US Pacific Northwest:
National Consumption Trends and Opportunities

By Agriculture and Agri-Food Canada

In a recent report titled ‘Overview of the Retail Grocery Market in the Pacific Northwest United States’, the government of Canada highlighted the market traits and potentials for keen Canadian exporters. This article offers excerpts related to key consumer trends.

Before the economic downturn in the US, grocery retailing was forecast to grow five percent from 2008 to 2010; however that has now been revised to slightly more modest growth of four percent. While retail sales of numerous other products decreased significantly from January 2008 to February 2009, food and beverage store sales increased almost US$600 million. This dichotomy has resulted in retailers that are less grocery-oriented and have a larger product mix, such as Wal-Mart and Target facing more difficulties than “full retail grocers” such as Kroger (Euromonitor International, April 2009). Nonetheless, discounters and dollar stores have also been weathering the current economic environment better than other-focused stores, as they appeal to thrifty consumers looking for value, deals and price cuts.

While expansion plans in the supermarket sector have been diminished, (Smith 2008), food preparation and consumption at home has been increasing as consumers have been cutting back on eating out. Other changes in behaviour have seen decreases in purchases of premium brands and impulse buys, while movement toward generic private-label brands has increased. However, some of these behaviours are believed to be a result of not only the economy, but also other shifts such as health and wellness, that are expected to continue in the future (Van Riper, 2009). To-date consumers have not returned to their pre-2007 habits and experts believe that recent events were in many ways a wake up call, not simply a blip in long-term consumer habits. Progressive Grocer predicts that events to watch in the retail grocery industry in 2009 will be increasing price wars, growth in private label programmes, and a decline in store openings and expansions (2009).

The information contained in this report takes into account the economic situation and the forecasts available during this time period, but information will be further updated once long-term stability returns to this key market.

Healthier Options

As the number of Americans with health problems and/or a general concern for living a healthy lifestyle grows, dietetic, better-for-you, functional, and high quality products are projected to see strong growth. Retailers continue to introduce products with reduced fat, sugar and salt content; added vitamins, herbs or nutraceuticals; and those that are portion-controlled or cholesterol-, gluten- and lactose-free. With a number of consumers turning to healthier and more affordable meals at home, product opportunities will continue to grow for manufacturers. In fact, 91 percent of Americans reporting that they eat healthier at home in comparison to dining out (FMI).

Larger-Sized Formats

The trend toward healthy eating in the US is significant, but it fails to offset the traditional perceived value and popularity of products promoted with larger product packaging and larger product portions. As much as healthy eating is a trend amongst the average consumer, the effort to eat healthier could easily be described as casual, with healthy eating choices being incorporated into less than healthy diets. While dieting consumers are huge targets, this is not a growing segment of the population; the percentage of adults on a diet in the US has decreased significantly since 1990. A wide range of larger-sized products are available in the American retail grocery market and include product lines such as Hungry-Man's pre-packaged high-calorie dinners which are marketed to individuals with larger appetites. Many snack foods, such as potato chips and cookies, are also commonly offered in larger-portion formats.

Increasing obesity rates within the US may indicate that demand for super-sized products is growing. The national obesity rate increased to 26.3 percent in 2007 from 16.5 percent in 1997. Obesity rates are slightly lower in the Pacific Southwest region than nationally, which may suggest stronger regional demand for fresh and healthier products.

Ready-made Meals

The American ready-made meal market (i.e. including frozen, chilled, dried and canned meals) has seen considerable growth over the past few years, as consumers increasingly lead busier lifestyles. According to FMI, nearly 95 percent of all retail grocers now offer ready-made meals for time-constrained shoppers. Fuelled by demand for quick meal solutions, the segment increased roughly 16 percent from 2002 to total more than US$23.1 billion in 2007 (Euromonitor International, January 2008). Further development of healthy, portable, premium, organic and ethnic options will continue to drive segment growth. In fact, manufacturers are expected to continue to rollout more restaurant-quality ready-made meals and frozen pizzas to offer consumers quick, high quality meal solutions. The ready-made meal category is projected to reach over $24.9 billion by 2012, close to a four percent increase over 2007 totals (Euromonitor International, Jan. 2008).

Ethnic Food

Due to increased ethnic diversity and global travel in recent years, the burgeoning North American ethnic food sector has moved out of the specialty food category and into the mainstream food industry. In fact, 75 percent of ethnic food consumption in the US is now supported by the mainstream population, fuelling a US$75 billion annual industry that accounts for US$1 out of every US$7 spent on groceries (Euromonitor International, 2006). Research has also shown that the majority of ethnic food and beverages are consumed by Caucasian consumers in the US, and that such products are largely purchased by mainstream shoppers and those of other minority groups (Datamonitor, 2005).

Ethnic food products currently makeup more than 12 percent of all retail food sales and are seeing five percent annual growth. Recent trends point to Caribbean, Mediterranean, Indian, Halal and kosher food markets as developing an increasing consumer base. While consumer demand for healthier food and exotic flavours is driving interest in these areas, rising immigration levels are also playing a key role. The US is expected to see a visible minority population of 123.1 million (i.e. roughly one in three Americans) by 2020, a 30 percent increase over the country's 2006 population of 94.4 million. The majority of this increase (i.e. roughly 59 percent) is expected to be driven by Hispanics, followed by African Americans (i.e. 23 percent) and Asian Americans (i.e. 18 percent).

Specialty Food

Bolstered by the popularity of food television networks, celebrity chef cooking shows, exotic cooking classes, and the introduction of upscale retail grocers (e.g. Whole Foods Market) that sell a variety of premium products, Americans are becoming more knowledgeable about food preparation and are “trading up”, using high quality ingredients when cooking. Retailers are increasingly expanding their gourmet food offerings with artisan cheese, bread, dips, oils, spreads, condiments and confectionary; freshly-prepared meals and desserts; greater ethnic and international food assortments; premium tea and coffee; and larger wine selections to cater to such consumer demand. Store redesigns, such as Safeway's Lifestyle remodels, are also being used to create inviting upscale shopping environments for consumers.

According to Specialty Food Magazine's The State of the Specialty Food Industry 2007 report, the American specialty food market was estimated at US$38.5 billion in 2006, and accounted for 10 percent of all retail grocery sales (2007). Specialty food sales have increased 103 percent since 2001 and are currently outpacing general food sales by 17 percent; general food sales increased nearly five percent in 2006, while that of specialty food rose 22 percent (Specialty Food Magazine). As of 2006, the largest specialty food categories were condiments; cheese; coffee and cocoa; chips, pretzels and snacks; and carbonated, functional and ready-to-drink (RTD) tea and coffee beverages (Specialty Food Magazine). The magazine also identified energy bars and gels as the fastest-growing specialty food category, having seen 269 percent growth between 2004 and 2006, followed by shelf-stable juices and functional drinks (107 percent), shelf-stable meat, poultry and seafood (105 percent), water (90 percent), and RTD tea and coffee beverages (58 percent).

Organics

Fuelled largely by consumer demand for more natural, minimally processed and pesticide-free food in North America, the American organic sector has seen dramatic growth in recent years and is now one of fast-growing segments of American agriculture. Consumer awareness and demand for organic food and beverages has also greatly increased since the USDA (US Department of Agriculture) Organic standards logo and certification programme was introduced in 2002. Grocery retailers have responded by expanding their organic product offerings, especially by developing store brand organic food lines. In fact, 82 percent of retail grocers now offer natural or organic options and 62 percent of which sell private label organic products (FMI). According to the Organic Trade Association's 2007 Manufacturer Survey, organic food sales totalled US$16.9 billion in 2006, a 22 percent increase over 2005 values. Organic food accounted for roughly 3 percent of national retail grocery sales in 2006, up from 2.5 percent in 2005, and 1.9 percent in 2003.

In the Pacific Northwest region, Whole Foods Market recently re-entered the Portland, Oregon market after a six-year absence, while the certified organic retail cooperative PCC Natural Markets, opened it's ninth store in Edmunds, Washington (The Shelby Report of the West, December 2008).

Asian American Consumers

In addition to the country's largest ethnic consumer groups, there is strong emphasis on addressing the needs of the expanding Asian American population. Currently estimated at 13.3 million consumers or nearly 4.5 percent of the population, this consumer segment is projected to become the fastest-growing ethnic group in the US from 2010 to 2050, and see a 135 percent population increase over the period. Asian Americans are also the most affluent market segment in the US with an average household income of US$51,908 in 1999, over 14 percent higher than that of Caucasians, 54 percent larger than that of Hispanic consumers, and 76 percent greater than that of African Americans.

After the Hispanic consumer group, the Pacific Northwest's Asian American consumers represent the second largest ethnic population in the region, totalling approximately 600,000 consumers in 2007. The Asian American population accounted for 4.9 percent of the total Pacific Northwest population, slightly higher than the national percentage of the Asian American population (4.3 percent). As a result, there is strong emphasis on addressing the needs of the region's expanding Asian population, which increased a noticeable 30 percent from 2000 to 2007. The Asian American population increased significantly in all Pacific Northwest states from 2000 to 2007, with Alaska experiencing the lowest growth of 24 percent, followed by Oregon and Washington at approximately 30 percent each, and Idaho's population growing 41.7 percent (US Census Bureau, 2007).

According to AC Nielsen, Asian food sales at retail grocery outlets (excluding those at Wal-Mart) increased 4.5 percent over 2005 levels to total US$1.1 billion in 2006. Asian Americans generally prefer fresh food over processed or packaged goods, and typically shop for groceries four to five times a week. Staples in almost all Asian American diets include rice, noodles and vegetables.

Brand names with high recognition and popularity among the Asian American community include Ajinomoto, Bin Bin, FOCO, Food Island, God of Fortune, Golden Phoenix, Hinoichi, Homal, House Foods, Huy Fong Foods, Indo Mie, Kewpie, Kian Guan, Kikkoman, Kirin Ichiban, Meiji, Mitsukan, Nestlé, Nong Shim, S&B Curry, UCC, Vitamalt and Yamamotoyama.

Asian cuisine, particularly Chinese, Japanese and Thai food, has long been enjoyed by mainstream American consumers, while other varieties, such as Vietnamese and Korean, are becoming increasingly popular. Traditional Asian dishes are also influencing the flavour profiles of many mainstream products; Asian-inspired sauces and seasonings to snacks, appetisers and ready-made meals are now widespread in the American marketplace. In fact, sales of two-food frozen entrées (i.e. ready-made meals that contain two separately packaged types of food to be consumed together, such as Chinese fried noodles and rice) saw the most growth in the Asian food category, increasing 26 percent from 2002 to reach US$85.5 million in 2006. However, the largest portion of the Asian food market remains the one-food frozen entrée segment, which totalled US$379 million in 2006.

Halal and Kosher Food Markets

The large and growing Muslim and Jewish consumer populations in the US also present considerable opportunity for Canadian food manufacturers looking to enter new markets. With its population of eight million to 11 million Muslim consumers, the US offers a lucrative Halal market estimated at US$12 billion. The kosher food industry, while not new to North America, also continues to grow with its 5.2 million Jewish consumer base in addition to a number of non-Jewish consumers that are increasingly buying kosher products for numerous reasons.

The American kosher food industry was estimated at over US$7 billion in 2006, and has seen roughly 102,000 food and beverage products enter the marketplace over the past 20 years; approximately 2,500 products were certified kosher alone in 2007. Some industry experts have even suggested that nearly 50 percent of all packaged food produced in the US is kosher, and that most major brands are certified kosher as well.

With such growth in the kosher food industry, many grocery retailers are now devoting entire sections of their stores to kosher food. Kosher bakeries, delis, meat departments, frozen food sections, general merchandise aisles and even sushi bars can be found in many of Supervalu's 13 grocery banners' locations, as well as in Wegmans, Shop Rite, and Tops Markets outlets among others, while mass merchandisers Wal-Mart and Kmart continue to expand their kosher food product offerings. The number of grocers offering kosher food sections is likely to expand as retailers continue to place more importance on ethnic food merchandising.

Furthermore, as consumers continue to become more health conscious, especially in the wake of recent worldwide food scares and the burgeoning green movement, they are increasingly purchasing Halal and kosher food (i.e. meat and other food products slaughtered or processed according to Islamic and Jewish law). Such food is appealing to a growing number of consumers outside of the Muslim and Jewish communities, whether it be due to humane animal treatment concerns, demand for vegetarian or lactose-free products (i.e. kosher food only), or a perception that such products are healthier or safer.