Market Insights: the state of grocery and its influencing factors

December 15, 2016

At Six Degrees, we invest significant time generating market insights in our areas of specialisation to ensure we understand the trends that drive our markets.

I recently attended a seminar by the Australian Sales and Marketing Institute where we heard from Johnny Gorman of IRI and Peter Love of Metcash.

I was impressed by Peter’s clear articulation of the Metcash plan and the stable platform it’s now operating from, compared to 12 months ago. Johnny’s market update was full of promise for our hard working NAMs, NBMs and Category Managers; yes, the market continues to change significantly year-on-year (YOY) but a few trends are emerging that present commercial opportunities.

Consumerism is at a steady pace, with most people’s mindset being that they will have the same financial security as what they had in the previous year. Market reports show a 2.8% increase on shop visits but a 7.4% decline on overall spend per trip (FY12 vs FY16, based off multiple quarters). Due to this, the average grocery spend is sitting at $130.00 per week - 5% less than the year before.

Consumerists

The industry is seeing a number of emerging trends that are driving shopper behaviour such as:

Online information – 30% of shoppers hunt for information online before heading to a store, with 45% of people checking online catalogues.
Trip preparation – an emerging trend where consumers budget their finances in terms of what they need and are willing to spend for the week.
Store selection – with new players in the market, customers have more options to choose which store they will go to, as well as compare the type of brands stores have on their shelves.
In-store promotions – 68% of people actively look for promotions in store and this strategy is still seen as a massive area in terms of influencing consumer behaviour.
Brand loyalty – big, well known brands are seeing a slight decline as consumers make a conscious move to purchase more private labels.
Product usage – another evolving area as more people are sharing reviews and feedback on the items that they have purchased.

Grocery/Independents

The growth of grocery has slowed YOY from 8% to 1% in the past ten years with the position and differentiation between Coles and Woolworths narrowing to the same space. Both are focused on the same things: range rationalisation (10-15%), focus on fresh produce, private label brand equity and investing more on price promotions (EDLP, ½ prices, better fresh offers, etc.) Smaller supplies are seeing the biggest increases in share of category with the bigger players such as Nestlé, Unilever, and Mondelēz all working hard to halt declines.

Aldi continues to march forward with market share at 12%, overtaking IGA to take the number three spot in the market. As for Metcash, Peter Love painted a positive picture despite the YOY decline. Commercially it is in a better place and has set some big, bold goals such as: becoming a world class wholesaler, being “the best store in town”, and becoming Australia’s best place to work.

How are they looking to achieve this? By focusing on fresh produce, investing in private label brand equity, developing a health category, sorting out core merchandise, and delivering their impressive DSA (Diamond Store Accelerator) program – all strategies that sound familiar. As Peter openly says, the best 25% of IGA stores are the absolute best in market. How good could Metcash be if he can fix the bottom 25%?