NEW YORK — A new report from Rabobank, a Dutch cooperative bank focused on food and agribusiness with a dedicated research team, revealed that in Q2, the foodservice sector experienced notable declines across all formats and grocery spending growth was slower than expected. Findings were based on credit and debit card transactions from Earnest Analytics.
Analysts expected food retailers to experience a bump in grocery spending growth as consumers increasingly choose to make meals at home vs. dining out. However, that positive impact has yet to fully materialize.
“We are seeing both opposites of the value spectrum benefitting from the current environment: private label and value brands gaining the preference of cash-strapped consumers, and premium becoming the go-to for those reducing eating out,” said JP Frossard, VP of consumer foods at Rabobank. “Products in the middle of this value spectrum, such as undifferentiated branded products that can be easily replaced with private label and that don’t return the same pleasure as premium products, are suffering the most. It is a tale of the two extremes, with most pressure being felt in the middle.”
Discount retailers and club stores are holding their own
Frossard added that discount retailers and club stores, which tend to be heavy in private label offerings, fared well as consumers search for value, although both channels reported slower Q2 growth.
“In addition to the search for value, new format discounters such as Aldi and Lidl managed to become more available for consumers, mostly because of a strong new store opening pace,” he said. “Interestingly, at the same time the frequency of visits for discounters has increased double digits in the past years, the average basket dropped, which indicates consumers are going more often to discounters for everyday needs and fresh products versus a monthly trip for in-bulk purchases.”
Yet, it’s not just private label brands that are holding their own. Consumers have shown they are willing to spend more on premium baked goods to elevate their at-home meals or offer health and wellness benefits.
“The fact the premium is doing well is great news for a category like bakery that has so much opportunity to add value, from healthiness to elevated indulgence,” Frossard said. “Price has always been — and will continue to be — essential for staple products but balancing it with premium brands and products has proved to be a winning strategy for many players despite — or owing to — inflation and consumers’ willingness to maximize utility for each dollar spent.”
“We are seeing both opposites of the value spectrum benefitting from the current environment: private label and value and premium brands gaining the preference of cash-strapped consumers, and premium becoming the go-to for those reducing eating out.”
— JP Frossard | VP of consumer foods | Rabobank
What’s in store for Q3
As for what the future holds, Frossard noted that the price gap between dining out and eating at home is widening, with menu prices at 4% inflation while grocery inflation remains nearly flat.
“We don’t see it changing in the near term as foodservice remains pressured by higher rents and wages,” he added. “Consumers still need to eat, so we believe groceries and home cooking will benefit from consistently more expensive eating out. We expect to see some progress in Q3 and the following quarters, as foodservice has more complex work ahead to regain visits and overall spending in the current economic environment.”
Download the full report from the Earnest Analytics website.
