According to a new Rabobank Food and Agribusiness Research report released this week, consumers are drifting from mostly mid-range grocery purchases to either basic value products or high-end premium products.
The FAR group says this change will spark a decline in mid-market retail growth by as much as 1 to 2% annually through 2017. A reversal of the trend is not expected, FAR notes.
The change has been happening over the past decade. Most consumers are actually trading down for everyday food staples while simultaneously trading up for socially or emotionally rewarding products and services, such as fine dining.
The FAR determined three key driving forces behind the hybrid consumer trend: socio-demographic factors, food retailer strategies and macro-economics.
Most consumers are avoiding mid-range grocery products, a Rabobank report finds, leading to implications for the entire food and ag sector
Specifically, FAR said the advent of discount grocers has added to consumers' options to trade down. Private labels have added options for trading up.
This trend is reflected in growth of either high-end or discount retailers. Between 2007 and 2012, above average performers in the U.S. were either hard discounters, such as Aldi, or premium formats, such as Whole Foods and HE Butt Grocery, FAR said.
"As a result of this new consumption pattern, the mid-market has been under pressure as products in this segment are perceived to offer neither quality nor value to today's hybrid consumer," the report explains.
These changes, which Rabobank says are mostly independent of economic cycles, will push to food and ag sector to adapt.
"Food processors, retailers and foodservice companies need to continuously distinguish themselves either on quality or price or, preferably, both," the Rabobank report explains. "In addition, bringing new and exciting products to market requires ongoing innovation on the part of food processors."
Rabobank explains innovation could include moving up to the premium segment by offering "healthier alternatives, using more natural ingredients, and incorporating corporate social responsibility as well as sustainable business practices."
Or, conversely, retailers can offer value products within the premium segment and premium products in the value segment to relate to cost-conscious consumers.
Notably, the findings in the report also support the ideas behind ongoing efforts to include farmers in direct-to-consumer marketing, as consumers drift toward selecting higher-quality goods with an emotional or social reward.
"The implications of the hybrid consumer market trend are profound," Marc Kennis, Senior Rabobank Analyst said. "Given the driving forces of hybrid consumption we believe that hybrid consumption is a long-lasting phenomenon."