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April 14, 2009

Mintel research points to downturn upside

Some food sectors are coping with the recession better than others, while it is even providing opportunities for growth in some areas. With help of market researcher Mintel, Ben Cooper looks for the recession-busting categories, and asks whether trends set during the downturn will endure.

Some food sectors are coping with the recession better than others, while it is even providing opportunities for growth in some areas. With help of market researcher Mintel, Ben Cooper looks for the recession-busting categories, and asks whether trends set during the downturn will endure.


The suggestion that food does better than other consumer markets during downturns may be the ultimate truism. People have to eat; unlike a new car or a holiday, food is not a discretionary purchase. Hardly the most earth-shattering observation. But beyond that simple truth, there are some interesting nuances. Moreover, according to market researcher Mintel, some categories are actually prospering during the downturn.


Mintel has reviewed its research on the US market for the past two years in the light of the downturn in the economy, and has found that, as a result of the trend towards dining out less and consumers looking for value, certain sectors not only appear “recession-proof” but are being “recession-fuelled”.


Among these categories is bread, which was originally predicted to grow by 2.1% in 2008 but has in fact risen by 7%. Mintel now forecasts higher growth for bread through to 2013. Recessionary pressures are also boosting sales of sweet spreads, with many people switching back to packed lunches. Rising sales of peanut butter in particular are expected to drive a 26% increase in sweet spread sales between 2008 and 2013, against Mintel’s original growth prediction of 12%.


The downturn has also breathed new life into the frozen food sector, forecast at one stage to decline by 0.3% in 2008 and now expected to have shown 4.5% growth. Other gainers are prepared side dishes and coffee, both boosted by the increase in home dining.


Bill Patterson, senior analyst at Mintel, sheds some light on why certain prepared foods should receive a boost by people deciding to cook at home more often. Patterson points out that the US consumer eats out a lot more than those in many other countries, but “the problem is that when you stop eating out it doesn’t mean you can turn into a cook.” Mintel expected the side dish category to grow by 2.3% in 2008, but in fact it increased by more than 5%.


Patterson says the increase in home consumption is behind many of the growth trends that have been observed. For example, a surge in sales of pancake mix is in part down to families opting for home-cooked breakfasts at the weekend rather than going out, while pancake mix is also often used as a base for biscuits and for chicken pot pie, home-cooked favourites of American families.


By the same token, the increase in frozen foods has largely stemmed, Patterson believes, from the decline in eating out. Unlike in the UK, he adds, the frozen sector has not taken share from prepared chilled foods, which remains an “embryonic” market in the US.


The fact that the recession may offer growth possibilities for some brands is refreshingly positive amid the gloom and despond. But the key question for analysts is which, if any, of the trends we are seeing will endure once the economy recovers. Can recessions shape trends?


In many instances, Patterson says, the growth related to trading down and eating out less will not continue. Such products, he tells just-food, are being “boosted by recessionary pressure and when that recessionary pressure is off we can’t see that level of growth being sustained. So what we’re saying to manufacturers is grab that opportunity while you can. Do whatever you can to get brand loyalty.”







However, one area where the recession may lead to a long-term change in consumer behaviour is in shopping destination. “We’ve definitely seen a huge surge in sales through the mass-merchandisers and the club store-type outlets,” Patterson says. “And the interesting thing about that is that you’re not sacrificing a lot in terms of quality for a number of foods you’re buying when you go to these stores. I’m not quite sure when the economy picks up whether they [consumers] are going to go back to their old ways. I think there will be some stick to this.”


While the recession continues, however, there remain growth opportunities for food companies, not least in product categories which allow consumers a little indulgence. While major purchases are being deferred, Patterson suggests the “treat factor” during such periods is important. For example, Mintel expects that sales of small packs of premium chocolate will not suffer during the downturn. “You might put off buying a car but what you spend on basic food for the family isn’t such a big share of your income that you have to make such drastic changes,” Patterson adds.


Moreover, in many instances consumers do still have the money available to spend, but are simply choosing not to because of financial uncertainty, Patterson continues. What marks out the winners and losers among brands is being attuned to how consumers are thinking about their food buying, and above all offering value.


“Value is the real issue now. There is still a vast proportion of the workforce that continues to work, continues to get a salary and the impact on that group of people is more a perception rather than reality. In other words, they see everything going pear-shaped around them, they know their jobs are in danger but their circumstances actually haven’t changed hugely. But they’re going to change their spending patterns because they want to start saving more. The US savings ratio has increased dramatically.”


The idea that food holds up better during downturns may be based on the rather basic notion that people have to eat, but Mintel’s research underlines that within the market there remains, as Patterson puts it, a “huge amount” of discretionary spending, and even amid the gloom there are opportunities to exploit.

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