Stimulating growth in the food market is a challenge, and recent research shows it's only going to get harder.
We have one of the highest levels of food expenditure per capita in the world - with Australia and New Zealand taking the third and fourth spots respectively behind Switzerland and Norway, leaving little room for expansion.
So while growth is always a business goal, there are a number of challenges to companies obtaining a bigger slice of the pie. These include the absence of traditional retail cycles since 2008, increasing competition for consumers’ minds and wallets due to the rise of internet-connected devices, and a growing preference for eating out.
HIGH APPETITE FOR IN-HOME FOOD
When looking at money spent on food for consumption in the home, Australia is a particular outlier. According to the United States Department of Agriculture (USDA) ERS Food Expenditure Series (2012), Aussies spend US$3,800 per capita each year on food consumed in-home.
This equates to approximately 11 per cent of our total consumption expenditure – and indicates a barrier to significant increases.
Nielsen research shows there's a distinct relationship between food spend and market growth, and indicates that in developed economies there's a tipping point where food needs are met – so growth can only come from food wants.
However the amount Australian consumers spend on food and alcohol significantly exceeds similar markets like the US and UK.
The underlying cause relates to how and where we consume food, with Australian’s spending almost three times more on in-home food purchases compared to eating out.
In the US for example, expenditure is roughly equal between in-home and out-of home expenditure.
But this is changing. Between 2008 and 2014, the amount Australian’s spent each year in restaurants, cafes and food services increased by 30 per cent. If this trend continues we can expect to see in-home food purchases either slow or decline.
RETAIL CYCLES FADE AWAY
If shifts in consumption patterns aren’t enough to compromise in-home food growth, traditional retail cycles have been slow to re-emerge following the Global Financial Crisis (GFC).
While the period from 2002-2008 was a super-cycle of consumption, with retail growth rates doubling that of population and household growth rates in most segments, this trend has reversed since 2008.
Comparing volumes in the food sector, annual per capita increases hit 2.2 per cent per annum compound from 2002-2008 but dropped to just 0.2 per cent across 2008-2014.
Similar growth declines were seen in all retail sectors – except 'eating out' food businesses where volume growth has accelerated.
CHANGING SHOPPING PATTERNS
Adding to the food sector’s challenges is a major shift in the way consumers shop. Australian consumers have become elusive and concerned about the economy, jobs, personal finances and health.
They have started shopping less, with trips to grocery stores down five per cent on the 2010 peak and now level with 2008. Correspondingly, as consumers spend more time looking at screens, online shopping has risen dramatically.
Over the past six years we’ve seen economic and technological factors impacting how we consume food. With at-home food expenditure already at peak levels, it will be difficult to stimulate growth.
As expenditure builds in the 'eating out' food channels, some businesses will need to diversify. Companies who rely on at-home food purchases will need to optimise their efforts to attract customers and ensure their products get into trolleys, whether physically in-store or via virtual shopping baskets online.
KEY TAKEAWAYS
Australians are spending three times as much on in-home food as they do eating out. This is due in part to supermarkets’ current service offering of easy-to-serve meals to satisfy the trend.
Despite this, trends in the US and UK show Australia might be at risk of this changing as more consumers spend money in restaurants and quick-service eateries. Likewise, the amount Australians spent each year in restaurants (including quick-service places), cafes and food services increased by 30 per cent between 2008 and 2014.
Traditional retail cycles have been slow to re-emerge following the GFC. Comparing volumes in the food sector, annual per-capita increases hit 2.2 per cent per annum compound from 2002 to 2008 but dropped to just 0.2 per cent across 2008 to 2014. Similar growth declines were seen in all retail sectors, except 'eating out' food businesses where volume growth has accelerated.
