Fragmentation reshapes grocery, creating new opportunities for specialty brands

Increasing fragmentation across retail, brands and consumer behavior in response to the economy and eroding consumer trust is complicating the path to purchase and constricting the grocery channel’s dominance, but according to NielsenIQ that is good news for specialty food and beverage manufacturers. “In the last three years, we’ve just seen some of the most dramatic shifts in terms of where consumers are buying their food and beverage. In particular, while grocery really represents the greatest share of food and beverages, its center of gravity is really shifting,” said Sherry Frey, vice president of total wellness at NielsenIQ. She explained the grocery channel lost $3 billion in food and beverage sales in the last year – 54% to club, 41% to mass and 5% to dollar. At the same time, NIQ data shows online sales are driving growth – representing 74% of the total CPG dollar growth. Within online sales is social commerce, which is growing rapidly in the US with TikTok Shop sales representing the segment’s potential. According to NIQ, sales of salty snacks on TikTok Shop reached $44 million in the 52 weeks ending May 23 – up a staggering 43% from the past year. Likewise, sales of desserts and sweet goods on the platform reached $19 million in the period – up 31% from the year before. Retail is only one of three places where NielsenIQ is tracking notable fragmentation – brands and consumers are also becoming more divided. “We’ve got so many more brands than we ever have before,” which is creating a more complicated and competitive landscape, Frey said. As for consumers, she said, the economy is reshaping how different demographics shop. According to NielsenIQ data, households with incomes of $100,000 or more captured 45% of the food and beverage distribution of dollars in the last 52 weeks – up 5.4% from a year ago and 3.8% from two years ago. But, Frey said, this doesn’t mean that lower income shoppers are not shopping across the spectrum of food and beverage products. Rather it means they are more intentional in what they buy and where they spend. “They are actually coming back into the store. They are looking to create, in many cases, restaurant-quality experiences at home,” she said. That means “some interesting opportunities from a retail perspective, how they are thinking about merchandising differently to meet that consumer need.” Increased fragmentation also is opening the door for new brands and specifically specialty foods and beverages to rethink how they reach consumers who feel busier, more budget-focused but also want elevated experiences at home, she said. But reaching consumers today isn’t just about being in the right channel at the right time – it is also about earning shoppers’ trust, which Frey notes is increasingly difficult to do. To rebuild that trust, and stand out in an increasingly fragmented marketplace, Frey says brands should focus on transparency, community and making it easier for consumers to discover products that meet their needs. She explains that for many modern consumers, what drives trust is not the brand’s legacy or the founder’s story – it is the quality of the ingredients, the sourcing, and how workers and animals were treated in the supply chain. “That alone is creating some really interesting opportunities for brands to think differently around how do they share those attributes with consumers, how do they prioritize those attributes in terms” of storytelling, she said. The answer, she notes, depends on the consumer – and particularly the consumers’ generation. For example, NIQ data shows that boomers are most likely to trust a brand’s history, while Gen Z is less likely to trust it. The reverse is also true of endorsements. Boomers are less likely to trust endorsements and Gen Z report it is one of the highest drivers of trust for them. What drives consumer trust also drives sales. “When we look at what consumers are looking for, especially Gen Z consumers, they are looking for those endorsements, they are looking for innovation of products, but they are also looking for products that represent them,” Frey said. “More and more, whether it is sustainability, whether it is GLP-1, one thing we are seeing is that consumers are what they buy,” she added. For many shoppers what is in their cart represents who they are as a person. Ultimately, for specialty food brands, fragmentation isn’t just another challenge – rather, as Frey notes, it is an opportunity to connect with consumers in new ways and earn their trust by prioritizing transparency, community and consumer-centric merchandising.

Fragmentation reshapes grocery, creating new opportunities for specialty brands

NielsenIQ says shifting shopping habits, online growth and changing drivers of consumer trust are redefining the path to purchase and opening doors for specialty manufacturers

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