FEBRUARY 2005 Times & Trends Executive Summary:
2004 U.S. CPG Industry Year in Review

With dollar growth of 2.4% across food, drug and mass channels including Wal-Mart (FDMW) and flat sales excluding Wal-Mart (FDMx), 2004 was a lackluster year overall for the U.S. CPG industry.

The year was characterized by shifts in spending more so than real industry growth: supercenters and dollar stores continued to grow at the expense of traditional channels, low carb products grew at the expense of higher carb products, and heavy price increases on staples (eg. milk, eggs) took a toll on sales of other “non-essential” categories such as general merchandise.

However, there were several bright spots revealing positive momentum across key categories, including low calorie/light products, natural/organic products, several healthcare categories and convenient cleaning products.

This report provides an in-depth analysis of 2004 performance, the underlying consumer trends driving spending shifts -- value, health and wellness and convenience-- and likely growth opportunities in 2005 given where the trends are headed.

This free summary is also accessible via the GMA Web site  at http://www.gmabrands.com/publications/gmairi.cfm

Here’s a summary from the brief:

2004 CPG INDUSTRY PERFORMANCE OVERVIEW

Dairy and Deli Categories Lead Food and Beverage Growth. Total food and beverage FDMW dollar sales increased 3.7% in 2004; this increase was largely driven by growth in the dairy (+7.8%) and deli (+6.4%) departments, which benefited from substantial price increases, low carb diet trends and a general movement towards products with health benefits. With price increases expected to moderate in 2005, food and beverage product growth will likely slow.

Total Non-Food Sales Flat As General Merchandise Declines Continue. Overall, non-food FDMW dollar sales were flat in 2004. Modest growth in health and beauty care (+2.1%) was offset by continued declines in general merchandise categories (- 6.3%). Plagued by intense category competition, growing obsolescence of some products and competition from alternative channels, such as specialty stores, nine of the top ten general merchandise categories lost dollar sales.
 

DRIVERS OF GROWTH: VALUE

Value Channels Continue to Gain Shoppers and Visits. Consumers’ quest for value continued in 2004 – aided by ongoing supercenter and dollar store expansion. More consumers shopped within these channels, and shoppers across all value channels significantly stepped up their number of visits. As a result, there are fewer shoppers in traditional outlets and those who do shop visit less often. In fact, the supercenter phenomenon has led to fewer shopping trips overall, which means less opportunity to influence consumer purchases in-store.

Private Label Volume Share Declines. Significant price increases in private label products (particularly staple categories) resulted in slight dollar share growth but declining volume share growth across channels. A closing price gap combined with increased availability of branded products at discounted prices in value channels may continue to drive private label volume share down

DRIVERS OF GROWTH: HEALTH & WELLNESS

Food and Beverages with Weight Management Benefits Earn Strong Growth. Consumers’ efforts to manage weight, chronic conditions and general well-being through diet drove sizable FDMx dollar sales gains across brands offering low carb (+144%), low calorie/light (+7.1%) and low fat/lean (+3.2%) benefits. While the low carb diet craze has already peaked, expect continued steady growth in low calorie and low fat products as consumers replace more extreme measures with healthy, balanced eating.

Natural and Organic Foods Go Mainstream. With 94% household penetration, the natural/organic segment has become mainstream. Both the total natural/organic market and the more specialized organic products subsegment achieved strong dollar growth (+ 9.5% and +15.9% respectively). While repeat rates for the segment as a whole are very high, organic product repeat buying rates, at 65%, have room for improvement. (Source: IRI/SPINS)
 

DRIVERS OF GROWTH: CONVENIENCE

Convenient Meal Solutions See Mixed Results. Mixed results across convenient meal solutions highlight the complexities of major trends colliding, as diet trends, particularly low carb, took precedence over convenience for some consumers in 2004. (For instance, shelf stable dry dinner mixes which tend to have high carbs, declined 6.3%). Across food and beverage categories, manufacturers and retailers will need to carefully assess dietary needs of their core consumers to determine the appropriate portfolio/assortment mix of convenient foods meeting specific dietary requirements.
 

Source: IRI's Times & Trends Reports
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