The state of play in the Australian grocery industry

Posted by Daniel Palmer on 28th January 2009

Consumers, worried about the current economic environment, are increasingly opting to entertain friends and family at home rather than dining out, which has seen the share of food spend in Australia channelled into supermarkets and away from cafes, restaurants and take-away outlets, a report released by research company Nielsen has revealed.

Nielsen’s annual Grocery Report indicates that, as consumers seek ways to reduce their household costs, many are choosing to entertain at home more, cut back on non-essential grocery items and look for cheaper grocery alternatives such as Private Label brands.

As a result, DIY cooking categories enjoyed robust growth in 2008, with many of the fastest growing grocery categories indicative of the move toward more in-home cooking – including: flour, cream, baking aids, butter, bread mixes and baking additives. Other products to make the fastest growing categories list reflected the consumer search for convenient and/or healthy meal solutions such as hot cereals, sports and energy drinks and frozen meals. (See: list below).

Food labelsThere were only two grocery sectors to record stronger growth rates in 2008 than 2007 – pet food and confectionery/drinks, which was driven by a host of new beverage launches. However, the dairy sector once again achieved the strongest growth of any sector (7.6%), with household products the lowest (2.3%). Health and beauty had the greatest decline in year-on-year growth.

Other trends driving category growth in grocery retailing included growing consumer interest in ‘fresh’, ‘natural’ and ‘convenient’ offerings – a penchant which has seen further growth for specialist retailers. Half of Australian consumers purchased goods in a specialist fruit and vegetable store in the last seven days, up from just 43 per cent in 2005. About one third had frequented butchers/fish shops in the past seven days, above the 29 per cent in 2005. Gourmet specialty stores are also becoming increasingly popular with over half of Australian consumers occasionally frequenting these stores.

Of those consumers opting to buy from specialist food retailers, the majority are motivated by a perception of better quality, Nielsen advised.

Although supermarkets gained an increased ‘share of stomach’ in 2008 away from other food retailers, the Nielsen Grocery Report shows that overall packaged grocery sales trended downwards for the year, with 5.5 percent growth in 2008 comparing unfavourably to the six per cent recorded in 2007. From 2007 to 2008, supermarkets boosted their share of the food channel from 58.8% to 61.8%, while restaurants and cafés were the hardest hit – losing one per cent to hold a 13.4% share.

“The Australian FMCG retail landscape entered new territory in 2008 with a number of factors impacting on the industry’s growth,” according to Rob Clark, Executive Director, Retail Client Service, The Nielsen Company. “The market is still settling after the impact of the global financial crisis and the true extent of the downturn remains to be seen. Similarly, high interest rates and petrol prices throughout the year definitely had an effect on consumers’ spending intentions. Now that interest rates and fuel prices have pulled back somewhat, we may see a lift in spending as we head into 2009.”

The key industry trends noted in the Grocery Report have benefited discount retailer Aldi, which enjoyed strong share gains in the busy festive season lead-up. Aldi’s share rocketed to 5.8 per cent nationally to September 2008, with the German-owned retailer attracting an additional 172,000 households to its stores last year, Nielsen reported. Major grocery retailers also saw sales of own brand or Private Label products escalate in the past year thanks to consumers searching for cheaper alternatives to branded products and an increased range of private label alternatives. Nielsen’s data suggests that private label now holds a record market share of 22.1 per cent.

“It is more critical than ever for manufacturers of branded products to invest in defending their category position, improving their understanding of shoppers’ needs, and looking at how to work with retailers to attract more shoppers,” the Nielsen Grocery Report concluded.

Top 20 fastest growing grocery categories (Source: Nielsen ScanTrack)
1.    Hot Cereals (34.8)
2.    Proprietary Cakes (32%)
3.    Flour (21.2%)
4.    Chilled Cream (20.7%)
5.    Bottled Water (18%)
6.    Baking Aids (17.8%)
7.    Butter (17.7%)
8.    Sport/Energy (16.9%)
9.    Dog Treats (16%)
10.  Fresh Flavoured Milk (15.9%)
11.   In-store Bread (15.9%)
12.  Bread Mixes (15%)
13.  Cough/Cold Remedies (14.6%)
14.  Antacids (14.4%)
15.  Baking Additives (13.6%)
16.  Mexican Foods (13.1%)
17.  Incontinence Products (12.4%)
18.  Frozen Meals (12.3%)
19.  Frozen Fish (12.2%)
20.  Insecticides (12.2%)