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Are Grocers Misjudging the Fresh Foods Opportunity?
A Deloitte study finds grocery executives underestimating the premium consumers are willing to pay for fresh food and the importance they place on fresh food’s nutritional benefits.
The survey of 2,000 U.S. consumers in July found that price continues to be the main consideration for fresh food purchases, cited by 93%. That was followed by personal health and wellness (86%) and convenience (84%).
On health benefits, 91% believe a wholesome diet includes fresh food. Of the respondents, 83% think fresh food minimizes the risk of chronic health conditions and disease, and the same number believe it contributes to weight loss.
Despite their price concerns amid inflationary pressures, 68% of consumers said they are willing to pay a premium for the “best fresh food,” up 7 percentage points year over year and similar to 2021 levels. On average, these consumers are willing to pay 28% more for fresh food than frozen, canned, or processed alternatives. If the fresh food they’re purchasing is also considered sustainable, the average premium lifts to 30%.
An accompanying survey of 100 U.S.-based executives from larger grocers (with over 10,000 employees) found skepticism. Of the retail respondents, only 19% believe consumers would pay more for sustainable fresh food at an implied average premium of just 12%.
With price rising as a key priority, grocery retailers were also found to be overestimating the importance of other purchase drivers of fresh food.
For instance, 47% of consumers agreed organic was either “important” or “very important” in the context of fresh purchases, while 94% of grocers felt the same about their typical customer. Among other purchase drivers, the responses measuring their importance were: locally grown/sourced, consumers 60% and grocers 93%; non-GMO, consumers 54% and grocers 85%; and environmental sustainability, consumers 63% and grocers 90%.
Also, 64% of the surveyed consumers believe fresh food can act like medicine, while only 40% of the executives think consumers would hold that belief.
“As price continues to be at the top of everyone’s grocery list, the health and wellness benefits of fresh food are clear,” said Daniel Edsall, global grocer leader and principal at Deloitte, in a statement. “However, the industry may be overestimating the importance of other purchase drivers. Understanding consumer behavior and preferences when it comes to organic, locally grown and sustainably sourced fresh food can help grocers differentiate themselves from the competition, not just on price, but as a trusted source of information.”
Packer’s Fresh Trends 2023 consumer survey found that if price “was not an issue,” 50% of consumers would buy organic produce (31% typically buy it) and 54% would buy locally grown produce (36% typically buy it).
When asked, “How does your desire for healthy options weigh in against your food budget?” Packer’s survey found:
- 21% said, “I buy whatever is healthy regardless of the price.”
- 31% said, “I prefer to buy what is healthy and do so when I can get a good deal.”
- 16% said, “I prefer to buy what is healthy, but it’s too expensive so I do so rarely.”
- 32% said, “I buy only what I can afford.”
Discussion Questions
Does it make sense that the highest appeal of fresh foods is centered around personal nutrition rather than products being organic, locally grown, or sustainably sourced? What insights may the findings indicate about pricing and marketing in the fresh foods category?
Poll
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Mark Self
President and CEO, Vector Textiles
Richard J. George, Ph.D.
Professor of Food Marketing, Haub School of Business, Saint Joseph's University
I believe that as you go down or up the socioeconomic ladder, you are going to find people more or less willing to buy fresh food, and potentially pay a premium for it, period. regarding personal nutrition as a message as opposed to, say, organic, I believe that is a winning strategy…organic, local, sustainable are strong messages however they need to be linked to health benefits, otherwise they are at risk of becoming just another way to virtue signal.
First, I don’t think retailers are missing the fresh food opportunity. At most grocers fresh foods occupy a premium position in store and have always been a key element of communicating quality. Second, while people say they will pay more the reality is often that they will not. Most grocers have a strong organic offer which is clearly labelled, and not everyone is willing to trade up to it. The benefits of fresh food are obvious, but yet many will continue to opt for cheaper processed alternatives. Once again, behavior is very different from the boxes people tick in a survey.
I would agree that retailers are not missing the fresh good opportunity. Inflation is also playing a part in the actions shoppers are taking in today’s environment. In our research, 22%, up from 15% a year ago, are purchasing food for home that is less healthful but also less expensive. Further, 16%, up from 12% a year ago, are buying fewer organic items and products to cut costs. So in our study, I think the boxes ticked more accurately reflect what people are actually doing (not withstanding your assessment of survey box ticking).
Quality fresh food is an important differentiator, organic or not. I have a Stop & Shop 7 minutes from my house and another one 15 minutes from my house. If I am making a quick run that only includes CPG product, I go to the closer store. When it’s a full shopping I go to the store 15 minutes away. They always…always…have better fresh fruit and veggies. It’s a little weird, but after a while it became an obvious pattern. It’s more time consuming, but now that I cook for myself every day quality fresh food is important. Nutrition is important…finally. That was not always the case as I lived life up through younger stages.
For a study like this one, the insights are in the cross-tabs. The salient question is not, “How many consumers are fresh food motivated?” It’s “Which segments of consumers prioritize fresh food consumption.” My hypothesis is that the answer is primarily socio-economic.
The Fresh Food option haws always been there. The retailer needs to go all in since Fresh covers a broad spectrum of foods. The investment will be offset by the loyalty of those customers, who are looking for affordable fresh foods for their family.
Nutrition is the highest appeal but the hardest to communicate. Posting a locally sourced sign that speaks to the fact that these carrots were sourced 20 miles hits home very easily for many shoppers. Speaking about the healthiness of products is more nuanced because people have different nutrition needs and also may have natural deficiencies that they need to address.
Whole Foods used to score all of their produce by the nutrient density, 10 years ago or so. This may appeal to a certain niche of consumers but can be hard to explain if a consumer doesn’t want to do the work to understand the scoring or new labeling that a grocer is trying to use for education.
Obviously, more data is needed and perhaps an ongoing conversation with your customers is a start. As we become more automated with AI, I believe we also need to use some of those resources to be more consultative in food education. A dietician’s insight and guidance can help incorporate shopper insights and nutritional expertise to make these plans work for the shopper.
Price sensitivity will always be an important consideration in grocery shopping, no matter the format or go-to-market approach. Shoppers will pay less for lower-to-average quality, and more for better quality. Making a compelling case to buy fresh, even higher quality fresh, still requires a feature foundation of where the ingredients come from, where its grown or even upside in nutritional content. But the real appeal to change shopper assumptions about fresh is taste. Customers can taste how fresh it is, how good it is, and whether it’s the real thing – and that’s how they are ultimately moved or convinced.
Some shoppers lean toward nutritional benefits, others to organic and still others to locally sourced. The key is that grocers want to create the best shopping experience in their trading area. They can’t distinguish themselves with cans, packages and bottles of products because every store has the same. But outstanding produce — for whatever reason shoppers prefer — is the golden opportunity. What store wouldn’t want to be known as having the best produce in town?
The willingness of customers to pay higher prices for groceries is always overstated in consumer surveys. There is a significant disconnect between intent & actual purchase price behavior. That being said, there is an opportunity to merchandise fresh based on many of the criteria noted in the article. Plus, the more grocery stores morph into meals, the greater the opportunity to combine fresh products with what’s for dinner.
Consumers say that , do they. Methinks only a fool would base their decisions (solely) on what people say. Or Deloitte, apparently
Studies that generalize consumer behaviors and opinions are often difficult to apply blanket application to a single retailer. I applaud executives who are aware of consumer.sensitivity on price, regardless of the category. At the end of the day, price is a determining purchase decisons for more consumer vs not.
Further, most retailers don’t need to work very hard to convince consumers of the nutritional value of fresh foods. What would be helpful is to convince consumers that fresh foods are good quality, affordable and that taking small steps toward integrating fresh food into everyday life can make a big difference.
Sustainable, organic and non-GMO are all different types of fresh foods. It’s tricky to assume one of these attributes is more important vs the other for any one consumer. These attributes are based on values. The underlying value is fresh foods are nutritious. It’s good to start there.