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How CPG and Grocery Can Thrive When Eating Out Is In

How CPG and Grocery Can Thrive When Eating Out Is In

In 2016, the amount Americans spent on dining out surpassed the amount they spent eating at home for the first time. With more than one million restaurant locations to choose from and a rebounding economy, it shouldn’t be a surprise that this is the case. Grocery and CPG companies want to reestablish their position in the market and combat this behavior. Below is a brief overview of this change in consumer behavior and look at the future of meal delivery as the solution.

Driving Factors

There are multiple factors that could lend themselves to the behavioral shift in American eating out. It’s a long-term trend with a number of causes. The rebounding economy makes people more comfortable spending money on the convenience of dining out, although some will point to the growing number of women in the workforce. There’s also the rise of fast casual dining, which tends to steal market shares, and disruptive food delivery services like GrubHub and Seamless. Then there are Millennials — our largest generation, with the highest expendable income — who spend 44% of their food budget on eating out (roughly $2921 annually, the most of any generation), which they do more than three times weekly. By contrast, other generations eat out less than three times weekly (2.8), and Boomers specifically only spend 40% of their budget eating out (about $2629 annually). In addition, adults tend to be time-starved (especially parents), and you have a multitude of factors that culminated in nearly $54.9 billion being spent on food from bars and restaurants and only $52.5 billion spent on groceries.

Impact to CPG and Grocery Markets

The leading factor that has a corresponding and direct impact on grocery/CPG is the price of food. The number of trips to the grocery store didn’t particularly change, but thanks to the low rate of inflation on food in particular, grocery prices remain low. In some cases, there was even deflation, dropping food-at-home prices by 1.6% from the year before. Previously, food retail prices always rose year-over-year about 4% annually. For some categories, like eggs, meats, and dairy, commodity production rose in 2016, which in turn lowered prices. Other production factors, such as transportation costs, were also cheaper, further depressing the cost of such commodities. In a few cases, prices stayed flat (vegetables) or rose slightly (fruits, “other foods” CPG products), but that wasn’t enough to counter the falling prices across other categories. Suffering prices were further exacerbated by the fact that many supermarkets were already caught up in Walmart’s race to the lowest price. This means that while their grocery habits remained the same, shoppers had even more disposable income to spend elsewhere, such as spending more when they chose to eat out.

Groceries and CPG Can Win Customers Back

Fortunately, there’s no indication that eating out more often actually means shopping for groceries significantly less, since the reason relies on more money to spend on extras and not a decline in what shoppers are buying. That means grocery and CPG companies should add value to the shopping experience to win those extra dollars. One of the best ways is to actually enter and conquer the “away from home” category. This includes expanded food courts in the grocery store, but it also means leading the way in convenience with meal kits.

Restaurants and grocers alike may look at meal kit delivery services as a threat, and that’s somewhat understandable. However, those services have struggled to make a profit despite the fact that one in four adults have purchased a meal kit (either in-store or for delivery), and of those, 70% will continue buying them after their initial purchase. This is a prime opportunity for grocery and CPG to step in and leverage the kind of structure, diversity, price, and convenience that the current services can’t provide. Some stores are already providing meal kit options: Fresh Direct and Good Eggs (both e-commerce grocers) provide kits for delivery, while Publix and Giant-Carlisle offer them on the shelf. Some grocery delivery services are partnering with CPG companies to create meal kits, as well; Peapod has partnered with Barilla to provide meal kits that utilize fresh vegetables and pre-portioned pantry items with a focus on Barilla products. Even partnering with a meal kit service could help bring those food dollars back to grocery stores — Purple Carrot has started selling limited kits in Whole Foods.

Eating out may be the new eating in, but eating at home isn’t down for the count. The future of meal delivery is really in the hands of grocery stores and CPG companies that can afford to provide diversity in their services while continuing to add value. In fact, trends from earlier this year indicate that these companies have already begun to provide the type of fierce competition needed to do just that. Treating this shift in behavior as an opportunity to rethink and revamp your approach, rather than a threat, will make your business stronger in the long run.