As one of the most basic of needs, food is the largest retail consumption category in India, accounting for 33 percent of overall consumption expenditure. Currently estimated at US$ 325 billion, food consumption is expected to nearly triple over the next ten years to reach US$ 900 billion by 2020.
We spoke to over 4,000 consumers across all segments to understand their buying preferences and how they shop for food and groceries, and identified five key themes, which are likely to have far reaching implications for FMCG companies and food and grocery retailers. Some of these are in line with conventional wisdom, while others indicate potential shifts in consumer buying behaviour.
• Trading up tendency increases with rising income levels, especially in food
• Purchase frequency, not product freshness, drives format preference
• Shopping is often a group activity, not limited to only the housewife
• Brands are critical till the consideration stage, but reduce in importance for actual purchase
• The last three feet at the store is the moment of truth: Key purchase decisions are taken at the store
Income Levels and Food Consumption
The contribution of food in a household’s consumption basket decreases with rising income levels. As a percentage of total household income, generally, the consumers surveyed, spend twice as much as the affluent consumers on food. In fact, food is the largest expenditure for all segments other than the affluent, accounting for roughly 33 percent of what families spend on each month. The three key patterns emerging across consumer segments are:
• In absolute terms, the amount spent on food increases with income.
• However, while the absolute amount spent on food differs by consumer segment, the food consumption basket is largely similar across segments. Staples, dairy and fruits & vegetables account for 66 percent of food expenditure across consumer segments.
• Interestingly, the food expenditure varies within affluent consumers, potentially explained by differences in the occupation and education levels between them.
Purchase Frequency, not Product Freshness, Drives Format Preference
The frequency of purchase varies across food and grocery sub–categories. This behaviour is largely consistent across consumer segments. Dairy products are most frequently purchased, with usually a daily replenishment cycle. Fresh food, i.e. fruits and vegetables and meat, is often purchased multiple times a week. Staples and home & personal care are less frequently purchased, typically monthly. Packaged food shows high variation in purchase frequency.
We asked consumers the main reasons why they prefer a particular format for their food and grocery shopping.
• Not surprisingly, location is the primary reason for traditional trade preference. For less frequent purchases, consumers are willing to travel longer distances to the store.
• Traditional trade is also rated higher on trustworthiness, with consumers indicating stronger relationships with these stores.
• Consumers indicate that the credit facility offered by traditional trade is also a significant reason for their traditional trade preference.
• Surprisingly, product freshness at traditional trade is no longer a differentiator. Majority of consumers rated modern trade higher on product freshness. Modern trade also scores higher on product quality and cleanliness.
• Consumers also value the ability to negotiate prices at traditional trade, and believe that they are more reasonably priced. While this could hold true potentially for MRP driven products, this is likely a differentiator for fresh food and unpackaged staples.
• Finally, as expected, modern trade scores higher on most other parameters — product range and assortment, store layout and ease of locating products in the store.
Shopping is Often a Group Activity, not Limited to Only the Housewife
It is a common belief that purchase of food and groceries is the housewife’s responsibility, and it is the housewife who does the household’s food and grocery shopping. As a result, many companies actively target housewives in all their programmes. We have found that the woman is the decision maker and purchaser in eight out of ten cases.
However, she does not shop alone. When asked whether they shop alone or with others, majority of consumers indicated that they often have company while purchasing food and groceries. Therefore, food and grocery shopping is often a group activity, where the family often accompanies the shopper to the store to execute the purchase.
The Last Three Feet at the Store is the Moment of Truth: Key Purchase Decisions are Taken at the Store
A majority of consumers indicated that refilling or topping – up of supplies as the primary reason for visiting a food and grocery store. While the extent of planned purchase for food and groceries varies across sub–categories, it is broadly similar across consumer segments.
• Low frequency purchases, such as staples, home and personal care are typically part of the planned purchase basket.
• Fresh and packaged foods, such as dairy, fruits & vegetables and meat, are less planned as consumers typically purchase these multiple times a week.
• Consumers are less price sensitive while purchasing staples and home & personal care products, which are typically part of the planned purchase basket.
• Price sensitivity is higher for fresh and packaged foods, where five out of ten consumers remember the exact price they paid at the store.
Key Imperatives
The food and grocery market is a large opportunity for both FMCG and retail companies over the next 10 years. It is critical for companies to answer the following questions to capture this opportunity:
• How can companies trigger consumers to trade–up?
• What approach should be adopted to orient the shopping experience around the entire family?
• What does it take to win at the point of sale?
• How can modern trade overcome location disadvantage vis–a–vis traditional trade?
• What would it take to simulate a ‘price negotiation’ experience, similar to traditional trade, in a modern trade outlet?
