The pulse of the industry

The Grocery Headquarters annual State of the Industry Almanac provides retailers with a comprehensive look at sales in dozens of categories.

By Grocery Headquarters editorial staff

Why did The Coca-Cola Co. gobble up Honest Tea? The short answer, of course, is because
it could.

The long answer, however, is a bit different. The bloom is off the rose in the carbonated beverage market and officials at the Atlanta-based soft-drink giant realized that to stay relevant, they need to get in­volved in as many beverage sub-seg­ments as possible. Hence, its acquisition of Honest Tea, a manufacturer of a wide range of tea products, makes total sense.

“Coca-Cola is reacting to consumer demands,” says one retailer who has kept a close eye on the deal. “Carbonated beverages are not doing too well with consumers right now for many reasons, but other products, like water and tea, are doing just fine. So Coke has the money to buy these companies and the need to buy these companies.”

As disclosed in the 2011 State of the Industry Almanac, our annual look at sales of key categories and products at the supermarket, the carbonated beverages market, the industry’s largest, registered a nearly 3% drop in dollar volume in the 52-week tracked period, which ended Jan. 23. The information is provided to Grocery Headquarters by the Chicago-based market research firm SymphonyIRI Group.

As the data shows, carbonated beverages was not the only key category to take it on the chin over the past year. Cereal, another very important segment to supermarkets, also showed a substantial drop in dollar volume during the tracked period, though many observers think this category will soon rebound. Cigarettes and ice cream also felt consumers’ wrath and posted significant drops in sales during the period.

Interestingly, products that are by many viewed as healthier fared much better. For example, the usually staid yogurt category posted an extremely impressive 8% increase in dollar volume and crackers were up by more than 1%. Chocolate posted a solid gain during the year, as did coffee and breakfast meats, proving that criteria such as taste and affordable indulgence still hold some sway over shoppers.

“It is so interesting to watch how consumer trends change,” says another retailer, based in New Jersey. “A few years ago, chocolate sales were down and everyone was talking about giving the category less room. Today, it is just the opposite. Sales are strong and suppliers are rushing to come out with new products all the time. That, in turn, helps the category grow even more.”

Inflation is also having an impact on the industry. As commodity prices skyrocket, suppliers are under increasing pressure to pass along these costs to the retailer and eventually the consumer. Retailers have fought back, stipulating that prices stay the same and, in some cases, even decrease.

Thus far, it seems as if retailers have the edge in this battle, demanding concessions and sometimes threatening to give suppliers less space for their products or even dropping them completely. But higher fuel costs may make it necessary for prices to rise and that could wreak havoc on unit sales for many, many categories at the food store.

The feeling among retailers is that things may be getting better for the supermarket industry, though many merchants say that the higher oil prices could end up putting a damper on the category. They point to an improving economy and more efficient distribution processes as two reasons for this optimism and some say that grocery stores have regained a bit of their luster as more chains create unique merchandising mixes that are attracting new customers.

A healthy supply of product introductions is also helping sales in the grocery store. Retailers report an upswing in product introductions over the last year and say that many are enhanced items with higher price-points and profit margins.

As we state every year, we welcome your feedback on these charts. Examine them and determine how they can help you build your store so that you give consumers the right products, in the right locations and at the price that will encourage sales but still offer you a healthy profit.

We hope our annual almanac helps you make those decisions.

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