For the fourth year in row, concern about national and local economies was number one on the food retail industry’s top 5 Worry Index, a tool used to identify the big issues impacting grocery retailing. On the other hand, retailers are taking actions such as emphasizing private brands, to neutralize the adverse effects of the fluctuating economic recovery. Additionally, the Hot Trends of 2011 named by retailers, which include expanded use of social media and interest in health and wellness, point to many of the resources that retailers are utilizing to address the named worry factors.
“While the economy has colored consumer decision-making for the past four years,” says Leslie G. Sarasin, president and chief executive officer of FMI, “food retailers have responded heroically to address the complicated financial picture confronting their customers. They are providing more affordable private brands and loyalty program rewards, are focusing on buying locally grown products and are offering educational opportunities to consumers regarding strategic meal planning and food conservation.”
“In spite of belt tightening times for both consumers and retailers,” says Sarasin, “the industry remains committed to providing safe foods, reliable nutritional information and healthy choices for American families.” These commitments surface in the top 2011 retailing strategies reported by food retailers, which include an emphasis on perishables, a deeper development of private brands and enhancing the consumer’s shopping experience through improved store design and product selection.
Healthcare and Interchange Fees Rank High on Retailer Worry Index
Ranking second on the FMI Worry Index, rising healthcare costs pose a particular challenge for the labor-intensive food retailing industry. Sixty-six percent of retailers reported rising healthcare costs in 2010, with the average increase hovering near 9 percent. Eighty percent of retailers indicated they anticipate cost increases again in 2011. Healthcare costs average 1.5 percent of total food retail sales
After disappearing from the retailer worry list for a year, interchange fees returned to take third position on this year’s compilation of concerns. With 46 percent of shoppers making grocery payments with their debit card, food retailers remain challenged by the anticompetitive practices in the debit card interchange fee system. The Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203) includes provisions correcting the way interchange fees are established. Delay tactics instigated by financial institutions are preventing a timely implementation of the provisions and are the root cause of interchange fees returning to the retailer worry list.
Social Media Trends Hit the Supermarkets
Naming social media as the number one hot trend of 2011, the majority of executives agree that the new technological communication channels will play an expanding role in near-future marketing strategies.
Aware that 68 percent of their shoppers have a Facebook page, almost 90 percent of food retailers report using that social media channel as a means of connecting to their community of shoppers. Retailers hope to leverage the power of social media as reflected in the data that 62 percent of shoppers are willing to purchase a new food item and 56 percent are willing to shop at a new grocery store based on recommendations from social networks. With competition on the rise and shopper loyalty to primary stores at a premium, food retailers recognize social media as a unique tool to help drive customers through new supermarket doors.
Mobile marketing follows social media in the new trends of 2011. Twenty-three percent of shoppers currently have a smartphone and the use of smartphone applications, digital marketing and online shopping are on the rise. Sixty-four percent of shoppers are interested in utilizing smartphone applications to receive weekly information regarding cost-saving opportunities and 57 percent are interested in receiving location-specific advertising and deals.
Health and Wellness and Organic Foods Hold Their Ground
Although stressful economic times have complicated consumer commitments to nutritious eating, retailers have retained a strong emphasis on consumer wellness and family health. Among the top retailing strategies named by retailers, a focus on natural and organic products ranked fifth, followed closely by health and wellness promotions. Health and Wellness concerns were named by retailers as the fourth hottest trend of 2011. Retailers increasing their organic SKUs have seen growth in their sales, with 66 percent adding organic products and 65 percent noting a sales increase.
Local sourcing of products is gaining attention with 91 percent of shoppers occasionally purchasing them. Retailers are split on defining “local” products; half citing state lines as determining the boundaries of “locally produced,” while 42 percent prefer a mile radius as the demarcation of “local.” These opinions are primarily based on state size, with smaller states being more likely to point to in-state and larger states pointing to a specified mile radius.
Programs providing nutrition labeling guidance have been implemented by almost half of food retailers as a means of encouraging health and wellness. Adoption of these programs or other in-store efforts increased dramatically from 26 percent last year to 48 percent in 2011. Sixty-five percent of retailers believe that this information is helping consumers make better nutritional decisions.
Methodology
Data for The Food Retailing Industry Speaks 2011, were collected through two independent surveys using an Internet methodology. A total of 104 food retailers completed the survey. Additional financial data was gathered from SEC filings. These retailers represent a total of 25,613 stores across the country.
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