Confectionery companies will need to adapt to a rapidly changing retail landscape as ethnic minorities lead population growth in the developed US market.
Addressing the NCA state of the Industry Conference in Miami, Dan O’ Connor, president and CEO of insight and advisory firm RetailNet Group, said: “The marketplace of tomorrow in the US, Japan and Canada is going to look very different to the market of 2000.”
He said that highly developed countries currently accounted for two thirds of global consumption, but as 600 million people are to be added to the world from 2013-2020, the retail expert said that developed nations would cease to be the force they once were.
‘Two different worlds’
According to O’Connor, the retail market is expecting an extra $15.8 trillion sales from 2013 to 2020 in a very optimistic forecast, but developed markets are only expected to make up 16% of all additional retail sales.
“One of the reasons for that is the very slow population growth rates. Very slow population growth translates into slow retail sales growth,” he said.
“Growth in these markets will be people moving up the social economic scale – the same shopper spending more.”
While the US and Europe lag, Colombia, Mexico, China and other developing markets will account for 84% of retail sales growth up to 2020, according to Retail Net. “We have a picture of two different worlds,” said O’Connor.
Ethnic retail growth
He added that a growing population of ethnic minority groups in the US would have a major impact on taste preferences.
From 2013-2020, the white population in the US is projected to grow 10%, the black population by 16%, Asian by 15%, and Hispanic by 53%.
“What this sets up for brands is a very fragmented food profile,” said O’Connor.
He said this would mean a very different mix of stores. While premium and value retail are currently growing quickly, ethnic retailers, which buy big brands from their home market and don’t stock national brands, are outperforming both. O’Connor said this would lead to smaller store networks across the country.
“The number one driver of growth is not just the number of people, it’s their liquidity and the number one driver of liquidity is employment,” continued the CEO.
Employed people have greater spending power and are more likely to spend hard earned dollars on confectionery.
The number of employed in the US is currently 43.1% and 45.6% in the UK. In developing nations, the rate is in some cases higher such as China (56.6%), but other countries have around the same rate as the developed markets such as Mexico at 42.7%.
O’Connor said the confectionery industry should look to employment rate forecasts to spot potentially volatile or attractive markets.
He continued that the average age of consumers in the developed world was increasing in nations such as the US (37) and Japan (45). But in markets like Brazil (30.5), consumers were moving into their peak age of consumption.
“Aging really changes the outlook in terms of how many consumers we can sell merchandise to,” said O’Connor.
Some US states have high average ages such as California, giving confectioners a smaller addressable market, because as retired people “you’ll be on a Disney cruise,” said O’Connor.
No middle, not even squeezed
He said that in the last 30-40 years in the US, the percentage of households in the middle had fallen and great numbers had moved to the higher end of the market. “There’s no middle. The middle compresses.”
O’Connor said that retailers and brands had to market across the spectrum and not only in the middle, adding that consumer retention was now more important than acquisition.
He said that the number of units sold was probably not going to rise, so retailers and brands needed to work on the mix and margins.
O’ Connor also spoke about how technology was changing the in-store environment that could perhaps spell the death of the traditional checkout, a key impulse channel for candy companies. ConfectioneryNews will look at the technological drivers later this week.