Future Retail & Foodservice Opportunities James Degen J. M. Degen & Company, Inc. ...

Future Retail & Foodservice Opportunities

James Degen

J. M. Degen & Company, Inc.

www.Degenconsulting.com

805-434-2400

J. M. Degen & Company, Inc.

Words of Wisdom

“So like Noah said--you’d better wake up you don’t want to get stuck in this zoo. Cause when he leaves the dock he ain’t waiting round for you. Be prepared to change some too.” Boz Scaggs--”Some Change”

J. M. Degen & Company, Inc.

Undercurrents Of Change Food At-Home

Working women Time to prepare Declining skills Decline of

“family meal” Expectations

Food Away-From-Home Labor cost Labor

skill/availability Consistent

quality Safety Menu

differentiation Profitability

J. M. Degen & Company, Inc.

Declining Food Expenditures

11.2%

10.1% 10.2% 10.1% 10.1%

9.00%

9.50%

10.00%

10.50%

11.00%

11.50%

12.00%

1990 2000 2001 2002 2003

U. S. Share of Income Spent On Food

J. M. Degen & Company, Inc.

Shift In Consumer Food Expenditures To Foodservice

59%

41%

51%

50%

47%

53%

45%

55%

0%

20%

40%

60%

80%

100%

1980 1990 1995 2003

Retail/Foodservice Sales Share

At Home Away From Home

J. M. Degen & Company, Inc.

Food Marketing and Consumption Have Changed Forever Demographics Wellness Culture Search For Value Value of Time Channel Blurring

J. M. Degen & Company, Inc.

Demographic Drill Down 78MM Boomers enter new life

Stage--empty nest, retirement 73MM Gen Y’ers are becoming

adults driving new culture cohort 61% of population growth by 2014

due to immigration 34% of U. S. households will be

single person by 2010

J. M. Degen & Company, Inc.

Wellness Culture

Obesity and related heart health and diabetes concerns increasing--world-wide

In 2004 33% of U. S. Adults on a diet 37% of health club memberships held by boomers 32% of Americans dieting for health reasons in

2001 71% of Americans believe that food & nutrition play

a great role in maintaining overall health Increasing consumer interest in digestion/gut health Functional food category is estimated at $16+B Fresh = Healthy

J. M. Degen & Company, Inc.

Search For Value

According to FMI, price is the leading reason for switching supermarkets (32%)

Households most likely to participate in frequent shopper programs is $75K+ (35%)

39% of consumers shop at both Wal-Mart Supercenters and traditional supermarkets. In the South it is 92%

82% of consumers participate in at least one frequent shopper program--93% of consumers over $100K in income

J. M. Degen & Company, Inc.

Value of Time

Convenience culture continues with “time” the currency of 21st century

46% feel more stressed Vs 5 years ago 46% don’t have enough time in the day--

53% of boomers 1/5 of all meals eaten in a car Food prepared away from home continues

to grow Disappearance of traditional meal leads to

more snack meals--4-6 meals/snacks per day

J. M. Degen & Company, Inc.

Channel Blurring

Traditional retail food channels blurring into multiple retail channels offering food

Traditional foodservice channels following similar patterns particularly snack meals

Food becoming a traffic building tactic due to purchase frequency

Value-priced food appeals to value-conscious consumers

J. M. Degen & Company, Inc.

Non-Traditional Channels Impact Retail Food Purchases Wal-Mart--U.S. food/beverage sales $67.6B

(2003) Supercenters Sam’s Clubs Neighborhood Market Stores

Membership Clubs Dollar Stores/Extreme Value Retailers Limited Assortment Stores Convenience Retailers Result: Supermarkets given up competing for

center-store sales

J. M. Degen & Company, Inc.

Supermarket’s Decline In Relative Food Retailing Importance

U. S. Food & Beverage Sales Share 2004

66.9%7.7%

2.4%

6.7%

8.1%

2.8%

2.9%

2.5%Grocery Stores

C-Stores

Drug Stores

Membership Clubs

Supercenters

Discount Stores

Spec. Wholesale-Retailers

All others

J. M. Degen & Company, Inc.

Retail Food Channel Growth Rates

Supermerchants Food & Beverage Sales Average Annual Compound Growth

1994-2004

2.4%6.3% 6.8% 7.7%

23.9%

7.1%

36.6%

3.8%

0%5%

10%15%20%25%30%35%40%

Groce

ry S

tore

s

C-Sto

res

Drug

Store

s

Mem

bers

hip

Clubs

Super

cent

ers

Disco

unt S

tore

s

Spec.

Who

lesa

l...

All Oth

ers

J. M. Degen & Company, Inc.

Foodservice Is Defined By Chains Restaurants account for 63.6% of all

foodservice industry retail sales. Top 100 chains account for 96.3% of all

restaurant sales 96.3% of hamburger restaurant sales 91.3% of all family steak restaurant sales 83.4% of chicken restaurant sales 57.6% of other sandwich restaurant sales 50.7% of pizza restaurant sales

J. M. Degen & Company, Inc.

“The most frequently used culinary utensil is the window control of a car.”--Harry Balzer, NPD

Customer Eating Place Traffic 2002

On-Premise42%

Off-Premise58%

J. M. Degen & Company, Inc.

Retail & Foodservice Opportunities

New retail and foodservice products are going to have to deliver against these changes in consumer definition, behavior and motivation

J. M. Degen & Company, Inc.

Retail & Foodservice Opportunities Foodservice or food “prepared away from home”

an opportunity for companies not already participating

Members of Gen-Y eat out on average 24 times per month--almost once per day (Technomic)

51% of Gen-Y ate restaurant-prepared food growing up “sometimes” or “more often” compared with 12% of their baby-boom parents (Technomic)

“These (Gen-Y) are consumers of bagged lettuce and (healthful)prepackaged meals” (FMI)

“BATH restaurants (Better Alternative to Home), i.e., simple ethnic establishments” (Tim Zagat)

J. M. Degen & Company, Inc.

Rise of Culinology

With most consumers growing up on eating out, food quality expectations and experiences are high

The research chef has joined with the food scientist to create the culinary linkage between the supermarket, foodservice and food processing industries called Culinology

Consumer and foodservice operator demand for nutritionally improved, convenient to prepare foods with acceptable sensory characteristics has created unique challenges for food scientists and research chefs.

Prepared foods must replicate scratch-made quality in flavor, aroma and authenticity

J. M. Degen & Company, Inc.

Retail & Foodservice Opportunities Food Movements

Organic foods “Free range” meats/poultry Artisan foods Vegetarian Slow foods “Locally grown” Pedigreed/heirloom foods

J. M. Degen & Company, Inc.

Retail & Foodservice Opportunities Next Big Food Wave--Pan-Asian

Consumers seeking more variety and new tastes

Bigger and more diverse than Latin Beyond food to the importation of culture Asian foods deliver against many consumer

food demands Healthy Craftsmanship from complex recipes Exotic Fresh perceptions

J. M. Degen & Company, Inc.

Retail & Foodservice Opportunities The “G” word replaces the “C” word Low-carb trend (always a U.S. phenomenon)

fades (Mintel) Other parts of the world look to low glycemic Reduces food intake decisions to a number Can be difficult to understand but can be

simplified for consumers

J. M. Degen & Company, Inc.

International Food Labelling Program

Registered trademark in Registered trademark in Australia/USA/UKAustralia/USA/UK

Foods must be GI tested by Foods must be GI tested by accreditedaccredited laboratory laboratory

Must meet nutritional criteria Must meet nutritional criteria (eg saturated fat, salt)(eg saturated fat, salt)

J. M. Degen & Company, Inc.

Retail & Foodservice Opportunities Recap

Less money spent on food Price motivation to purchase on deal and at

non-traditional channels Food prepared away from home including

foodservice and “restaurant quality” prepared foods

Diminishing consumer cooking skills and limited time to cook

More snacking and smaller portions Foods that travel including dashboard dining

and “Desk-fast”

J. M. Degen & Company, Inc.

Retail & Foodservice Opportunities Recap (Continued)

Weight control foods including the trend towards glycemic testing/labeling, nutrient-dense foods, etc.

Food as medication including Pharmafoods directed at heart health, quality of life improvement, pre/probiotics, etc.

Shift from Western European cuisine to ethnic alternatives including Pan-Asian

Rise of Culinology Demand for “fresh” ingredients that implies

healthy

J. M. Degen & Company, Inc.

Retail & Foodservice Opportunities SUPER TRENDS

Cleaner labels Fewer ingredients Recognized ingredients Natural and organic ingredients Nutritional label claims Natural label claims

Big Flavor Higher consumer expectations Ethnic flavors including regional ethnic

flavors, Latin, Asian New flavors and flavor combinations

J. M. Degen & Company, Inc.

Retail & Foodservice Opportunities Meeting the challenges of clean labels and big

flavor, naturally Multi-functional commodities Fewer processed food ingredients Nutritional and functional improvements Flavor enhancement capabilities Flavor contributions Multiple ingredient forms

J. M. Degen & Company, Inc.

Retail & Foodservice OpportunitiesDried Plums

Composition Fiber Sorbitol Malic Acid No Sucrose Low Glycemic

Index Antioxidants

Benefit Fat replacement Sugar

replacement Antimicrobial

agent Flavor

enhancement Preservation Natural color Extend shelf life

J. M. Degen & Company, Inc.

Retail & Foodservice Opportunities Mushrooms Composition

Low calories Glutamate Fat-free Sodium-free Sugar-free Selenium Low

Carbohydrates

Benefits Consumer

satiety Flavor

enhancement Savory flavor Meat

replacer/vegetarian

Increased value perceptions

J. M. Degen & Company, Inc.

Retail & Foodservice Opportunities Almonds

Composition High protein Low

carbohydrates Glutamate Fiber Vitamin E Low in

unsaturated fat

Benefits Consumer satiety Flavor enhancement Nutrient dense Crunchy texture Baked breading

alternative Protein replacer Increased value

perceptions

J. M. Degen & Company, Inc.

Retail & Foodservice Opportunities Dried Plums, Mushrooms, Almonds

demonstrate multi-functional ingredient benefits Fresh perceptions Replace artificial ingredients Add nutritional improvements Eliminate duplicated ingredients Increase and enhance flavor and texture

characteristics Communicate favorable consumer

perceptions

J. M. Degen & Company, Inc.

Final Words of Wisdom "As you discover changing times

you must have the strength to endure. As you discover a changing world you can't be guessing, you must be for sure. In these ever changing times.” Earth, Wind & Fire

Future Retail & Foodservice Opportunities

James Degen

J. M. Degen & Company, Inc.

www.Degenconsulting.com

805-434-2400