• by Jack Loechner , Staff Writer @mp_research, June 2, 2017

According to a new study from Nielsen, the report shows that U.S. grocery retailers and some of the country’s largest fast-moving consumer goods (FMCG) manufacturers, have gotten off to a rocky start this year. Growth in the first three months of 2017 was slow for many categories across the store, and as a result, manufacturers have trimmed their once-plentiful marketing and advertising budgets.

The softness and slowed growth clearly illuminates how the U.S. retail landscape is in the midst of the fastest transformation it has seen in modern history. Within the first quarter of 2017 alone, sales of FMCG at U.S. brick-and-mortar retail stores were nearly $3 billion lower than in the same period in 2016.

Total Store Sales Contracted $3 Billion in First Q, 2017

• Sales Q1, 2016        $202B
• Sales Q1, 2017        $199B

Source: Nielsen AOD/FreshFacts, May 2017

Several factors are at play when comparing first-quarter 2017 to the same period last year, says the report:

• Easter, a major consumer shopping moment, occurred nearly three weeks later this year than in 2016. And that lag has had a notable effect on the FMCG market, says the report. Nielsen data for the past five years shows that roughly one-third of the total decline in the first quarter was attributable to the fact that Easter landed in April, which subsequently pushed dollar sales associated with the holiday into the second quarter.
• The reduction of general prices in the economy (price deflation) has eroded the potential benefit of some of the brightest spots across the store. Despite an increase in overall volume in produce and deli, both of these departments saw significant drops in pricing in the first quarter of 2017. When adding in the smaller price deflation in meat and dairy, that number jumps to $700 million, roughly one-fourth of the total decline, says the report.

The FMCG downturn hasn’t been isolated in the dairy aisle, says the report. Other food categories, like fresh meat and produce, were strong contributors to growth just a year ago. However, due to overall deflationary pressures, the fresh meat and produce categories have been affected by commodity deflation.

While more than half of the total decline came from Easter and deflation, says the report, consumers’ changing preferences are also affecting growth. Consumers’ growing focus on health and wellness is directing them toward healthier foods from the fresh department; they’re exercising dietary diligence and buying less dairy, especially yogurt and cheese.

Consumers are also swapping center store grocery and frozen foods to produce and deli, buying more fresh and prepared items over the last few years. The $332 million declines in frozen foods account for nearly one-tenth of total declines.

Lastly, consumers’ preference for e-commerce is shifting volume, especially in pet, beauty and general merchandise, which are all found in the center store aisles. Instead, categories like pet care are garnering more than 80% of the category’s overall sales growth online, says the report.

But despite what might seem like an overly gloomy scenario for the U.S. retail industry at large, says the report, there are still opportunities for growth across the store. Because deflation has been so significant, it’s actually masking healthy growth trends, such as the maturing, long-term shift toward fresh foods and consumers’ relentless focus on transparency. Most of the deflationary categories actually align well with healthy eating trends. As prices rebound, and many have started to rebound in the second quarter, these short-term headwinds will reverse course, suggests the report.

The report concludes with the real question that asks how are manufacturers and retailers addressing the more systemic shifts in changing consumer preferences across health and wellness and online channels?

For additional information from Nielsen, please visit here: