Rabobank expects the mid-market of standard, non-distinct food products to decline in the coming years as hybrid consumers increasingly opt for either basic, value products or more expensive, higher quality products at the premium end of the product spectrum. While the extreme ends of the market are set to grow by high single- digit numbers, we expect the mid-market to decline by 1 percent to 2 percent per annum through 2017.
Consumer preferences are as varied as consumers themselves. Consumers have traditionally been segmented into different categories based on their socio-demographic characteristics and historical spending patterns. A typical consumer spends their household food budget within one or maybe two, adjacent, market segments (i.e. the value, mid-market or premium segment), depending on their social and financial status.
However, over the past decade we have seen consumers moving towards the extreme ends of the spectrum, trading down to the value segment for basic everyday groceries while simultaneously trading up to the premium segment for socially and emotionally relevant products. 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.
Driving this hybrid behaviour are several socio-demographic developments, such as the increasing financial empowerment of women and the growing influence of Millennials. Both groups have a relatively high tendency towards hybrid consumer behaviour. Other drivers are related to retailers’ strategies that facilitate trading down and up more than in the past (e.g. through hard discount formats and private-label offerings). Finally, we believe that in recent years the prolonged economic downturn in many developed markets has accelerated the existing market dualisation.
Going forward, we do not expect a reversal of the hybrid consumption trends as the main drivers are of a long-term and secular nature (i.e. independent of economic cycles). Consequently, the growth rate of standard food products in developed markets is expected to substantially lag behind the growth rate of premium and value food products in the next five years. While the latter two segments are expected to grow by mid to high single-digit numbers through 2017, Rabobank expects the market for standard, non-distinct food products to be negative on average in developed markets in Europe and North America.
These growth rate differentials will translate into substantial shifts in market shares for the premium, mid-market and value segments of the overall food markets. While the mid-market currently accounts for about
60 percent of the market, Rabobank expects this share to decline to 50 percent as the premium and value segments gain ground (see Figure 1.2).
Rabobank believes that the strategic implications of this market dualisation are profound and touch on areas such as product offerings, distribution channels, marketing
and brand management. Food processors, food retailers and foodservice companies alike will need to adapt or risk fading away.
We have identified a host of strategies and tactics geared towards capturing the ‘hybrid opportunity’. These strategies are either consumer, product, or company centric and will allow nimble companies to achieve a competitive edge and benefit most from the rise of the hybrid consumer.
Driven by hybrid consumption patterns, Rabobank expects food markets to develop in favour of the premium and value segments, which are expected to substantially outperform the mid-market of non-distinct standard products. The extent of this outperformance will vary per product category and depends on product characteristics, geography, distribution channels, economic developments and demographics. In our view, hybrid consumer behaviour will be a long-lasting phenomenon that will survive economic cycles.
Overall, Rabobank expects the mid-segment of the packaged food markets will see its share decline from the current 60 percent towards 50 percent in the next five years. By contrast, we expect the premium and value
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