Is the fresh perimeter killing the center store?

Is the fresh perimeter killing the center store?

With sales growth in meat, deli, produce, bakery and seafood surpassing that of center-store mainstays, including dry and frozen grocery, it’s not surprising that retailers and suppliers blame the fresh perimeter for the soft sales in packaged food aisles across the store.Although fresh growth does have implications for the entire store, its relationship with the center store is often more complicated than simple rivals.

Changing shopping patterns
In 2014, berries, packaged salad and deli prepared chicken had the largest dollar and volume velocity growth (dollars sold per $1 million in all commodity volume, or ACV, distribution) year over year. These categories evolved to stay relevant with consumer demands: berries with their health message; quality ingredients and increased availability; and packaged salads and deli chicken with their easy, fresh meal solution. Conversely, categories with the largest dollar and volume velocity declines came from the center store. The categories showing the largest declines (carbonated soft drinks, ready-to-eat cereal and ingredient sugar) are far from direct substitutes for the fastest-growing fresh products. Health-conscious consumers are shifting away from these categories.

While the perimeter is not the primary cause of declines in certain center-store categories, perimeter products, especially the protein-based products, can actually promote sales in other center-store categories. Sales of fresh chicken breasts, for example, have strong positive correlation (greater than 0.5) to 133 categories across the store. Together, those 133 categories account for 56% of store sales. Meat department sales are also strongly connected to sales in many non-fresh aisles, including dairy, pasta, canned vegetables, beverages and household. Nielsen research found a direct correlation between pricing of fresh staple proteins such as beef and pork and complementary center-store products such as pasta, rice, packaged dinners, canned vegetables and condiments. With the center store contributing up to 80% of a grocery store’s economic profit, retailers need to understand and promote this strong connection between the fresh perimeter and center store.

Fresh can drive center-store sales
Retailers and manufacturers have traditionally examined product performance and built category plans based on only an aisle or department. But this is not how shoppers see the store. The isolated view makes it difficult to understand how one part of the store affects another. Through a traditional lens, for example, the recent growth of such fresh products as deli prepared chicken or value-added vegetables and the flat or declining sales of center-aisles staples seem to indicate that certain products are "stealing" sales from one another. But this perception is limiting.

The fact is we’re all total store shoppers. The average shopper spends nearly 80% of his or her grocery dollars on center-store products. Even the most fresh-focused shoppers only spend about 30% of their grocery dollars on fresh. Since shoppers use all the aisles in the store to solve their needs, retailers and manufacturers need to better understand how shoppers connect the dots across aisles for meal solutions and everyday eating ­occasions.

A connection-based view of the store helps retailers and marketers plan beyond a single category and win across consumer needs or meals. Certain categories share a common benefit (convenience, health or craving) or meal (breakfast, dinner or snacking) and can connect across multiple categories by serving the same consumer need. Such benefit- or occasion-based products, called “consistent connectors,” serve as linchpin categories that can raise sales across various parts of the store.

Chicken and beef are examples of consistent connectors. Center-store products frequently found in chicken/pork baskets include barbecue sauce, rice, dry packaged dinners, mac and cheese, marinades, sauces, and seasonings. Center-store products in beef baskets include pasta sauce, Mexican meals, dry packaged dinners, mac and cheese, marinades, sauces, and seasonings. Beef is also closely tied to a variety of snacking products including fresh grapes, salty snacks, and even sweets and desserts in the frozen and bakery aisles.

Orange juice — a consistent connector for breakfast — has a strong statistical association with sales in both preparation (cereal, eggs and breakfast sausage) and immediate consumption (fresh bagels, deli prepared breakfast and fresh donuts) breakfast categories. Retailers can capitalize on orange juice’s role in filling consumers’ needs for both preparing breakfast and grabbing it on the go to drive total store gains for the meal occasion.

Sparkling water has very high affinities with perimeter categories including specialty cheeses, specialty crackers, and organic fruits and vegetables. Offering a premium sparkling water alongside perimeter categories is just another example of creating a consistent connecter between the perimeter and the center store.

Ultimately, total-store connectivity facilitates a unique perspective on how consumers buy across the aisles. With this understanding, manufacturers and retailers alike can leverage their values and shape their stores to better serve consumer needs. Strategic category management in the perimeter can grow related center-store categories by leveraging cross-merchandising opportunities. Leveraging categories with high household penetration and frequent purchase such as dairy can drive shoppers into the middle of the store. Meals that deliver on convenience, great taste, ease of preparation and solid nutritional profiles allow busy shoppers to provide healthy meals with as much ease as picking up fast food.

The fresh perimeter, more than any other department, is the gateway for the store. It allows grocery retailers to showcase fresh in a way that other retailers have a hard time replicating. Bringing the center store out of the shadows and demonstrating consistent connections between fresh and the center store can boost excitement and basket rings for key consumer age groups, and help elevate the shopper experience. Fresh is not killing the center store — it just may save it.

Dave Donnan is a partner and leads the global food and beverage practice of A.T. Kearney, a strategy and management consulting firm with offices in more than 40 countries worldwide. He is based in Chicago and can be reached at [email protected].