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Attention, Shoppers: Big Changes Loom for Traditional Grocery Stores

Attention, Shoppers:  Big Changes Loom for Traditional Grocery Stores . / Credit: Grocery store aisle image via Shutterstock

There's a major demographic shift under way that seems certain to change the way America shops for food, a new study says. Over the next decade the baton will be passed from one mega-generation to another as the millennials come of age and baby boomers begin to fade into the background. This has the potential to transform where and how consumers shop for food as well as what products they choose.

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, according to a joint study by Jeffries, a global investment bank, and AlixPartners, a global business advisory firm. The study was supplemented by a survey of 2,000 adult grocery shoppers. The results could spell trouble for aisle 5 — traditional center-of-the-supermarket purchases.

The study found that millennials have strikingly different attitudes toward consumption than their   parents and grandparents, which will put great pressure on the model of homogeneous brands provided by traditional grocery stores.

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Based on the most recent projections by the U.S. Census Bureau, millennials over age 25 (the age at which income and household formation typically start to accelerate) will make up about 19 percent of the U.S. population by 2020, up from just over 5 percent in 2010. These 64 million millennials will see a significant spending power increase in the coming years as the median income for those households is expected to jump to more than $45,000 from just over $28,000.

By contrast, the baby boomer generation, which has had an outsize influence on consumer trends for decades, will fall to below 20 percent of the population in the next eight years.

Baby boomers are also set to move out of their peak-earning years into retirement and will be more reliant on fixed incomes by 2016, and their focus will undoubtedly turn further toward lifestyle preservation.

"Convenience is king with millennials — they expect to get what they want, when and where they want it, and they know they have options for both products and retailers. The emphasis on convenience represents a dramatic shift from baby boomers’ priorities, and it also presents big challenges — and opportunities — for companies in the food industry," said David Garfield, managing director at AlixPartners.

"The at-home food industry is just beginning to feel the impact of this major demographic shift as millennials rise in prominence and baby boomers adjust to meet the requirements of age and a fixed income," said Scott Mushkin, managing director and senior equity research analyst at Jeffries. "The bottom line for food-at-home industry stalwarts is that big changes are coming, and companies who don’t fully understand those changes risk being marginalized."

Overall, the study sees a more demanding environment across the food industry value chain. For food companies, there will be greater pressure to deliver more for less — fresher, higher-quality product, with more choices and more convenience in a shopping environment where consumers are becoming less brand-loyal and more inclined to shop across channels.

This will require food companies to be more nimble, with more innovative product development, leaner supply chains and more effective use of marketing initiatives, the study said. For traditional grocers, there appears to be a need to redefine their model, focusing on perishables while engaging or re-engaging customers in the center store. 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 on-line purveyors of everyday items, the study found.

Reach BusinessNewsDaily senior writer Ned Smith at nsmith@techmedianetwork.com. Follow him on Twitter @nedbsmith.We're also on Facebook & Google+.

Ned Smith
Ned Smith

Ned was senior writer at Sweeney Vesty, an international consulting firm, and was Vice President of communications for iQuest Analytics. Before that, he has been a web editor and managed the Internet and intranet sites for Citizens Communications. He began his journalism career as a police reporter with the Roanoke (Va.) Times, and was managing editor of American Way magazine and senior editor of Us. He was a Captain in the U.S. Air Force and has a masters in journalism from the University of Arizona.

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