Changing demographics could disrupt grocery industry over next decade News added by Benefits Pro on July 2, 2012
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By Paula Aven Gladych

Aging Baby Boomers and Millennials, those born between 1982 and 2001, will have a major impact on the grocery store industry over the next several years.

According to a new study by Jefferies, a global investment bank, and AlixPartners, a global business advisory firm, changing demographics, economic factors and customer preferences have the potential to create a long-term disruption in the food-industry value chain that transforms where and how consumers shop for groceries as well as what products they choose.

As the Baby Boomers retire and change their spending patterns, the Millennials will be stepping up to the plate, but research shows they are less likely to shop at traditional grocery stores and they are not as loyal to product brands.

“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.

According to the U.S. Census Bureau, Millennials over the age of 25 will make up about 20 percent of the U.S. population by 2020, up from just over 5 percent in 2010. These 64 million people will see a significant spending power increase in the coming years as median income jumps from just over $28,000 to $45,000. Food at home spending is expected to jump by $50 billion annually through 2020.

The Baby Boomers will fall below 20 percent of the population in the next eight years. They also are set to move out of their peak earning years into retirement and will be more reliant on fixed incomes by 2016. The study predicted that at-home food spending by Boomers could fall as much as $15 billion per year through 2020.

The younger generation has a different attitude toward consumption than the Boomers, which will put great pressure on the traditional model of homogeneous brands provided by traditional grocery retailers.

“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.

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.

Millennials are also more price-sensitive than Baby Boomers, and the study found that their income has a dramatic effect on buying behavior. Among Millennials earning less than $20,000 per year, price is the most important attribute impacting purchase decisions, with 75 percent at this income-level citing price as “extremely important.” As income rises, attributes such as product quality, healthy and natural/organic increase in importance. Broadly, the study also found that Millennials require a smaller discount to purchase private-label products.

Originally published on BenefitsPro.com
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