“Ripe for Grocers”; The Local Food Movement | Consumer Products & Retail | A.T Kearney

Grocery shoppers today want local food—and they are willing to pay a premium for it…Our second annual study of local food market examines this growing opportunity for Retailers..!!

Walk through the produce section of Whole Foods and you’ll see on the signs, as prominently placed as any other information, the state of origin for its fruits and vegetables. With its Local Loan Producer Program, which provides roughly $10 million in low-interest loans to independent growers, Whole Foods has made a bet that local foods are not just a passing fad in buying habits but indeed a new reality for grocery..

Our second study of shoppers’ local food buying habits bears out the optimism about the “locavore” movement. The study finds that local food is fast becoming a necessity for attracting and maintaining customers. A growing number of shoppers, seeking more sustainable foods and hoping to help the local economy, say that the availability of local food is an important factor in what they buy and where they buy it. And, importantly, more shoppers say that they think more highly of retailers that carry local food and have even considered switching retailers to find better local selections. For big-box retailers and other national chains, there is plenty of work to be done to incorporate local foods, as the market remains dominated by farmer’s markets and specialty retailers..

We recently surveyed more than 1,000 U.S. shoppers to examine the strengths and weaknesses of large grocery retailers compared to other formats when it comes to local food. This study builds on our first report on the local food market, which was released in 2013..

Local Food: A Necessity to Compete:

Unlike organic food, there is no universally accepted (or legally binding) definition of local food. Although Congress passed an act in 2008 that defined “regional” and “local” food as being transported either less than 400 miles from its origin or within the same state, most definitions are less precise. At a more basic level, local food typically involves smaller farms located close to where their produce is sold.

Local food is quickly transitioning from one small way grocers can stand out to a component of the shopping experience that buyers expect. Sales of local food have increased an estimated 13 percent per year since 2008, and are now worth at least $9 billion.

Our study highlights several major trends:

Local food remains important for shoppers..More than 40 percent of respondents say they purchase local food on a weekly basis, and another 28 percent buy local food at least once a month. Most say that local food helps the local economy (66 percent) and brings a broader and better assortment (60 percent). Another 45 percent say it offers healthy alternatives to customers. It is clear that retailers offering local food can positively influence customer perception..

Local food awareness and price perception have improved..Sixty-eight percent of respondents (up 3 percent from last year) say they are aware that their supermarket of choice offers local food. Seven percent (down from 11 percent) believe their supermarkets do not offer local food; of this group 34 percent are considering grocers because of this.

Similar to last year, shoppers indicate their primary reason for not buying more local groceries is lack of availability at their retailer of choice (see figure 1)…This year, however, only 47 percent of respondents say availability is the primary reason they do not buy local, down 10 percent from last year, which underlines growing awareness of local selections. Dividing our respondents by region, the western United States has the lowest availability concerns (43 percent), compared to 48 percent in the Northeast and South and 50 percent in the Midwest..

Availability is the main reason shoppers do not buy more local food

Price perception has improved as well. Only 31 percent of respondents say that local products are too expensive, down from 37 percent last year, with the West and South reporting the best prices. Only the Mountain region cites price as a more important deterrent than availability..

Leaders are differentiating on “fresh”..Our survey respondents said that when they buy groceries, freshness is far and away the most important purchasing criteria (60 percent), followed by price (30 percent). Local sourcing is a powerful way for retailers to demonstrate their products’ freshness, as 30 percent of respondents do not differentiate between fresh and local..

This is particularly evident in specific categories: Many consumers want both fresh and local in categories such as fruits and vegetables, prepared foods, meat, fish and seafood, dairy and eggs, and bread (see figure 2)…While convenience ranks highly for frozen and canned foods, this is less of a factor for fresh categories (aside from prepared foods). Other factors, such as health impact, organic, and taste are generally consistent across categories..

Freshness is an important decision factor for buyers in many food categories

Shoppers are willing to buy local food—and pay more for it..Seventy percent of consumers say they will pay a premium for local food, the same number as in last year’s survey. However more of those consumers say they are willing to pay a bigger premium—one-third (compared to less than one quarter last year) say they would pay 10 percent more. Our findings indicate that more people are willing to pay extra for local food than they are for organics. Still, buyers don’t have unlimited budgets for local food, which still makes up the minority of their shopping baskets. Thirty-seven percent say high prices are preventing them from choosing more local food options..

To gauge interest in local foods for specific products, in this year’s survey we asked respondents how much more they are willing to pay for locally sourced versions of some specific products. More than half would pay 15 percent more for local strawberries, baguettes, eggs, and chicken. On the other hand, the majority of respondents say they would not pay more for local frozen green beans or lasagne..

Locally sourced food has broad-based appeal, with spikes in key customer segments..

While local food has wide appeal for a host of reasons, some customer segments are more inclined to buy local food and pay more for it. As local food costs more and is often positioned as a premium product, it is not surprising that income level is a strong predictor for buying local. Seventy-five percent of high-income earners in our survey are willing to pay extra for it..Overall, the value of local food has increased in high-, medium-, and low-income segments compared to last year. Thirty percent of low- and medium-income workers will now pay up to 10 percent for local, while almost 20 percent of high-income earners are willing to pay more than 10 percent, twice the number as last year..

Respondents from rural and small communities, which are closest to where food is grown, tend to be willing to pay more for local food than those from larger cities. High-income earners in small towns are, on average, willing to pay 10 percent extra for local food, compared to about 5 percent for residents in large cities. There are some broad regional differences when it comes to buying local food across the country, from a 5 percent premium in the Southeast to a 7 percent premium in the West and in the Northeast. The share of local food purchased in the typical shopping basket is also highest in these regions (particularly on the west coast), compounding the regions’ attractiveness for local food retail. The Pacific Coast region leads the pack with 27 percent local food in a typical basket, followed by the Northeast at 22 percent. The Southeast has the lowest rate, with local food making up 16 percent of a typical basket.

Large supermarkets are still struggling to gain customer trust..Big-box stores and national supermarkets are the most common places our respondents shop for food, yet they (along with online grocers) rank well below farmers markets, specialty supermarkets, and local supermarkets when it comes to customer trust. The correlation between fresh and local is further explained by consumer response to which retailers were most trusted to provide fresh foods. Again, farmers markets and specialty supermarkets are considered most trustworthy, followed by locally owned supermarkets, national supermarkets, big-box and online grocers. As we noted in last year’s report, many customers believe that retailers tailor the term “local” to their advantage with little transparency into how they define it. Fruits and vegetables harvested hundreds of miles away are often still declared local, which has drawn criticism from small farmer organizations—and skepticism from buyers..

Recommendations for Food Retailers:

This year’s survey results reveal that big-box and national retailers still lag in customer perception when it comes to providing high-quality, affordable fresh and local foods. What can these retailers do in the short term to refresh their local food strategies ?

Tap into the market for “fresh”..Freshness is a primary factor in grocery shopping decisions—in fact, in last year’s survey respondents rated this higher than price. Large grocery retailers lag their smaller rivals and farmers markets relative to both price and quality perception when it comes to “local” and “fresh.” Given that our research has found a strong correlation between fresh and local, large retailers can build awareness of their fresh products simply by sourcing and marketing local more effectively—particularly in categories such as produce, meat, bread, and dairy..

Test local autonomy over merchandising and sourcing..The local food leaders we identified in our research have given local managers more autonomy to make local food buying decisions. For example, H-E-B in Texas and Wegmans on the East Coast allow local managers to build their own sourcing relationships with local farmers and merchandise these offerings as they see fit. The local autonomy model optimizes quality, freshness, and availability—three critical elements for success in local we have identified in our consumer research. These factors, combined with customers’ increasing willingness to pay for local offerings, can offset the potentially higher costs from the loss of efficiencies such as standardized processes and centralized buying..

Consider a direct supply chain model..There are three primary supply chain models grocers use to source local food, each with its advantages and disadvantages. Wholesale is perhaps the most difficult model to control for quality and freshness; however, it provides simplicity and access, which is likely why Amazon Fresh uses it. Many large retailers use brokers to source local food on a national level. C.H. Robinson, the largest such broker, continues to build numerous sourcing relationships with local farmers across the country.

A third model—establishing direct relationships with independent growers in the region—is generally the costliest but may prove the most effective. The direct supply chain model optimizes availability, quality, and freshness and provides maximum sourcing transparency to the consumer. As shown in the example of Good Eggs in the sidebar on page 3, some upstarts are using this model to upend the traditional grocery supply chain..

We recommend national retailers begin piloting the direct supply chain model on a region-by-region basis, initially as a complement to broker and wholesale market relationships. As quality and freshness emerge as differentiators in local food, direct supply models will be critical for long-term success..

Going Local:

The local food movement has shifted from talked-about trend to burgeoning opportunity for large grocery retailers. However, the window of opportunity is small—there is little time to waste convincing customers that you can provide high-quality, fresh local food, especially considering how much competition is emerging in this space..

It may take some outside-the-box thinking—in particular giving local stores more autonomy and using a more direct supply chain model—but those moves will help make an immediate impact and build longer-term growth advantage in this highly competitive market..!!

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