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By Barbara Grondin Francella
NEW YORK -- As the grip of the recession tightened consumers' budgets, retailers and snack makers are evolving to compete in a transforming economy.
Last year's sky-high diesel, commodity and packaging costs put intense margin pressure on snack manufacturers, while hit-hard consumers bought fewer snacks and were less loyal to major brands, according to a recent study by Information Resources Inc. (IRI), which looks at the state of the snack industry. Consumers, in short, changed what they bought, where they bought it and how they ate it.
"People are changing their rituals and are getting much smarter about where they spend their money," Sally Lyons Wyatt, senior vice president of IRI, told CSNews Online.
In a snacking survey fielded in February, nearly half of those polled said they were cutting back on the amount of money they spent on snacks and 54 percent said they are buying what is on sale, rather than their favorite brands.
More than one-third said they try to make the snacks they buy last longer, and more than one-fourth said they are snacking less frequently.
"Snacks are doing better than other consumer packaged good categories," she said. "Snacks mean different things to different people. For some, they are comfort foods. For others, who are home more now and preparing meals, some snacks are meal complements or small meals themselves. Some of the households are gravitating back to snacks, because of the variety offered—they fill many occasions throughout the day."
While some consumers may grab a granola bar for breakfast, others may pick up a yogurt for mid-day snack, she noted. "Nutritionists are the snack industry's best friends now, because they are telling clients to eat eight mini meals or have healthy snacks—like a handful of nuts—between meals," Lyons Wyatt noted.
While snack volume fell in 2008—down 1 percent—dollar sales were up 4 percent, in large part due to manufacturer price increases. Outperforming the snack industry in volume and sales: yogurt and snack nuts. Salty snacks, crackers and non-chocolate candy were down close to the industry average, on a volume basis. Laggers (down 2 percent to 4 percent in sales) include frozen novelties, chocolate candy, ice cream/sherbet, pastry/doughnuts and cookies.
"Chocolate sales volumes grew for two years, after the antioxidant study came out," Lyons Wyatt noted. "Part of what we are seeing now is chocolate has reached its plateau. Also, some consumers have reached a price threshold on some snacking categories."
Retail snack prices increased 4 percent on average in 2008. "Last year, the price of all commodities went up drastically, and every aspect of the snack business was hit. Many food companies raised prices. Now, however, you are seeing some price rollbacks or companies putting more product in the package. Walmart, Safeway and other retailers are pushing manufacturers to give back to the consumer."
Prices of private-label products increased too, but not as much, she noted
While c-store snack volume fell 5.6 percent during the last six months of 2008, compared to the last six months of 2007, c-store snack dollar sales were up 7.1 percent.
"Smaller-sized packages often found in c-stores don't always have the price advantage of larger sizes, so there is a higher cost per serving, something that is not going to appeal to consumers looking for a greater price value," Lyons Wyatt noted.
Nearly eight in 10 shoppers polled said are actively looking for the "best value" when selecting snacks. Nearly 90 percent said they are actively looking for a "good value."
But how consumers define "good value" is complex. Of the shoppers surveyed, 20 percent consider their favorite brand at a reasonable regular price point a good value. Another 44 said they look for their favorite brand on sale.
Another 22 percent of shoppers consider any brand at the lowest available price point "a good value." And 14 percent look for any brand with the lowest available price per serving.
While grocery shoppers are sticking to their lists more than ever, there is still a great opportunity for c-stores to sell snacks as an impulse purchase. "More than ever, manufacturers need to be sure their snacks are on the shoppers' list before the shopper leaves home," Lyons Wyatt said. "But once the consumer is in the store, they are looking for a good value. If you want impulse sales, promotions will be driving that."
"C-store, dollar and drug outlets are still capturing sales, because of the convenience factor and in some cases being in walking distance," she added. "But communication with the consumer probably has to be a bit more intriguing to get customers into the store after getting gas and getting them to buy snacks."
While indulgent snacks still account for two-thirds of all snacks purchased, healthier snacks have seen sales increases that outpace their indulgent counterparts for at least the last four years.
Among the "healthier" product categories achieving double-digit dollar sales growth last year, compared to 2007 figures: kernel popcorn (15 percent increase); non-sweet popcorn (up 13 percent), sugarless gum (up 11 percent) and natural string cheese (up 11 percent).
"But retailer's shouldn't give up on indulgent snacks," Lyons Wyatt noted. "Consumers love to indulge themselves."
-- Alternative Snacks Pay Off