Rise of Millennials/Aging of Boomers to Transform Food-At-Home Industry

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The entire traditional food-industry value chain is likely to undergo enormous transformation over the next few years due to changing consumer demographics, according to new research from AlixPartners and investment bank Jefferies.  The confluence of changing demographics, economic factors and customer preferences has the potential to create a long-term disruption across the food-industry value chain that will transform where and how consumers shop for groceries, as well as what products they choose.

The root cause of the impending transformation lies in changing demographics. Over the next decade, the baton will be passed from one mega-generation to another as "Millennials" (born between 1982 and 2001) come of age and "Baby Boomers" (born between 1946 and 1964) enter the next phase of their lives and spending patterns. As a result, established food brands and traditional grocery stores will be pressured at both ends by sets of consumers with very different value equations.

"Millennials clearly present significant challenges, and food makers and traditional grocery retailers need to start making changes now to address the emerging needs of this demographic group, as in many ways we're just in the second inning of this ball game," said Scott Mushkin, managing director and senior equity research analyst for food and drug retailing and packaged food at Jefferies.

  • CONVENIENCE IS KING AMONG MILLENNIALS.  The study revealed that Millennials have strikingly different attitudes toward consumption than their Baby Boomer parents and grandparents, and are much more open to branching out from traditional grocery stores to other channels such as convenience stores.
  • LESS BRAND LOYALTY.  Of the Millennials surveyed, 47% stated brands were "extremely" or "somewhat" important in their purchasing decision for groceries, compared to 61% of Baby Boomers (a 23% decrease). Similarly, only 41% of Millennials' total food spending is at traditional grocers, compared to 50% of Baby Boomers' total food spending (an 18% decrease).
  • MORE PRICE-SENSITIVE.  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% at this income level citing price as "extremely important."

Although Millennials are more price sensitive than Baby Boomers, they are 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% of Millennials surveyed said they are willing to pay more for natural/organic products, compared to only 43% of Baby Boomers who said the same.

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 online purveyors of everyday items, the study said.

[Source:  "Trouble in Aisle 5."  AlixPartners/Jefferies.  27 June 2012.  Web.  13 July 2012.]