So says Trouble in Aisle 5, a study of 2,000 consumers conducted in May by Jefferies, a global investment bank, and AlixPartners, a global business advisory firm.
The root cause of the impending transformation lies in changing demographics. Over the next decade the baton will be passed from one mega-generation to another as "millennials" (born between 1982 and 2001) come of age and "baby boomers" (born between 1946 and 1964) enter the next phase of their lives and spending patterns. As a result, established food brands and traditional grocery stores will be pressured at both ends by sets of consumers with very different value equations.
"We envision an environment that will require increased nimbleness and a relentless focus on the consumer for established food manufacturers and retailers, and the potential for rapid growth for new concepts and products," said David Garfield, managing director at AlixPartners and head of the firm's Consumer Products Practice.
"Millennials clearly present significant challenges, and food-makers and traditional grocery retailers need to start making changes now to address the emerging needs of this demographic group, as in many ways we're just in the second inning of this ball game" said Scott Mushkin, managing director and senior equity research analyst covering Food & Drug Retailing and Packaged Food at Jefferies.
Changing Demographics
Based on the most recent projections by the U.S. Census Bureau, millennials over the age of 25 (the age at which income and household formation typically start to really accelerate) will make up roughly 19 percent of the U.S. population by 2020, up from just over 5 percent in 2010. These 64 million millennials will see a significant spending-power increase in the coming years as the median income for those households is expected to jump to more than $45,000 from just over $28,000. In fact, the study finds, food-at-home spending by Millennials is set to jump by $50bn annually through 2020.
By contrast, the baby boomer generation, which has had an outsized influence on consumer trends for decades, will fall to below 20 percent of the population in the next eight years.
Baby boomers are also set to move out of their peak-earnings years into retirement and will be more reliant on fixed incomes by 2016, and their focus will undoubtedly turn further toward lifestyle preservation. Overall, says the study, at-home food spending by boomers could fall by as much as $15bn per year through 2020.
Millennials: Convenience is King, Loyalty is Fleeting
The study found that millennials have strikingly different attitudes towards consumption than their baby boomer parents and grandparents, which will put great pressure on the traditional model of homogeneous brands provided by traditional grocery retailers.
"The at-home food industry is just beginning to feel the impact of this major demographic shift as millennials rise in prominence and baby boomers adjust to meet the requirements of age and a fixed income," said Mushkin. "The bottom line for food-at-home industry stalwarts is that big changes are coming, and companies who don't fully understand those changes risk being marginalized."
"Convenience is king with Millennials - they expect to get what they want, when and where they want it, and they know they have options for both products and retailers. The emphasis on convenience represents a dramatic shift from baby boomers' priorities, and it also presents big challenges - and opportunities - for companies in the food industry," said Garfield.
Tied to the group's focus on convenience, millennials are much less loyal to both food brands and traditional grocery stores and much more willing to explore different distribution models (online shopping, smartphone shopping, delivery services, etc.) and spread their shopping across different brands and channels (mass merchants, club stores, drug stores, convenience stores, online, etc.) to fulfill their consumable needs. Of the millennials surveyed, 47 percent stated brands were "extremely" or "somewhat" important in their purchasing decision for groceries, compared to 61 percent of baby boomers (a 23-percent decrease). Similarly, only 41 percent of millennials' total food spending is at traditional grocers, compared to 50 percent of baby boomers' total food spending (an 18-percent decrease).
