Thursday, July 25, 2024

Cautiously optimistic outlook for the food and grocery sector

While the current retail landscape may be in a state of uncertainty, the overall outlook for the food and grocery sector is still far from gloomy.

Jarna McLean from advisory group, Circana, which analyses consumer behaviour, will be taking a deep dive into the purchasing habits of today’s shopper at this year’s 2023 Naturally Good expo. She’s one of more than 30 speakers presenting on a wide range of business topics at the two-day event on 5-6 June at Sydney’s ICC.

Jarna’s talk, ‘State of the Market – What’s Selling in Australia and Why,’ will reveal categories, products, flavours, and ingredients driving growth. Backed by extensive research leveraging Circana’s data assets including POS scan, customer loyalty, survey and shopper panel data, the current retail landscape will be outlined along with consumer and shopper trends shaping the future.

Here she previews her presentation.

The current landscape

Currently the outlook for the retail landscape is mixed. At Circana, we are cautiously optimistic for the food and grocery sector however discretionary spend has already taken a hit and will continue to do so.

The macro-economic backdrop remains uncertain as we navigate a period of contradiction. This is driving unique behaviours and a divide between the haves and have nots. Those on higher incomes can tighten their belts on ‘fun’, ‘eating out’ and non-essential items whilst still indulging in grocery items to ‘treat’ themselves. Those on lower incomes however, are not pulling back as much as they don’t have the flex in their weekly shop. Basically, they have already tightened up on non-essentials and are now looking for best value products for their shop.

How key categories are faring

It’s actually been a tough ride of late for most health-based categories that have been driving growth over the last few years.

In the areas of chilled health food we are seeing a shift away from plant based proteins and meat substitutes as well fermented vegetables. We are seeing some growth in chilled snacking as well as falafels and other ethnic origin health foods. The number one growth product in chilled health foods is Yumi’s Falafels up 19 per cent YoY.

In dry health food, a key driver of growth is sports and diet products which is up 9.9 per cent versus year ago, almost solely being driven by products focused on protein products driving growth.

Shopper’s financial concerns

According to the Circana Shopper Panel Psychographics Survey conducted in January this year, people are most concerned with the price of food and groceries (77 per cent of those surveyed), followed by bills (72 per cent) and fuel (54 per cent). Only two per cent of respondents care about the cost of health and beauty products or alcohol. If history is anything to go by, in any period of uncertainty we see growth coming out of these ‘treat’ categories as people look for attainable ways to look and feel good.

The bottom line

 Whilst high interest rates and inflation are starting to impact consumer behaviour, there is still a definite lag. There is usually a six-month lag effect between external factors and impact to sales and behaviour leading to ongoing cost pressures for individuals and businesses.

Will reduced consumption growth mean that all expenditures will taper off? The short answer is no. Declining household consumption will not be felt equally. And we think food and grocery will be among the least impacted.

Consumers are still continuing to spend even as savings drop to below pre-pandemic levels. Australians saved nearly $250 billion during the pandemic although those savings were disproportionately held by higher income earners

The various reasons for confidence in economic elasticity are that an Australian recession is unlikely, and more likely to happen abroad. In a worst-case scenario, we may dip into a shallow recession. Plus, we have had five successive quarterly GDP gains. So, it’s important to keep all those factors in mind.

Jarna will be expanding on her presentation at the 2023 Naturally Good Expo at 10:45am on Tuesday, 6 June at Sydney’s ICC. Visit Naturally Good for more information and to register.

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