Market Study Notes Changing Demographics Challenges Food Industry

Jefferies, the global investment bank, and AlixPartners, the global business advisory firm, today announced the findings of their new joint study, “Trouble in Aisle 5,” which finds that the traditional food-at-home vertical, which is already facing trouble, is likely to see its challenges accelerate over the next few years. The study, which included a survey of 2,000 consumers conducted in May, finds that a confluence of factors appear poised to rapidly transform the food-at-home industry. The confluence of changing demographics, economic factors and customer preferences has the potential to create a long-term disruption across the food-industry value chain that transforms where and how consumers shop for groceries as well as what products they choose.  

The root cause of the impending transformation lies in changing demographics. Over the next decade the baton will be passed from one mega-generation to another as “millennials” (born between 1982 and 2001) come of age and “baby boomers” (born between 1946 and 1964) enter the next phase of their lives and spending patterns.  As a result, established food brands and traditional grocery stores will be pressured at both ends by sets of consumers with very different value equations.

 “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 in a prepared statement.

“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 and drug retailing and packaged food at Jefferies. 

Based on the most recent projections by the U.S. Census Bureau, millennials over the age of 25 (the age at which income and household formation typically start to really accelerate) will make up roughly 19 percent of the U.S. population by 2020, up from just over 5 percent in 2010. These 64 million millennials will see a significant spending-power increase in the coming years as the median income for those households is expected to jump to more than $45,000 from just over $28,000. In fact, the study finds, food-at-home spending by millennials is set to jump by $50 billion annually through 2020. 

 By contrast, the baby boomer generation, which has had an outsized influence on consumer trends for decades, will fall to below 20 percent of the population in the next eight years.  

Baby boomers are also set to move out of their peak-earnings years into retirement and will be more reliant on fixed incomes by 2016, and their focus will undoubtedly turn further toward lifestyle preservation.  Overall, says the study, at-home food spending by boomers could fall by as much as $15 billion per year through 2020.

The study found that millennials have strikingly different attitudes towards consumption than their baby boomer parents and grandparents, which will put great pressure on the traditional model of homogeneous brands provided by traditional grocery retailers.  

“The at-home food industry is just beginning to feel the impact of this major demographic shift as millennials rise in prominence and baby boomers adjust to meet the requirements of age and a fixed income,” said Mushkin. “The bottom line for food-at-home industry stalwarts is that big changes are coming, and companies who don’t fully understand those changes risk being marginalized.” 

“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.