Market Study Notes Changing Demographics Challenges Food Industry

Tied to the group’s focus on convenience, 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. Of the millennials surveyed, 47 percent stated brands were “extremely” or “somewhat” important in their purchasing decision for groceries, compared to 61 percent of baby boomers (a 23 percent decrease). Similarly, only 41 percent of millennials’ total food spending is at traditional grocers, compared to 50 percent of baby boomers’ total food spending (an 18 percent decrease).   

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 far and away 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.  

While millennials are more price sensitive than baby boomers, they are, however, willing to pay more for the specific attributes they value: convenience, freshness, health, variety (of flavors, international/ethnic cuisines, product sizes, etc.,) and natural/organic. When it comes to natural/organic products, for example, 58 percent of millennials surveyed said they are willing to pay more for natural/organic products, compared to only 43 percent of baby boomers who said the same. 

Despite the rising prominence of millennials, baby boomers will maintain significant influence on “Aisle 5” -- traditional center-of-the-supermarket purchases – and food-makers and grocers will have to adjust to meet the needs of baby boomers as they age and as their finances, preferences and choices change. 

The good news: baby boomers, generally, are more loyal to both brands and retailers, and they remain committed to shopping the old-fashioned way: going to the local grocer armed with coupons to save money. With incomes falling, however, this generation appears less willing to pay additional money for what they desire, and these changing finances are making even the wealthiest Baby Boomers act “cheap.”  

“In addition to adjusting to a new financial situation, baby boomers are now paying greater attention regarding their food choices as a means of remaining healthy and extending longevity,” said Rich Vitaro, director in the consumer products practice at AlixPartners. “Taste, freshness and quality will continue to be important, as will products addressing health and wellness, and specific dietary needs tied to aging.”  

Jefferies and AlixPartners see “fresh and healthy” – a priority area for both millennials and baby boomers – as a key area of opportunity for both traditional grocers and branded food-makers. For instance, despite the younger generation’s greater acceptance of mass merchants, drug stores and online vendors for everyday essentials, more than 80 percent of those surveyed continue to shop traditional grocery stores for fresh products.  

 Overall, the study sees a more demanding environment across the entire food-industry value chain. For food companies, there will be greater pressure to deliver more for less –fresher, higher-quality product, with more choices and more convenience in a shopping environment where consumers are becoming less brand-loyal and more inclined to shop across channels.  

This will require food companies, say the authors, to be more nimble, with more innovative product development, leaner supply chains and more effective use of marketing initiatives. 

For traditional grocers, there appears to be a need to redefine their model, focusing on perishables while engaging or re-engaging customers in the center store. While Millennials have yet to lock in their preferences for a lifetime, they are clearly much less loyal than their forebears to the “one-stop-shop” supermarket format, creating significant obstacles for traditional retailers. But trouble for the grocery store looks to be a boon for specialty retailers, mass merchants, club stores and even on-line purveyors of everyday items, says the study.

The findings are supplemented with a survey conducted May 15 to 22, 2012 of 2,000 adult grocery shoppers over the age of 18. One thousand of these shoppers were across all age ranges, and an additional 500 millennials aged 18 to 31 and 500 baby boomers aged 48 to 66 were also surveyed.