Millennials are on their way to replacing Boomers as the biggest consumer group and and the change is likely to cause havoc for grocers, according to the study, Trouble in Aisle 5, from Jefferies, the investment bank, and AlixPartners, the advisory firm.
The challenges for food sellers will start peaking in 2020, when Millennials over the age of 25 (the age at which income and household formation typically start to really accelerate) will make up roughly 19 percent of the U.S. population and their food-at-home spending amounts to $50 billion annually. By comparison, annual at-home food spending by Boomers could fall by as much as $15 billion.
The potential problem is that Millennials have "strikingly different" attitudes toward consumption versus Boomers.
"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," said David Garfield, managing director at AlixPartners and head of the firm's Consumer Products Practice, in a statement.
Millennials are also much less loyal to both food brands and traditional grocery stores, and much more willing to explore different distribution models (online shopping, mobile shopping, delivery, etc.) and spread their shopping across different channels (mass merchants, clubs, drug stores, convenience stores, online, etc.)
According to an accompanying survey of 2,000 adult grocery shoppers over the age of 18, 47 percent of Millennials stated brands were "extremely" or "somewhat" important in their purchasing decision for groceries, compared to 61 percent of Baby Boomers. Similarly, only 41 percent of Millennials' total food spending is at traditional grocers, compared to 50 percent of Baby Boomers' spending.
Finally, at least in their younger years, price is most critical for Millennials. Among Millennials earning less than $20,000 per year, 75 percent cite price as "extremely important." As income rises, attributes such as product quality, healthy and natural/organic increase in importance. Broadly, the study also found that Millennials require a smaller discount to purchase private-label products versus Boomers.
For traditional grocers, the study finds that 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," said AlixPartners/Jeffries' statement. "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."