meat and seafood and 65% for deli. Prepared foods represent an area of under-developed potential because of high-growth rates, strong drivers like working parents on tight schedules, and the fact that fewer than one-third of the Top 25 retailers’ customers currently buy prepared items.

Service remains key to succeeding in areas like deli and bakery, where sales outpace meat, seafood and produce. Across the store, the produce section affords the best climate for delivering health and wellness messaging. Even aside from absolute sales potential, prepared foods are unique in their ability to serve as an avenue for differentiating the retail banner. For a playbook on doing it right, turn to trend-setting retailers that have set both the delivery standard and consumer expectations for high-quality prepared meals and the multi-media formula for promoting them.

Free Webinar: The Consumer Returns to the Home

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Date: November 19, 2009 – Time: 12 pm EST/11 am CST

Today’s consumer is realizing that the home is their best resource to stretch a dollar in a difficult economy. The “trade down” from casual dining to home meals has created tremendous growth and brand messaging opportunities in perishable departments and specific center store categories for both retailers and manufacturers. In this session, Nielsen will reveal:

• Who are the new and emerging channel competitors and where are the category opportunities in the meat, produce, deli and bakery departments.
• Which center-store categories create more merchandising synergy with the perimeter.
• Why it is critical that brand advertising strategies stretch beyond the store into the emerging food preparation space.

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“Without a doubt, consumers continue to turn to store brands in a down economy,” said Todd Hale, senior vice president, Consumer & Shopper Insights, The Nielsen Company. “What we see with Halloween candy sales, however, is a sign that consumers may be ‘splurging’ with brand name products for the holiday or simply taking advantage of brand name promotions and price reductions. Candy manufacturers invest a great deal of marketing dollars to build brand equity in candy and private label candy has not been able to overcome that investment and grab significant share.”

Halloween is the biggest season for chocolate candy, with nearly 90 million pounds of chocolate candy sold during Halloween week. By comparison, nearly 65 million pounds of chocolate candy is sold during the week leading up to Easter and only 48 million pounds of chocolate candy is sold during Valentine’s week.

Consumers tend to wait until the last minute to purchase Halloween candy, either procrastinating or hoping for a better deal. The biggest candy buying days of the Halloween season are the Sunday before the holiday and on Halloween day. In total, approximately $1.9 billion (or 598 million pounds) of candy is sold during the Halloween season.

Sales of store brands, or private label products, began to spike in 2007 just as we were seeing the first signs of an economic downturn. At first, these private label sales were driven by higher commodity prices, but volume growth began to catch up with dollar growth in mid-2008. As the economy continues to struggle, more and more consumers are replacing their branded products with private label equivalents. Store brands are up 10% to $84.4 billion in annual sales across categories reported by The Nielsen Company. Talking to Consumer Packaged Goods marketing professionals across the country, there is a consensus that these private label switchers won’t be coming back when the economy improves – at least not without some incentive.

Winning back these shoppers will not be easy for branded manufacturers.  Although many will be tempted to cut back on new product development, now is the time to innovate.

What To Expect From Name Brands

• More products with new health and wellness claims like “now with more calcium,” or “no trans fats.”
• New package designs with claims like “re-sealable” or “renewable.”
• New package sizes and shapes that will make it more difficult for store brands to copy.
• Innovative new flavor profiles with more line extensions.
• New advertising in new places to get the message across to consumers.

Retailers aren’t just sitting back waiting for new brands to copy; over the past several years, we’ve seen store brands evolve from inexpensive national brand alternatives to exclusive destinations that allow retailers to differentiate themselves. Many store brands achieve premium pricing while strengthening retail banner equity with more upscale offerings. Retailers are investing in their own brands more than ever as their efforts are paying off. The battle between national brands and store brands is about to get interesting.

“While private label products continue to follow the success of consumer packaged goods (CPG) manufacturers’ name brand introductions, more CPG retailers are making private label a priority with messages on quality as strong as messages on value,” said Todd Hale, senior vice president, Consumer & Shopper Insights, The Nielsen Company.

Price and Value Matter

According to Nielsen’s survey, price and value are paramount. Seventy-four percent of consumers believe it is important to get the best price on a product. Two-thirds (67%) of consumers agree that store brands usually provide “extremely good value” for the money while 35 percent of consumers are willing to pay the same or more for store brands if they like it. Just under a quarter (24%) of consumers believe that name brand products are worth the extra price.

“In today’s economy, consumers are looking for ways to save money and for many of them, that means taking a new look at private label products,” said Hale. “With more retailers offering satisfaction guarantees on private label purchases and even serving up blind taste testing and trial programs, consumers’ exposure to private label products has never been greater,” said Hale.

Rising Commodity Prices Continue to Drive Private Label Sales

Earlier analysis by Nielsen shows that an increase in private label dollar sales is driven primarily by rising commodity and food prices, particularly in staple categories that are dominated by private label brands and not in unit sales. However, a recent uptick in private label unit sales suggests that budget-conscious consumers may be starting to shift away from some established brands in search of better deals. Private label represents 16% of dollar sales and 21%of unit sales, indicating that branded products still capture the lion’s share of product category sales.

“Private label development varies greatly by department and we see strongest growth in products where private label has historically been strong,” said Hale. “Translating private label growth outside of commodity categories requires innovation — an area where CPG manufacturers, rather than retailers, traditionally excel.”

Private label products account for more than $81 billion in the U.S, up 10.2 percent over the past year.

Read the complete press release.