FDI EXAMINES IMPACT OF CONSUMER TRENDS ON DISTRIBUTION

TORONTO -- The food industry may be hard pressed to keep up with the rapid pace of consumer and social trends that will eventually transform food retailing today, said Kevin Sneader, principal, McKinsey & Co., Florham Park, N.J.During a general assembly presentation of the Falls Church, Va.-based Food Distributors International's Midyear Executive Conference held here last week, Sneader detailed six

TORONTO -- The food industry may be hard pressed to keep up with the rapid pace of consumer and social trends that will eventually transform food retailing today, said Kevin Sneader, principal, McKinsey & Co., Florham Park, N.J.

During a general assembly presentation of the Falls Church, Va.-based Food Distributors International's Midyear Executive Conference held here last week, Sneader detailed six consumer drivers that are destined to affect product assortment and how retailers will go to market.

These trends include: changes in living and working patterns; shifting spending priorities and values; information overload; aging population; growing ethnicity; and pursuing health and wellness.

While panelists participating in the session outlined ways in which they are attempting to capitalize on some of these trends, Sneader said, given the maturity of the food industry there is a "dangerous situation here. Consumers want convenience and have expectations for quality and yet the industry is not delivering against it."

He also pointed to the polarization in consumer demand for pricing that is both premium and discount. While income levels have risen, thus pushing demand for luxury and premium items, the economic gap between high- and low-income groups has also widened. According to Sneader, demand exists at times for both premium and discount items. He doesn't believe the industry is fully addressing both ends of the market between the needs of the high- and low-income groups.

Food also is no longer a priority in consumer spending, said Sneader. He presented research that showed that consumer spending priorities have shifted first to medical needs, followed by recreation, home and family, and then food and drink.

With changes such as these taking place, Sneader said, "consumer expectations are not being met and [the industry] is not keeping pace with what consumers want to see. They see less convenience than ever before and less reasonable prices. But it's very hard to be all things to all people."

One consumer trend that has been developing for years, said Sneader, is Americans' increasing motivation to stay healthy and well. But he questioned whether or not this will be a lasting trend, pointing to the limited success of such products as Benecol (McNeil Consumer Healthcare) and Take Control (Unilever). Part of the challenge, said Sneader, will be to figure out the definition of wellness and what it means.

Longtime health and nutrition advocate J.B. Pratt, chief executive officer, Pratt Foods Supermarkets, Shawnee, Okla., was one of the early retailers to position his seven stores to cater to consumers' growing concern for their health.

"There's a whole lot more people coming into our stores who are aggressive about their nutrition. They want to know more and they are looking for products and information," said Pratt.

Pratt told FDI attendees that any conventional supermarket can offer a mix of health-related products and information to meet their customers' health needs. He recommended the whole-health solutions marketing program, promoted by the General Merchandise Distributors Council and the Food Marketing Institute, which integrates health solutions throughout the entire store.

Over the years, Pratt has been successful in developing his health concept, which is backed by the motto of "doing well by doing good," by being consistent, he said. "We accomplish [our goals] through repetition. We have store tours, keep information current and keep our shelves tagged properly."

Two of Pratt's stores offer a maximum variety of organic and natural products that are integrated throughout the store. Natural and organic items now represent 20% of those stores' business, he said.

In late June, Pratt opened his first natural food and health store, a 32,000-square-foot unit in Edmond, Okla. He told SN the new store was still evolving, but so far he was pleased with its early performance.

Philip Smith, senior vice president, procurement for Unified Western Grocers, Commerce, Calif., discussed how growing ethnic segments in the Asian and Hispanic communities have changed its product offering to retailers. Smith spotlighted his customer, Mike Prozenzano Jr. and his Delano Ranch Market, Arvin, Calif., as epitomizing how one retailer has reached out to the Hispanic community to give its customer base what it wants in authentic ethnic foods that duplicates an open-market shopping experience.

To meet the needs of retailers catering to ethnic communities, Smith said the company acquired a specialty wholesaler. "We are just starting to understand the cost-effectiveness of the stockkeeping units. We might have to have a different cost structure to support it," he told the gathering.

Unilever Bestfoods has gone into consumers' kitchens to look at cooking and family needs, said Arthur Drogue, senior vice president, sales and customer development, Englewood Cliffs, N.J.

What they found was the current adult population views and uses food as a time to touch base at home. However, a younger generation seeks occasions outside the home to bond. This experience, however, is not centered around food and home, said Drogue. "The new generation wants quicker foods that taste better and are nutritious," he said. Bestfoods has tried to meet this shifting need with innovative products like instant cold brew tea and Ragu Express for kids that can be prepared in three minutes and is more nutritious than sugar-based snack foods.

Bestfoods is also looking at how to cut through the clutter and reach the consumer where it matters at the point of sale, said Drogue. The company is rethinking its portfolio of brands and will integrate its retail business with its food service to provide a better mix of products. In the process, the company could shed some scratch-cooking products as it attempts to reinvigorate its powerhouse brands positioned in new categories, Drogue added.

Unilever research indicates that consumers want less -- not more, said Drogue. "They are not interested in endless 'me too' brands."