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INTERNATIONAL DAIRY-DELI-BAKERY ASSOCIATION IDDBA Engaging the Evolving Shopper: Serving the New American Appetite a ENGAGING THE EVOLVING SHOPPER: Serving the EĞǁŵĞƌŝĐĂŶƉƉĞƟƚĞ

THE INTERNATIONAL DAIRY•DELI•BAKERY ASSOCIATION™

636 Science Drive, Madison, WI 53711-1073 P.O. Box 5528, Madison, WI 53705-0528 Phone: 608-310-5000; Fax: 608-238-6330 Email: [email protected]; Web: www.iddba.org

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite c © October 2014 International Dairy•Deli•Bakery Association™

636 Science Drive, Madison, WI 53711-1073 Phone: 608-310-5000; Fax: 608-238-6330 Email: [email protected]; Web: www.iddba.org

Engaging the Evolving Shopper: Serving the New American Appetite

A special report prepared for IDDBA by The Hartman Group

The in formation presented in this report has been compiled from sources and documents believed to be reliable. However, the accuracy of the information is not guaranteed, nor is any responsibility assumed or implied by the International Dairy•Deli•Bakery Association™.

ISBN 978-0-9882033-3-4 ENGAGING THE EVOLVING SHOPPER: SERVING THE NEW AMERICAN APPETITE Table of Contents

EXECUTIVE SUMMARY ...... 1

RESEARCH METHODS ...... 7

KEY RESEARCH TERMS DEFINED ...... 8

CHAPTER 1: THE SHOPPER ...... 10

1.1 Demographic Trends ...... 11

1.1.1 Shopper Proﬁ les in Fresh Perimeter ...... 12

1.1.2 Deep Dive into Millennials ...... 15

1.2 Modern Eating Trends ...... 18

1.2.1 Snacking ...... 18

1.2.2 Immediate Consumption...... 19

1.3 Health + Wellness Trends ...... 21

1.3.1 Healthy Eating ...... 23

1.3.2 Health + Wellness in Fresh Perimeter ...... 24

1.3.3 Intentional Health and Implicit Wellness in Fresh Perimeter...... 26

1.4 Digital Engagement’s Impact on Food Culture ...... 30

1.4.1 Spotlight on Social Media ...... 31

1.4.2 Spotlight on Smart phone ...... 33

1.5 Key Recommendations ...... 36

CHAPTER 2: THE STORE ...... 37

2.1 The Retail Landscape ...... 38

2.1.1 Preferred Stores ...... 39

2.1.2 What Makes a Store a Destination? ...... 41

2.2 The Retail Experience ...... 42

2.2.1 Department Wellness Features Help to Make a Store a Destination ...... 42

2.2.2 Categories Align with Wellness Priorities Throughout the Day ...... 46

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite i 2.3 Retail Communications ...... 49

2.3.1 To Curate or to Inform? ...... 49

2.3.2 The Voice of the Store ...... 52

2.33 Deals Are Expected From Store Management and Staff Detached From the Perimeter ...... 54

2.4 Key Recommendations ...... 56

CHAPTER 3: Bakery Department Deep Dive ...... 57

3.1 Bakery Department Shopper Proﬁ le ...... 58

3.2 Bakery Department Sourcing...... 60

3.2.1 Where do Bakery Shoppers Go and Why? ...... 60

3.2.2 Sources used for Food by Bakery Shoppers ...... 61

3.2.3 Primary Store Sourcing ...... 61

3.2.4 Where Do Bakery Shoppers Go When They Do Not Purchase at Their Primary Store? ...... 62

3.3 Important Bakery Department Attributes ...... 63

3.3.1 Bakery Attributes Sought When Shopping at Primary Store ...... 63

3.3.2 Performance of the Bakery Department ...... 64

3.3.3 What Primary Store Could Do to Improve the Bakery Department ...... 65

3.4 Bakery Occasions and Health + Wellness Considerations ...... 66

3.5 Information Source Preferences for Bakery Department ...... 67

3.6 Key Take Aways for Bakery Department ...... 68

CHAPTER 4: Dairy Department Deep Dive ...... 70

4.1 Dairy Department Shopper Proﬁ le ...... 71

4.2 Dairy Department Sourcing ...... 73

4.2.1 Where do Dairy Shoppers Go and Why? ...... 73

4.2.2 Sources used for Food by Dairy Shoppers ...... 74

4.2.3 Primary Store Sourcing ...... 74

4.2.4 Where Dairy Shoppers Go When They Do Not Purchase at Their Primary Store ...... 75

4.3 Important Dairy Department Attributes ...... 75

4.3.1 Dairy Attributes Sought When Shopping at Primary Store ...... 75

ii IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 4.3.2 Performance of the Dairy Department ...... 77

4.3.3 What Primary Stores Could Do to Improve the Dairy Department ...... 78

4.4 Dairy Occasions and Health + Wellness Considerations ...... 79

4.5 Information Source Preferences for Dairy Department ...... 80

4.6 Key Take Aways for Dairy Department ...... 81

CHAPTER 5: Deli & Specialty Meats Department Deep Dive ...... 82

5.1 Deli & Specialty Meats Department Shopper Proﬁ le ...... 83

5.2 Deli & Specialty Meats Department Sourcing ...... 85

5.2.1 Where do Deli & Specialty Meats Shoppers Go and Why? ...... 85

5.2.2 Sources used for Food by Deli & Specialty Meats Shoppers ...... 86

5.2.3 Primary Store Sourcing ...... 87

5.3 Important Deli & Specialty Meats Department Attributes ...... 88

5.3.1 Deli & Specialty Meats Attributes Sought When Shopping at Primary Store ...... 88

5.3.2 Performance of the Deli & Specialty Meats Departments ...... 91

5.3.3 What Primary Stores Could Do to Improve the Deli & Specialty Meats Departments ...... 93

5.4 Deli & Specialty Meats Occasions and Health + Wellness Considerations ...... 94

5.5 Information Source Preferences for Deli & Specialty Meats Department ...... 96

5.6 Key Take Aways for Deli & Specialty Meats Department ...... 97

CHAPTER 6: Prepared Food Department Deep Dive ...... 98

6.1 Prepared Food Department Shopper Proﬁ le ...... 98

6.2 Prepared Food Sourcing ...... 101

6.2.1 Where do Prepared Food Shoppers Go and Why? ...... 101

6.2.2 Sources used for Food by Prepared Shoppers ...... 101

6.2.3 Primary Store Sourcing ...... 102

6.3 Important Prepared Department Attributes ...... 103

6.3.1 Prepared Attributes Sought When Shopping at Primary Store ...... 103

6.3.2 Performance of the Prepared Department ...... 104

6.3.3 What Primary Store Could Do to Improve the Prepared Department ...... 105

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite iii 6.4 Prepared Occasions and Health + Wellness Considerations ...... 106

6.5 Information Source Preferences for Prepared Department ...... 107

6.6 Key Take Aways for Prepared Department ...... 108

CHAPTER 7: Specialty Cheese Department Deep Dive ...... 109

7.1 Specialty Cheese Department Shopper Proﬁ le ...... 110

7.2 Specialty Cheese Sourcing ...... 112

7.2.1 Where do Specialty Cheese Shoppers Go and Why? ...... 112

7.2.2 Sources used for Food by Specialty Cheese Shoppers ...... 113

7.2.3 Primary Store Sourcing ...... 113

7.3 Important Specialty Cheese Department Attributes ...... 114

7.3.1 Specialty Cheese Attributes Sought When Shopping at Primary Store ...... 114

7.3.2 Performance of the Specialty Cheese Department ...... 115

7.3.3 What Primary Store Could Do to Improve the Specialty Cheese Department ...... 116

7.4 Specialty Cheese Occasions and Health + Wellness Considerations ...... 117

7.5 Information Source Preferences for Specialty Cheese Department ...... 118

7.6 Key Take Aways for Specialty Cheese Department ...... 119

CONCLUSIONS AND IMPLICATIONS ...... 120

iv IDDBA Engaging the Evolving Shopper: Serving the New American Appetite ENGAGING THE EVOLVING SHOPPER: SERVING THE NEW AMERICAN APPETITE List of Charts

Chart 1.1 Millennial Shopper Participation In Fresh Perimeter Categories By Household Structure ...... 14

Chart 1.2 Millennials’ Approach To Preparing Meals ...... 16

Chart 1.3 Millennials And Takeout ...... 16

Chart 1.4 Millennial Taste Preferences ...... 16

Chart 1.5 Important Food Choice Factors By Generation ...... 17

Chart 1.6 Where Snacks Come From ...... 19

Chart 1.7 Need States For Immediate Consumption ...... 20

Chart 1.8 What Are You Deliberately Adding To Your Daily Diet ...... 21

Chart 1.9 What Are You Deliberately Avoiding In Your Daily Diet ...... 22

Chart 1.10 What’s Important When Shopping For Healthy Foods (Top-2 Box Important) ...... 23

Chart 1.11 Health+Wellness Attributes Sought Across Categories ...... 25

Chart 1.12 Wellness Dimensions And Attributes, By Category ...... 27

Chart 1.13 Wellness Dimensions And Attributes, By Category ...... 28

Chart 1.14 Health+Wellness Attributes Sought At Casual QSR Versus In-Store Prepared Food ...... 28

Chart 1.15 Health+Wellness Attributes Across Categories, By Dimension ...... 29

Chart 1.16 Weekly Users Of Social Networking Sites ...... 32

Chart 1.17 Use Of Smart Phones For Information And Purchases ...... 33

Chart 1.18 Smart Phone Apps Used At Food Stores In Past Month ...... 34

Chart 2.1 Types Of Channels Shopped In Past 3 Months ...... 38

Chart 2.2 Fresh/Specialty Stores As Share Of Shopper’s Preferred Store, By Category ...... 39

Chart 2.3 Where Shoppers Say They Buy Most Of Their Specialty Food, By Category...... 40

Chart 2.4 Preferred Store For Fresh Perimeter Category Is Different From Primary Store, By Generation ...... 40

Chart 2.5 Where Do Shoppers Go For Each Fresh Perimeter Category? ...... 41

Chart 2.6 Importance Of Store-Level Beneﬁ ts Driving Store Advocacy ...... 42

Chart 2.7 Perimeter Perceptions Correlate With Store-Level Beneﬁ ts ...... 43

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite v Chart 2.8 Shopper’s Wellness Priorities Shift Throughout The Day ...... 47

Chart 2.9 H+W Claims And Dimensions Sought When Shopping For Fresh Perimeter Categories ...... 48

Chart 2.10 How Shopper Needs For Nutrition And Health Are Satisﬁ ed, By Category ...... 50

Chart 2.11 How Shopper Needs For Nutrition And Health Are Satisﬁ ed, By Generation ...... 51

Chart 2.12 Healthy Eating - Whose Perspectives Do Shoppers Want? ...... 53

Chart 2.13 Recipe Ideas – whose Perspectives Do Shoppers Want? ...... 54

Chart 2.14 Deals – Who Are Shoppers Interested In Hearing From? ...... 55

Chart 3.1 Where Bakery Shoppers Prefer To Get Their Bakery, By Store Type ...... 61

Chart 3.2 Sources Used For Food By Bakery Shoppers, Past 3 Months ...... 61

Chart 3.3 What Bakery Shoppers Look For When Shopping At Primary Store ...... 63

Chart 3.4 Additional Factors Sought When Shopping For Bakery ...... 64

Chart 3.5 “Excellent” Ratings Of Preferred Store’s Bakery Department ...... 65

Chart 3.6 What Primary Store Could Do To Improve The Bakery Department ...... 66

Chart 3.7 Suitability Of Bakery Department At Store For Something Quick To Prepare Or Eat For… ...... 67

Chart 3.8 Preference For Information In Bakery Department By Cohort ...... 68

Chart 4.1 Where Dairy Shoppers Prefer To Get Their Dairy, By Store Type ...... 74

Chart 4.2 Sources Used For Food By Dairy-Department Shoppers, Past 3 Months ...... 74

Chart 4.3 What Dairy Shoppers Look For When Shopping At Primary Store ...... 76

Chart 4.4 Additional Factors Sought When Shopping For Dairy ...... 76

Chart 4.5 “Excellent” Ratings Of Preferred Store’s Dairy Department ...... 77

Chart 4.6 What Primary Store Could Do To Improve The Dairy Department ...... 78

Chart 4.7 Suitability Of Dairy Department At Store For Something Quick To Prepare Or Eat For… ...... 79

Chart 4.8 Preferences For Information In Dairy Department By Cohort ...... 80

Chart 5.1 Where Deli Shoppers Prefer To Get Their Deli, By Store Type ...... 85

Chart 5.2 Where Specialty Meats Shoppers Prefer To Get Their Specialty Meats, By Store Type ...... 85

Chart 5.3 Sources Used For Food By Deli Shoppers, Past 3 Months...... 86

Chart 5.4 Sources Used For Food By Specialty Meats Shoppers, Past 3 Months ...... 87

Chart 5.5 What Deli Shoppers Look For When Shopping At Primary Store ...... 89

vi IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Chart 5.6 Additional Factors Sought When Shopping For Deli ...... 89

Chart 5.7 What Specialty Meats Shoppers Look For When Shopping At Primary Store ...... 90

Chart 5.8 Additional Factors Sought When Shopping For Specialty Meats ...... 91

Chart 5.9 “Excellent” Ratings Of Preferred Store’s Deli Department...... 92

Chart 5.10 “Excellent” Ratings Of Preferred Store’s Specialty Meats ...... 92

Chart 5.11 What Primary Store Could Do To Improve The Deli Department ...... 93

Chart 5.12 What Primary Store Could Do To Improve The Specialty Meats Department ...... 94

Chart 5.13 Suitability Of Deli Department At Store For Something Quick To Prepare Or Eat For… ...... 95

Chart 5.14 Suitability Of Specialty Meats Department At Store For Something Quick To Prepare Or Eat For… ...... 95

Chart 5.15 Preference For Information In Deli Department By Cohort ...... 96

Chart 5.16 Preference For Information In Specialty Meats Department By Cohort ...... 96

Chart 6.1 Where Prepared Shoppers Prefer To Get Their Prepared, By Store Type ...... 101

Chart 6.2 Sources Used For Food By Prepared Shoppers, Past 3 Months ...... 102

Chart 6.3 What Prepared Shoppers Look For When Shopping At Primary Store ...... 103

Chart 6.4 Additional Factors Sought When Shopping For Prepared ...... 104

Chart 6.5 “Excellent” Ratings Of Preferred Store’s Prepared Department ...... 105

Chart 6.6 What Primary Store Could Do To Improve The Prepared Department ...... 106

Chart 6.7 Suitability Of Prepared Department At Store For Something Quick To Prepare Or Eat For… ...... 107

Chart 6.8 Preference For Information In Prepared Department By Cohort ...... 108

Chart 7.1 Where Specialty Cheese Shoppers Prefer To Get Their Specialty Cheese, By Store Type ...... 112

Chart 7.2 Sources Used For Food By Specialty Cheese Shoppers, Past 3 Months ...... 113

Chart 7.3 What Specialty Cheese Shoppers Look For When Shopping At Primary Store ...... 114

Chart 7.4 Additional Factors Sought When Shopping For Specialty Cheese ...... 115

Chart 7.5 “Excellent” Ratings Of Preferred Store’s Specialty Cheese Department ...... 116

Chart 7.6 What Primary Store Could Do To Improve The Specialty Cheese Department ...... 117

Chart 7.7 Suitability Of Specialty Cheese Department At Store For Something Quick To Prepare Or Eat For… .... 117

Chart 7.8 Preference For Information In Specialty Cheese Department By Cohort ...... 118

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite vii ENGAGING THE EVOLVING SHOPPER: SERVING THE NEW AMERICAN APPETITE List of Tables

Table 1.1 U.S. Demographic Proﬁ le ...... 12

Table 1.2 U.S. Primary Shopper Proﬁ le ...... 12

Table 1.3 Shopper Proﬁ le Fresh Perimeter ...... 13

Table 1.4 Fresh Perimeter Category Reach, By Household Structure ...... 13

Table 1.5 Fresh Perimeter Category Reach, By Generation ...... 14

Table 1.6 Generation By Household Structure Inﬂ uence On shopper Participation In Prepared Category ...... 15

Table 1.7 Social Media By The Numbers ...... 31

Table 1.8 Smart Phones By The Numbers ...... 33

Table 2.1 Department Features Rated “Excellent” At Preferred Store, By Category ...... 44

Table 2.2 Department Features Rated “Poor” Or “Fair” At Preferred Store, By Category ...... 45

Table 2.3 Factors That Primary Store Can Improve To Stem The Migration To Other Retailers ...... 46

Table 2.4 Dayparts Served, By Category ...... 46

Table 2.5 How Retailers Can Succeed With Dayparts And Wellness ...... 49

Table 2.6 Whose Opinions Do Shoppers Want, By Topic...... 58

Table 3.1 Monthly Reach Of Fresh Perimeter Categories, By Generation And Ethnicity ...... 58

Table 3.2 Demographic Proﬁ le Of Category Purchasers ...... 59

Table 3.3 % Purchasing Fresh-Perishable Category At Primary Store ...... 62

Table 3.4 Non-Primary Store Bakery Purchase Location ...... 62

Table 4.1 Monthly Reach Of Fresh Perimeter Categories, By Generation And Ethnicity ...... 71

Table 4.2 Demographic Proﬁ le Of Category Purchasers ...... 72

Table 4.3 % Purchasing Fresh-Perishable Category At Primary Store ...... 75

Table 4.4 Non-Primary Store Dairy Purchase Location ...... 75

Table 5.1 Monthly Reach Of Fresh Perimeter Categories, By Generation And Ethnicity ...... 83

Table 5.2 Demographic Proﬁ le Of Category Purchasers ...... 98

Table 5.3 % Purchasing Fresh-Perishable Category At Primary Store ...... 84

viii IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Table 5.4 Non-Primary Store Deli Purchase Location ...... 87

Table 5.5 Non-Primary Store Specialty Meats Purchase Location ...... 88

Table 6.1 Monthly Reach Of Fresh Perimeter Categories, By Generation And Ethnicity ...... 88

Table 6.2 Demographic Proﬁ le Of Category Purchasers ...... 99

Table 6.3 % Purchasing Fresh-Perishable Category At Primary Store ...... 102

Table 6.4 Non-Primary Store Prepared Purchase Location ...... 103

Table 7.1 Monthly Reach Of Fresh Perimeter Categories, By Generation And Ethnicity ...... 110

Table 7.2 Demographic Proﬁ le Of Category Purchasers ...... 111

Table 7.3 % Purchasing Fresh-Perishable Category At Primary Store ...... 113

Table 7.4 Non-Primary Store Specialty Cheese Purchase Location ...... 114

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite ix ENGAGING THE EVOLVING SHOPPER: SERVING THE NEW AMERICAN APPETITE Executive Summary

This report highlights the evolving U.S. shopper of fresh perimeter categories— Bakery, Dairy, Deli, Prepared foods, Specialty Cheese, and Specialty Meats—through the lens of Millennials, modern eating, health + wellness, and digital engagement.

OVERVIEW U.S. demographics are evolving to include more single-person households and more varied family structures; changing the nature of food eating and sourcing. Millennials are proving a dominant force in shaping food trends, both now and for the future, particularly in fresh perimeter categories.

These changing demographics, when combined with the new demands of modern life, have resulted in an eating culture deﬁ ned by a blurring of boundaries, rituals, and food traditions. Today, eating can happen anytime and anywhere; both snacking and immediate consumption behaviors are shaping how shoppers think about fresh perimeter categories.

Why shoppers eat what they do has shifted; trends in health + wellness (H+W) have redeﬁ ned how shoppers see the role of food in their lives. Food choices now reﬂ ect a growing aspiration towards an experiential, positive, holistic, and proactive approach to wellness.

As online and ofﬂ ine have blurred, technology has become totally integrated into shoppers’ lives and, more speciﬁ cally, their interactions with food as they choose, plan, experience, share and buy food online.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 1 KEY FINDINGS Who is shopping the fresh perimeter? While 83% of all primary shoppers purchase at least monthly from two or more of the six fresh perimeter categories, Boomers (38%) and Millennials (35%) stand out for their collective purchasing strength. More than previous generations, Millennials meet their fresh perimeter category requirements for quality, selection, and value on a department by department basis (i.e., they may leave their primary store for another [perhaps more specialized in fresh categories] to ensure they can meet the standards they require in these categories). Millennials are also more likely to use fresh perimeter departments for everyday needs, rather than just for special occasions.

Millennials are a generation comfortable with outsourcing their cooking. The fresh perimeter provides them with curated fresh foods and beverages to discover, assemble, and eat right away, thereby serving as a healthier alternative to foodservice and to center store retail. While just as likely as Boomers to shop the Dairy department, Millennials are signiﬁ cantly more likely than Boomers to shop monthly in each of the other ﬁ ve fresh perimeter categories (Table 1.5, page 14, details frequency of shopping by age and category.)

• 77% of all adult eating occasions in the U.S. now involve at least some foodservice, prepared, or ready-to-eat items; for Millennials, it’s 88%.

Millennials engage with fresh perimeter foods differently than older generations in two ways. Their engagement with fresh perimeter categories is shaped by their orientation to health + wellness and an approach to shopping that is more proximate to eating. They also see higher-quality food experiences as part of an implicit wellness practice that includes food discovery, enjoyment, sociability, and indulgences.

Millennial priorities, their preferences for communications, and their use of interactive technologies within the store, center to a surprising degree on getting ideas about what to eat and buy, rather than just about how best to fulﬁ ll their desires at the best available value. Together, these developments open new opportunities for Deli, Dairy, and Bakery departments and their staffs to attract shoppers to the store, enhance basket size, and build cross-department loyalty by telling an integrated shopper-relevant health + wellness story.

Fresh perimeter categories are stocked for modern eating. Snacking (eating outside of meals; often alone) and immediate consumption (i.e., eating within an hour of purchase) are inﬂ uencing how shoppers use fresh perimeter categories.

Snacking has evolved from an incidental eating behavior to a purposeful, rich cultural practice. Food retailers are the primary source for snacks. Shoppers, especially Millennials (who snack more), are looking beyond center-store snack aisles to fresh, real food choices in fresh perimeter categories. They are looking at the quality of calories (nutritional density) rather than counting calories.

2 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite As immediate consumption has become a normal way of sourcing food, shoppers are increasingly sourcing out, yet eating in; enjoying the fun of the restaurant-quality food with the ease and relaxation of home dining. They are essentially outsourcing cooking. Innovative retailers are leveraging their own strengths to compete for a greater share of immediate consumption occasions. They are connecting shoppers’ desire for cooking assistance, customization, and instantaneous food with thoughtfully curated fresh perimeter categories.

Most foods found in the fresh perimeter categories are thought of as antidotes to unhealthy, processed foods. Fresh perimeter categories cue up shoppers’ aspirations for fresh, real, whole, and minimally processed foods. They tap directly into current conversations about what is healthy and delicious to eat. The Dairy department, in particular, signiﬁ es a real-food source of protein in the form of yogurt, milk, cheese, eggs, and tofu. The Bakery department, traditionally associated with indulgence and some of the least healthy foods, has an increasing opportunity to deliver on key wellness priorities with more focus on a wider variety of fresh, whole grain and gluten-free products.

Shoppers today believe that food is the foundation of health + wellness. As shoppers take a more proactive role in their health destinies, they are likely to start by eating “better” to lose weight, increase energy and manage chronic conditions. Beyond just avoiding “negatives” such as high sodium, high fructose corn syrup and chemical additives, they are also shifting their diets to include more real and whole foods, including more fruits and vegetables, whole grains, dairy and good meats and seafood. Fresh prepared foods are believed to be healthier than packaged or frozen foods. Trend-forward health + wellness shoppers are also including more foods and ingredients that support good digestion in order to control weight gain, sluggishness, bad moods and inﬂ ammation. Dairy remains evermore central as a health + wellness category, through its traditional associations with positive nutrition, protein, and now as a place to ﬁ nd attributes that support good digestion (e.g., probiotics and prebiotics, fermented and cultured foods and beverages, dairy-free alternatives, vegetarian/vegan foods, etc.).

Shoppers maintain their wellness priorities across fresh perimeter categories, but balance them differently. Chart 1.11 on page 25 identifi es the top health + wellness attributes shoppers look for in each of the fresh perimeter categories. Bakery shoppers prioritize having no artifi cial ingredients or preservatives along with no high fructose corn syrup; Dairy shoppers seek low fat, 100% natural and fat-free; Deli and Prepared foods shoppers look for natural, no artifi cial ingredients and low sodium; Specialty Cheese shoppers seek natural and no artifi cial ingredients or preservatives; Specialty Meat shoppers prioritize having no artifi cial ingredients or preservatives and minimal processing.

Fresh perimeter categories serve a diversity of day parts and needs for shoppers. Understanding occasions which shoppers associate most strongly with each category can also help retailers identify ways to deliver on wellness priorities. Table 2.4 on page 46 details the top occasions associated with fresh perimeter categories. Bakery stands out for indulgent items and special occasions; the Dairy department serves as a good source for breakfast and healthy snacks, while the Deli is most associated with lunch and dinner. Both Prepared foods and Specialty Meats are more strongly identiﬁ ed with dinner, followed by lunch. The Specialty Cheese department cues both healthy and indulgent snacks.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 3 Shoppers now choose, plan, experience, share, and buy food online. Today’s shoppers live in an environment where the once clear divisions between online and ofﬂ ine are increasingly blurred. From laptops to smart phones and beyond, shoppers have seamlessly integrated technology into their lives, fundamentally altering the way they engage with the world around them, including how and what they eat.

While Millennials may be the most digitally connected generation, this does not mean that they are completely satisﬁ ed with all that is social media. Outreach efforts through social media will resonate best by being relevant to Millennials’ needs for inspiration, information and value.

Dairy, Deli, and Bakery manufacturers and retailers can take steps to establish credibility in their social media voice. For one, examine the type of social media platforms available and consider if their user proﬁ les match the intended audience. Chart 1.16 on page 32 shows that while Facebook is used by both Millennials and Boomers, sites like Pinterest and Instagram are only relevant to Millennials. Equally as important, consider who from the store shoppers prefer to hear from. Shoppers of all ages prefer to hear from established experts such as chefs, or from fresh perimeter category staff depending on the issue. Thus when establishing a social media-based communications strategy in these areas, retailers and manufacturers should be sure that their voice is infused with this expertise.

Shoppers see ways for companies to provide value on social media through information, inspiration and discounts. Social media strategies that will align most closely with shopper needs are those that focus on helping shoppers eat healthier, get ideas for what to eat and offer them the most for their money.

Shoppers are increasingly using smartphones while in store to gather information, manage lists/budgets and ﬁ nd recipes. With more than 80% of Millennials using a smart phone, members of this generation in particular rely on their mobile devices when shopping. Smart phone apps shoppers rely on most while in the store are those that assist with making and managing lists (17%), communicating and coordinating with other eaters who can either speak to what is needed or what to buy (17%), recipe resources (12%), online and mobile coupons, (11%) and price comparisons (8%).

Shoppers will migrate to other stores for fresh perimeter categories. Fresh/specialty stores, although small, are attracting shoppers away from some conventional fresh perimeter departments. While only 5% of shoppers select a fresh/specialty store as their primary store overall, they will shop these stores to ﬁ ll speciﬁ c fresh category needs. Chart 2.2 on page 39 shows that, compared to choosing a fresh/specialty store as a primary store, shoppers are at least twice as likely to prefer a fresh/specialty store for purchasing Specialty Cheese (16%), Prepared foods (11%), Bakery (10%), Deli (10%), and Specialty Meats (10%).

4 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite While some of the fresh perimeter category migration away from one’s primary store is to fresh/specialty stores, the vast majority is to other conventional food retailers, suggesting stores can focus more effort on retention strategies. Charts 2.4 on page 40 and 2.5 on page 41 show that between a quarter and half of fresh perimeter category shoppers leave their primary store to ﬁ ll fresh category needs elsewhere. Table 2.3 on page 46 shows that in all six fresh perimeter categories, shoppers cite delivering better value and variety/selection as ways to keep them in their primary store. In Bakery, Deli and Prepared foods, freshness is also important and in Specialty Cheese and Meats, unique items are a priority.

While value strategies can take the form of price discounts or price promotions, stores can also offer value through higher quality, discovery through unique and specialty items, ﬂ avor distinctions, personalized recommendations, freshness cues, healthier offerings, compelling narratives, and portion/package sizes that reduce waste.

Boomers are, compared to Millennials, more satisﬁ ed with their primary store for fresh perimeter categories. They are least likely to migrate to other stores for Dairy (25%) and Bakery (30%) but most likely to prefer another store for Specialty Cheese (46%). Millennials are much more likely than Boomers to leave their primary store for Specialty Meats (48%), Prepared foods (46%) and Bakery (41%). To retain Millennials, stores will need to offer more variety and unique items to discover.

“Enjoyment” is in large part about the experience of discovery and perceptions of curation in fresh perimeter departments. Being perceived as “an enjoyable place to shop” is a relatively large part of becoming a destination store, accounting for one-third (33%) of likelihood to recommend the store. Health + wellness play a considerable role here as well. Shoppers are likely to recommend – and go out of their way to visit – stores which they believe “help them eat healthier” on the one hand, and “help them get ideas for what to eat” on the other. Millennials especially, ﬁ nd inspiration and enjoyment are central to wellness.

Higher-quality food experiences are about variety. Millennials have an expanded repertoire of everyday foods that includes a mix of ethnic, global, and trendy diets (e.g., paleo, vegan, gluten-free). Variety is part healthy and part fun. Perceived variety in fresh perimeter categories is a more important driver of a store’s role as a health + wellness destination than speciﬁ c health or nutrition information. Millennials look more to curation than to information when getting their health + wellness needs met in the fresh perimeter. They prefer stores on the basis of trust in the healthfulness of offerings. Therefore, inspire discovery through Prepared foods infused with culinary expertise, and through Specialty Cheese and Specialty Meats curated with a broad selection of fresh items and fresh ideas.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 5 Communications should “roll up” to an overall voice for the store. Among the factors driving shoppers to destination stores, beyond simply an in-store experience creating an enjoyable place to shop, shoppers in equal measure seek stores to:

• Help them eat healthier.

• Help them get ideas for what to eat.

• Help them get the most for their money.

While fresh perimeter departments are often assumed to have healthier options than center store, this health halo is built less through health-related information provided and more through the curation of product selection and the qualities assumed to be present in the foods themselves.

Some voices in the store are expected by shoppers to provide information (about health, about deals), while others are tuned in more for inspiration (about ideas). A few key domain owners include the Nutritionist (for Health), the Chef (for Recipe ideas and for health to a lesser extent) and the Store manager (for deals). Fresh perimeter voices can supplement and support these voices if the store has clearly identiﬁ ed nutritionists or chefs, or can take their place to build a store-level expertise in these domains. Culinary expertise is sought for inspiration. Chefs and Prepared food staff enjoy the most credibility among the department-speciﬁ c voices in the fresh perimeter.

KEY TAKE AWAYS • Changing American demographics and evolving food culture are affecting how we live, shop and eat. Boomers account for a large share of shoppers and dollars, but it is Millennial shoppers who are at the forefront of the NEW AMERICAN APPETITE.

• Modern eating, aligned with freshness, discovery, snacking and immediate consumption, presents a tremendous opportunity for fresh perimeter departments to take center stage to deliver on the priorities of todays’ shoppers.

• Attributes symbolizing fresh, real and less processed are driving choice in the fresh perimeter categories.

• Good variety and unique items within fresh perimeter categories drive perceptions of health at the store level and, combined with perceptions of value, contribute to shopper satisfaction with stores they choose to shop for fresh perimeter category needs.

• While value is currently top of mind for shoppers when thinking about what companies can provide to them on social media, there is a growing interest in obtaining both inspiration and user-generated information, especially among Millennials.

• Since they seek fresh ideas, make sure that digital media engagement and overall store communications includes a mix of information and inspiration, leveraging each department’s distinctive place in that mix.

6 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite ENGAGING THE EVOLVING SHOPPER: SERVING THE NEW AMERICAN APPETITE Research Methodology

IDDBA, in 2014, commissioned The Hartman Group to provide association members with a better understanding of the evolving shopper. Particular focus this year was placed on Millennials, as well as cultural trends infl uencing eating and shopping behaviors, health + wellness priorities, and shopper engagement with digital resources — all through the lens of key fresh perimeter categories. An interdisciplinary research methodology integrated both primary Quantitative research and Qualitative research.

PRIMARY QUANTITATIVE RESEARCH A survey was ﬁ elded April, 2014 online to a demographically balanced sample of n=869 primary shoppers between the ages of 18-74 who are actively engaged with shopping in the fresh perimeter (purchased at least 2 out of 6 categories within the past month). To understand the competitive landscape more completely, category shoppers could qualify by shopping retail grocery fresh departments and / or specialty food retailers for these same categories. Each participant provided responses for up to 3 fresh perimeter food categories from which they purchase monthly per the list below.

Fresh Perimeter Category Deﬁ nitions Category Name Category DeĮniƟon

Bakery In-store bakery items, such as breads, cakes, or pastries

Dairy Milk, yogurt, sour cream, cheese

Deli Deli meats or cheeses, sliced at the store (sold service and self-service)

Prepared Fresh-prepared entrees, sides, soups or salads, ready to eat or heat & serve

Specialty Cheese Gourmet/specialty cheeses

Specialty Meats Specialty meats, aged/smoked meats or sausages

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 7 PRIMARY QUALITATIVE RESEARCH Two research groups were conducted with 12 participants who shop the fresh perimeter departments under study. Shoppers told us about their food lives, wellness needs and what they ﬁ nd motivating and frustrating about shopping fresh perimeter categories. Homework assignments completed prior to the groups gave a deeper understanding of how fresh perimeter categories ﬁ t into their broader shopping and eating lives. Participants shared photos of pantries and refrigerators and examples of mobile apps they use in their daily lives.

This report furthermore builds on past reports from IDDBA, including previous editions of What’s in Store and Hartman Group research reports including Modern Eating: Cultural Roots, Daily Behaviors 2013, Outlook on the Millennial Consumer 2014 and Hartman Compass. Additional analysis was conducted with U.S. Census Current Population Survey (CPS), March 2014 and 2013-2014 Hartman Group ethnographic research into eating and shopping behavior. Consumer homework: Apps in your daily life

Key Research Terms Deﬁ ned The following terms are referred to throughout the report and are deﬁ ned as follows:

Term DeĮniƟon Boomers Consumers between the ages of 50 and 68 years

Boomers+ Boomers combined with the Silent geŶĞƌĂƟon; between the ages of 50 and 74 years Category Purchase the designated category at least monthly, along with at least one other fresh Shopper/Purchaser perimeter category dƌĂĚŝƟŽŶĂů mainstream channel such as Grocery Store, Supercenter, Club Store or ConveŶƟŽŶĂů ŚĂŶŶĞů Drugstore dƌĂĚŝƟŽŶĂů mainstream retailer such as Kroger, Publix, Safeway, Target, Walmart, Costco, ConveŶƟŽŶĂů ZĞƚĂŝůĞƌ or Family Dollar Food ReƚĂŝůĞƌ Grocery Store, Supercenter, Convenience Store, etc. Restaurant, café, fast food outlet, cafeteria, food court, including carry out or delivery but Foodservice NOT foodservice within a Grocery or Food retailer Fresh Perimeter Shop two or more of following categories at least monthly: Bakery, Dairy, Deli, Prepared, Shopper Specialty Cheese, Specialty Meat Niche retail establishments focusing on fresh and specialty products such as Specialty Fresh/SpecŝĂůƚǇ Channeů stores (e.g. Trader Joe’s), Natural Foods Store (e.g. Whole Foods Market), Bakery shop, or Farmer’s market Retailer focusing on fresh or specialty products such as Trader Joe’s or Whole Foods Fresh/SpecŝĂůƚǇ ZĞƚĂŝůĞƌ Market Gen X Consumers between the ages of 36 and 49 years Natural, local, ĂƌƟƐĂŶĂů – i.e., where healthful is implicitly understood and if something is, /ŵƉůŝĐŝƚ WeůůŶess for example, all natural, it will be lacking the “bad” ingredients by default

8 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Term DeĮniƟon An index shows how a speciĮc demographic or shopper group compares with all shoppers. E.g., 51% of Millennials shop Specialty Meat Departments while only 39% of All shoppers do so. Index: Millennials 51%/Total 39% X 100 = 131 Index for Millennials

An index over 100 means the group is more likely than shoppers in general to exhibit the ĐŚĂƌĂĐƚĞƌŝƐƟĐ͘ Any index of 120 or greater is considered noteworthy or over-indexing. Index

The index of 131 for Millennial Specialty Meat shoppers makes it easier to see how sigŶŝĮcant they are to this department.

An index less than 100 means the shopper group is less likely than shoppers in general to exhibit the trait. An index that is 80 or less is considered noteworthy or under-indexing. IntenƟonal Health IntenƟŽŶally avoiding “bad” or “negĂƟǀĞ͟ ingredients, such as fat, sodium and cholesterol

Millennials Consumers between the ages of 18 and 35 years Retailer where shopper buys most of the specŝĮed product category, e.g. Bakery Preferred Store department items (may Ěŝīer from their primary store) Retailer where shopper buys most of their food and grocery items (where shopper spends Primary Store most money on grocery-type items) Primary Shopper Responsible for half or more of household’s grocery shopping. QuĂůŝĮĐĂƟon for this study.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 9 ENGAGING THE EVOLVING SHOPPER: SERVING THE NEW AMERICAN APPETITE Chapter 1: The Shopper

Shoppers are driving the food marketplace more than ever before. We are witnessing an era of unprecedented engagement with what we eat (e.g., ethnic, global, regional) and a concurrent shift in how we eat (e.g., snacking, immediate consumption). Information and inspiration about food is in our hands through search, social media, and mobile devices. Healthy eating is now widely accepted as the foundation to health + wellness. The new American appetite has changed from bland and familiar to new, interesting, and fl avorful.

The dependable deli sandwich is being supplemented with pho, Korean tacos, and quinoa bowls. With so many beverage choices (including non-cow alternative milks), conventional drinking milk has been relegated to childhood and cereal. Adults eat their Dairy in the form of yogurt and cheese as tasty AND healthy snacks or as a component of an easy-to-assemble meal.

Food is so much more than just nourishment; it is our entertainment (e.g., Food Network, food blogs), an expression of our identities (e.g., vegan, foodie), and both origin and panacea for many of our conditions and ailments (e.g., diabetes, cancer). Food is appearing ubiquitously in conversations, social media and the news. The Digital Age has also allowed shoppers to learn more about their food, and publicly voice and share their opinions with each other and with companies.

Today’s shoppers are expecting more from their food, as well as from the retailers and companies providing it. The upmarket trend for all things fresh, traceable and interesting is shifting the value proposition from lowest price toward higher quality and trust at a good price. Shoppers are shedding the constraints of old loyalties as they seek authenticity, variety and adventure over the comfort and sameness of traditional foods and national brands.

As shoppers become more involved with the food they’re eating—counter-intuitively—they are less involved in cooking it. While expectations for freshly prepared foods are increasing, there is a decline in shoppers’ willingness to

10 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite engage in preparing it at home, as they spend more time on the go and feel greater time constraints with the pressures of modern life and work. Additionally, they may lack the culinary skills needed to prepare the new and exciting foods they want to eat. However, they are ﬁ nding a plethora of ready-made choices for immediate consumption, beyond the microwavable meal and fast foods. Fresh casual restaurants, food trucks, ethnic restaurants, and the fresh perimeter of retailers are all supplying fresh prepared meals and snacks to hungry shoppers.

The Millennial Generation (18-35 year-olds) is at the forefront of this cultural shift in what and how we eat. They 35% of fresh perimeter are critical to understand because they comprise a signiﬁ cant shoppers are Millennials slice of today’s fresh perimeter shopper segment AND (Fresh perimeter shoppers are those herald the future shopper who is seeking healthy AND shopping two or more of the following delicious new foods. They are digitally connected and hungry. categories monthly: Dairy, Deli, Bakery, This report highlights the evolving U.S. shopper of fresh Prepared Foods, Specialty Cheese, and perimeter categories—Dairy, Deli, Bakery, Prepared Foods, Specialty Meats) Specialty Cheese, and Specialty Meats—through the lens of Source: IDDBA Engaging the Evolving Shopper Millennials, modern eating, health + wellness, and digital 2014. engagement. “We’re trying to eat more fruits and vegetables so we have to 1.1 DEMOGRAPHIC TRENDS shop more o en. One of us ends Who we are is changing. As the U.S. population becomes up back at the store every few more ethnically diverse and as traditional patterns of family days.” formation give way to varied household compositions, it no longer helps retailers to imagine and market towards a - Millennial shopper singular food shopper.

According to the most recent U.S. Census, 28% of U.S. households are single-person households. Only another 28% of U.S. households have children under the age of 18, and for the ﬁ rst time ever, the majority of babies in the U.S. are non-Caucasian. Today, 53% of primary shoppers are women; with moms comprising 22% of primary shoppers. Even within traditional families, the work of shopping and cooking is increasingly negotiated and managed between parents who both work outside the home. Almost half (47%) of primary shoppers are men.

Evolving shopper food needs can be better understood within the context of increasing diversity and fragmentation of the American household and mealtimes. Portion size, level of cooking assistance, type of foods and/or cuisines, freshness expectations, and other drivers of at-purchase choice in the fresh perimeter categories must be tailored to a differentiated shopper base, beyond mom. Shoppers who live alone or as a couple are looking for smaller portions sizes and easy-to-prep ingredients. Ethnically diverse shoppers and adventurous foodies are looking for a wider selection of ethnic/global items.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 11 Table 1.1 U.S. Demographic Proﬁ le Table 1.2 U.S. Primary Shopper Proﬁ le

U.S. Census, March 2014 Total Total Gender Gender Female 51% Female 53% Male 49% Female with children 22% Cohort (among adults 18-74) Male 47% Millennials 18-35 35% Cohort (among adults 18-69) Gen X 36-49 26% Millennials 18-33 30% Baby Boomers 50-68 34% Gen X 34-47 28% Silent 69-74 6% Baby Boomers 48-66 39% Household Structure Silent 67+ 3% Adults only 44% Source: The Hartman Group Shopping Topography 2012 n=1900. With children 28% Live alone 28% Average Household size 2.5 Ethnicity Caucasian 78% Hispanic/Latino 17% African American 14% Other 8% Ethnicity of Millennials Caucasian 75% Hispanic/Latino 21% African American 15% Other 10% Ethnicity of babies 1 or younger Non-Caucasian 50.4% Caucasian Non-Hispanic 49.6%

Source: U.S. Census Current Population Survey (CPS), March, 2014.

1.1.1 SHOPPER PROFILES IN FRESH PERIMETER

Who is shopping the fresh perimeter? Boomers and Millennials stand out for their collective purchasing strength across the six Fresh categories. Fresh perimeter shoppers (defi ned in this study as purchasing from 2 or more fresh perimeter categories—Dairy, Deli, Bakery, Prepared Foods, Specialty Meats and Specialty Cheeses—at least monthly) refl ect U.S. demographic trends. Regular shoppers of fresh perimeter categories account for fi ve- out-of-six (83%) of primary food shoppers. Non-perimeter shoppers (purchase less than 2 categories monthly) account for 17% of primary food shoppers and tend to be older (Boomer) shoppers and those who live alone.

12 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Table 1.3 Shopper Proﬁ le Fresh Perimeter (Fresh perimeter shoppers are those shopping two or more of the following categories monthly)

Purchase Less than 2 Purchase 2+ Shop at least Categories Categories Specialty Specialty monthly (17%) (83%) Bakery Dairy Deli Prepared Cheese Meats Gender Female 61% 58% 56% 58% 57% 54% 53% 50% Male 39% 42% 44% 42% 43% 46% 47% 50% Age cohort Millennials 18-35 27% 35% 37% 36% 39% 42% 44% 43% Gen X 36-49 24% 22% 22% 22% 22% 21% 21% 20% Boomers 50-68 44% 38% 36% 38% 35% 33% 31% 34% Silent 69+ 5% 5% 5% 5% 3% 4% 4% 3% Average Age 47.2 44.2 43.4 44.2 42.5 41.7 41.0 41.3 Household

Structure Live alone 39% 23% 20% 21% 19% 23% 20% 19% With children 17% 29% 33% 30% 34% 31% 33% 34% Adults only 44% 48% 47% 49% 47% 45% 47% 46% Average HH size 2.1 2.5 2.6 2.5 2.6 2.6 2.6 2.7 Respondent’s

Ethnicity Caucasian 78% 81% 81% 81% 80% 80% 81% 79% African American 15% 12% 12% 12% 13% 12% 11% 13% Latino/Hispanic 10% 12% 12% 12% 13% 12% 14% 13% Other 7% 7% 7% 7% 7% 9% 8% 8%

Source: IDDBA Engaging the Evolving Shopper 2014. Total Primary Shoppers n=1439; n=797-Bakery; n=1216-Dairy; n=731-Deli; n=653- Prepared; n=510-Specialty Cheese; n=571-Specialty meats.

Table 1.4 Fresh Perimeter Category Reach, by Household Structure

Shop at least Specialty Specialty monthly Bakery Dairy Deli Prepared Cheese Meats Total 73% 94% 67% 59% 48% 52% Live Alone 66% 89% 57% 61% 43% 44% Live With Children 82% 96% 77% 63% 54% 61%

Source: IDDBA Engaging the Evolving Shopper 2014. Total Primary Shoppers and visit 2+ categories n=1072; n=787-Bakery; n=1006-Dairy; n=724-Deli, n=639-Prepared; n=503-Specialty Cheese; n=565-Specialty meats

Although those shoppers who live alone do take advantage of Dairy, Deli and Bakery categories on a monthly basis, they shop these categories far less than households with families. The presence of others in the household creates a greater number of tastes and preferences to satisfy, a need for convenience and time-saving solutions and the desire for healthy foods. Many of these households with families are Millennial households, and Millennials show a much stronger use of fresh perimeter categories.

It is important to note, however, that while the foods available in fresh perimeter categories are resonating with Millennials and resonating with family households (often one in the same), Millennials without children are just as likely to shop fresh perimeter as those with children. Boomer and Silent generation consumers (Boomers+) are frequent shoppers in Dairy, Bakery and Deli.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 13 Table 1.5 Fresh Perimeter Category Reach, by Generation

Shop at least Specialty Specialty monthly Bakery Dairy Deli Prepared Cheese Meats Total 73% 94% 67% 59% 48% 52% Millennials 77% 95% 74% 70% 61% 64% Boomers+ 70% 93% 60% 51% 39% 45%

Source: IDDBA Engaging the Evolving Shopper 2014. Total Primary Shoppers and visit 2+ categories n=1072; n=787-Bakery; n=1006- Dairy; n=724-Deli; n=639-Prepared; n=503-Specialty Cheese; n=565-Specialty meats.

Chart 1.1 Millennial Shopper Participation in Fresh Perimeter Categories By Household Structure

90% 93% MILLENNIALS 79% Live alone Adults only With child 74% 68% 67% 70% 65% 62% 61% 57% 56% 52% 54% 54% 54% 47% 42%

Bakery Dairy Deli Prepared Specialty Meats Specialty Cheese

Source: IDDBA Engaging the Evolving Shopper 2014. Total Primary Shoppers n=1439; n=1216-Dairy; n=797-Bakery; n=731-Deli, n=571- Specialty Meats; n=653-Prepared; n=510-Specialty Cheese.

As seen in Table 1.5, Millennials tend to shop a greater number of fresh perimeter categories than older generations. They are driven not only by their desire for freshness, but also by their greater appetite for unique/specialty items that are often ready- to-eat. While individual stores and fresh perimeter departments may experience challenges aligning with and attracting younger shoppers, the categories themselves do tend to be especially relevant to Millennials. While only half of Boomers and older shoppers (51%) frequent Prepared foods, and even fewer frequent Specialty Cheese (39%) or Specialty Meats (45%), almost two-thirds of Millennials shop most categories monthly. As a “I’ve got a lot of feedback coming result, more than 40% of Specialty Cheese, Specialty Meats and at me from my wife and girls Prepared foods shoppers fall within the Millennial age range. about what they want me to While Millennials living alone shop the Fresh Prepared category pick up from the store. They less often than their counterparts in multi-person households, text in requests and I try to notably, the same does not hold true for Boomers. Boomers living accommodate.” alone are more likely to eat Prepared foods than those living with others, likely as a convenient or inexpensive way to achieve an -Male shopper acceptable meal-for-one. Single Millennials are more likely to use foodservice and eat socially than single Boomers.

14 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Table 1.6 Generation by Household Structure Inﬂ uence on Shopper Participation in Prepared Category

Millennials Live Millennial Boomer Household Alone Households 2+ Adults Boomers Live Alone Adults only Prepared 54% 65% 53% 44%

As seen in Table 1.5, Dairy is the common denominator between generations, driven by the current health + wellness priorities for good digestion and “real-food” sources of protein that are convenient and versatile as an ingredient or ready-to-eat snack.

1.1.2 DEEP DIVE INTO MILLENNIALS 35% of fresh perimeter shoppers are Millennials (born between 1979 and 1994). Given the signiﬁ cance of the Millennial shopper to fresh perimeter categories, this section presents a deeper dive into Millennials’ eating, shopping and cooking habits and values, offering insight into how best to target this eclectic consumer group.

Millennials are in a state of major transformation. They are waking up to the responsibilities of adulthood and are engaging in more “adult-centric” activities, like maintaining demanding jobs and starting families. They are learning to cook and Millennial Approach to become more organized in their approach to eating. While Cooking they may enjoy cooking, many are pressed for time in their 60% love to cook daily routines and short on ideas for easy and affordable meals. 36% are cooking/learning to cook Cooking is often enjoyed as a special event when time is easy to 18% buy fresh ingredients on the same come by. For everyday meals, they have a standard repertoire of day they prepare food “go-to” dishes that are simple, affordable, and quick to prepare.

Millennials shop at a variety of retailers in order to meet their SPECIALTY SHOPPING needs of the moment. Lack of planning results in more trips 46% of Millennials shop specialty and shopping wherever is convenient (close by) at that time. 32% of Boomers shop specialty In addition to convenience and price, they value retailers that provide rich in-store experiences through extensive fresh and prepared food offerings, knowledgeable employees, samples, NUMBER OF FOOD RETAILERS SHOPPED demos and more intimate footprints. Thus, they are more likely PAST 90 DAYS to shop specialty than older generations. Millennials 9.0 GenX 7.1 Compared to older generations, Millennials plan less and are Boomers 6.3 more likely to incorporate prepared options when making meals at home. They are also more likely to buy fresh ingredients the same day they cook. They are also more likely to ditch cooking Source: The Hartman Group, Outlook on the Millennial Consumer 2014 (n=2155 U.S. adults) at home all together and eat out.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 15 Chart 1.2 Millennials’ Approach to Preparing Meals at Home

My household prepares a meal with a wide variety of 31% ingredients (fresh, frozen, canned, or packaged) 43% 44% My household relies on the fresh prepared food options 19% from a local grocery store or restaurant 14% 8% My household tends to prepare a meal primarily with 18% fresh ingredients purchased the same day 12% 6% My household relies on frozen meals which can be easily 15% heated in a microwave or conventional oven 10% 12% My household tends to prepare a meal entirely with 13% fresh ingredients or from scratch 17% Millennial 24% My household turns to the pantry, relying on canned, 4% Gen X packaged or frozen foods (i.e., nothing fresh) to prepare 5% the meal 7% Boomer

Source: The Hartman Group, Outlook on the Millennial Consumer 2014 (n=2155 U.S. adults)

Chart 1.3 Millennials and Takeout

Takeout/food delivery at least once a week

Millennial 36%

Gen X 29%

Boomer 22%

Source: The Hartman Group, Outlook on the Millennial Consumer 2014 (n=2155 U.S. adults)

Chart 1.4 Millennial Taste Preferences

54% Classic American cooking 68% 73% 52% The food I grew up with 54% 56%

45% Anything new and different 35% 25%

Common (Americanized) ethnic foods (e.g., Tex-Mex, Italian- 44% 52% Millennial American, Chop Suey) 51% 41% Fast food 36% Gen X 31% 41% Trying new kinds of ethnic cuisine 34% 31% Boomer

Source: The Hartman Group, Outlook on the Millennial Consumer 2014 (n=2155 U.S. adults)

16 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite While Millennials enjoy exploring new and ethnic cuisines, they also rely on familiar comfort foods. Increasingly, familiar comfort foods can also be ethnic foods for this ethnically diverse cohort. And, they deﬁ ne fast food more broadly by including food trucks and fast casual restaurants like Chipotle that offer fresh, customizable, healthier food with a dollop of authenticity through stories of transparent sourcing and community. The grab- and-go food in the fresh perimeter is also within the fast food consideration set.

Millennials are knowledgeable, and passionate, about social “Instead of stopping oﬀ at Taco and environmental issues (e.g., organic, non-GMO), however, Time, I’ll dip into the prepared their current economic reality limits their ability to act on these concerns. While all generations want information, Millennials sec on of my grocery store and take a big picture view when deciding what to buy; they love a grab lunch or a snack. I think it’s good story that allows them to personally connect with a brand or healthier because it’s fresh and product. not fried.”

Millennials defi ne wellness as more than just health; wellness, – Millennial shopper or well-being, is holistic, an evolution and includes indulgence. Compared to older generations, few Millennials are infl uenced by nutritional claims on packaging. They rely more on their intuition and “common sense” when determining what to eat. Millennials are more likely to pay attention to packaging that calls out organic, certifi cations, and product narratives. They seek balance and prefer to focus on the delicious things they love to eat rather than on the unhealthy things they should avoid.

Chart 1.5 Important Food Choice Factors by Generation

52% Is made with natural ingredients 51% 45% 44% Does not contain GMOs 39% 36% 41% Does not contain allergens 37% 29% 41% Is made with organic ingredients 29% 19% 39% Is grown locally 33% Millennial 31% 36% Gen X Is manufactured locally 32% 26% Boomer

Source: The Hartman Group, Outlook on the Millennial Consumer 2014 (n=2155 U.S. adults)

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 17 1.2 MODERN EATING TRENDS

Fresh perimeter categories are stocked for modern eating. Changing demographics and household structures, along with the tempo and motifs of modern life— instantaneous, hyper-connected, mobile and dynamic—have changed the patterns of how we shop, prepare, and eat food. These shifts have resulted in a new, modern eating culture marked by a blurring of boundaries, rituals, and food traditions. Today, eating can happen anytime and anywhere, untethered to mealtimes or the table. There are fewer “Snacking’s more important for social rules around eating; there is a lot more information telling shoppers what not to eat and a lot more sources of me than for my parents. My days inspiration for what to eat (if they have the right culinary skills are longer. And if it’s a day when and cultural savvy). I’m working out, I need to have those snacks in between.” Snacking (eating outside of meals, often alone) and immediate consumption (i.e., eating within an hour of - Millennial shopper purchase) are inﬂ uencing how shoppers use fresh perimeter categories.

Snacking represents 50% of all eaƟ ng occasions, 80% of which take place at home

62% of today’s snacking involves a health + wellness goal

Source: The Hartman Group, Modern Eating: cultural Roots, Daily Behaviors 2013 (Hartman Compass, n=57,409 U.S. adults eating)

1.2.1 SNACKING Snacking reﬂ ects a more ﬂ exible approach to eating. Snacks are bound by fewer rules than meals, and are playing an important role in shoppers’ food lives and food culture. Snacking has evolved from an incidental eating behavior to a purposeful, rich cultural practice.

Snacks enable exploration of global and novel tastes. Snackable formats offer smaller portions, lower price points, and, often, familiar vehicles that reduce risks for experimentation (think, masala ﬂ avor chips). Snacks have been reframed by the health + wellness industry as a meaningful way to address physical, mental, and emotional needs. Examples of this sort of conversation stream include: “protein, protein, protein” and “eat more, lose weight!”

As consumers expect snacks to do more for them—in terms of offering cultural, social, emotional and functional (health) beneﬁ ts—the lines between meals and snacks are blurring. Snacks are becoming more substantial in nutritional and caloric input, and not just a throwaway treat. Snacks can replace meals or supplement simpler, smaller meals.

Food retailers are the primary source for snacks. Shoppers, especially Millennials (who snack more), are looking beyond center-store snack aisles to fresh, real food choices in fresh perimeter categories. They are looking at the quality of calories (nutritional density) rather than counting calories, and seeking quality ingredients rather than greatest quantity for less money.

18 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Chart 1.6 Where Snacks Come From

Food Retailer 85% 82%

Food Service* 6% 14%

Another Person 3% 3%

Vending Machine 2% 1%

Work 1% 1%

Other 6% 4% Snack Occasions Meal Occasions

Source: The Hartman Group, Modern Eating: cultural Roots, Daily Behaviors 2013 (Hartman Compass, n=21,163 U.S. adults). *(excludes Retailer foodservice)

1.2.2 IMMEDIATE CONSUMPTION Immediate consumption (IC) reﬂ ects a desire for planned spontaneity. IC, eating within an hour of purchase, is no longer for special occasions or an infrequent departure from meal planning. IC has become a normal way to manage shopping, preparing, and cooking. Retailers and foodservice have become an extension of our home pantries as shoppers embrace a more spontaneous approach to planning. Like snacking, IC is as much about creating ﬂ exibility in planning for home occasions as it is about eating out.

IC enables greater expression of personal and customized food choices based on whims, moods or schedules. Interest in fresh “Snacking is a big part of my life. I foods has led to more frequent shopping to provide for a desire try to eat every 2 to 3 hours.” for more perishable offerings and to avoid highly processed items. Appreciation for ethnic and global cuisines (that one may - Boomer shopper not have the know-how to prepare at home), and the ubiquity of interesting eating out and prepared food choices at both foodservice and retail, has made IC a more everyday option.

Immediate ConsumpƟ on represents 15% of all eaƟ ng occasions, 65% of which, not eaten at restaurant, are at home

13% of Immediate ConsumpƟ on occasions sourced from foodservice are eaten at home

Source: The Hartman Group, Modern Eating: cultural Roots, Daily Behaviors 2013 (Hartman Compass, n=57,409 U.S. adults eating)

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 19 IC is most common when there’s a desire to avoid spending time and effort on planning and cooking. Sourcing from foodservice is no longer just about eating out. As IC has become a normal way of sourcing food, shoppers are increasingly sourcing out, yet eating in; enjoying the fun of the restaurant quality food with the ease and relaxation of home dining. They are essentially outsourcing cooking.

Innovative retailers are leveraging their own strengths to compete for a greater share of IC. They are connecting shoppers’ desire for cooking assistance, customization and “My wife and I will text between instantaneous food with thoughtfully curated fresh perimeter categories. These categories offer a spectrum of semi- and 10 and 3 and ask ‘what shall fully prepared options, wide variety, unique items and a deeper we have for dinner?’ And we’ll engagement in food culture trends. nego ate between what we feel like, what we’ve got in the cupboard, if we’re red, or if we’ve been spending too much money ea ng out.”

- Boomer shopper

Chart 1.7 Need States for Immediate Consumption

Not needing time or energy to think about cooking/preparing something 52%

Having foods with better flavor than their ordinary counterparts 46%

Having foods or beverages that were made with simple, real ingredients 42%

Moderating intake of calories, fat, carbs, or sugar 34%

Just 'gotta have my ____(Oreos, Cheetos, Pepsi, etc.)' 33%

Having something high in protein, fiber, whole grains, calcium or probiotics 33%

Enjoying local or seasonal foods 30%

Having something that offered a special health benefit 29%

Having something that was labeled 'NO ____(preservatives, artificial ingredients, high-fructose corn syrup, transfats) 25%

Making the food from scratch with the best of ingredients, with no short cuts or limits on time 24%

Source: The Hartman Group, Modern Eating: Cultural Roots, Daily Behaviors 2013 (Hartman Compass, n=2,944 U.S. adults)

20 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 1.3 HEALTH + WELLNESS TRENDS Health + wellness is mainstream. What began as a counterculture movement against industrialization of food production has today become part of a large food culture trend toward higher quality food experiences. Health + wellness has reframed how shoppers think about food and the role food plays in how they feel, whether that be how they feel in the moment, their long-range health outcomes or their overall Meanings of Health + quality of life. Over the past decade, there has been a shift away Wellness Today from a perfunctory, ascetic, reactive, and compliant notion of health towards an aspiration for wellness that is experiential, HEALTH is about intenƟ onality positive, holistic, proactive, and self-assessed. This broadened around specifi c types of physical notion of wellness has become a tacit part of culture rather needs than a lifestyle choice or an alternative movement. WELLNESS encompasses emoƟ onal For today’s shoppers, health + wellness is a holistic approach and relaƟ onal goals like fun, to having a higher quality of life for longer. They want to enjoyment and connectedness live full and active lives that are meaningful, connected, and positive. Trying to achieve “feeling well” is a daily practice and an on-going self-management of wellness. Shoppers believe that food is the foundation of health + wellness. As they take a more proactive role in their health destinies, they are likely to start by eating “better” to lose weight, increase energy and manage chronic conditions. Beyond just avoiding “negatives” such as high sodium, high fructose corn syrup and chemical additives (for intentional health benefi ts), they are also shifting their diets to include more real and whole foods, including more fruits and vegetables, whole grains, dairy and good meats and seafood (for their implicit wellness benefi ts). Fresh prepared foods are believed to be healthier than packaged or frozen foods.

In addition to enjoying fresh and delicious food, trend-forward health + wellness shoppers are starting to include more foods and ingredients that support good digestion. Celebrity health experts and chefs, media reports of the “latest nutritional science,” food activists, fi tness trainers, trendy dieting philosophies, and other infl uencers in food culture are increasingly highlighting the benefi ts of good digestion. Good digestion is associated with having a range of benefi ts from reduced infl ammation to mood to sustained energy for the day to proactively warding off sickness and other conditions in the future. In turn, trend-forward shoppers increasingly associate foods such as gluten- free, lactose-free, dairy-free, and those containing probiotics with the benefi ts of good digestion. Discussions with Millennials showed emerging awareness around digestion.

Chart 1.8 What are You Deliberately Adding to Your Daily Diet?

33% Probiotics 26% 9%

28% Flaxseed oil 29% 27%

23% Prebiotics 17% 2013 2010 2% 2007

Source: The Hartman Group, A Culture of Wellness 2013 (n= 2,551 U.S. adults)

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 21 Thus, Dairy remains evermore central as a health + wellness category, through its traditional associations with positive nutrition, protein, and now as a place to ﬁ nd attributes that support good digestion (e.g., probiotics and prebiotics, fermented and cultured foods and beverages, dairy-free alternatives, vegetarian/vegan foods, etc.).

While the movement towards a new paradigm of health + wellness has been a long-term cultural shift, the past fi ve to ten years have witnessed mainstream shopper adoption of new in-store priorities and behaviors. Food shoppers still tend to report avoiding or moderating dietary “baddies” such as sodium or fats, but these are less and less salient in their own right and are increasingly simply part of a broader pattern away from “artifi cial,” “processed” or “industrial” and more towards ingredient profi les that support holistic wellness.

Chart 1.9 What are You Deliberately Avoiding in Your Daily Diet?

50% Sodium/Salt 55% 50% High fructose corn syrup (HFCS) 41% 49% Trans fat 54% 48% Saturated fat 56% 46% Cholesterol 58% 43% MSG 41% 42% ArƟĮĐŝal colors/dyes 44% 42% Growth hormones 32% 40% Saccharin (e.g., Sweet N' Low) 39% 40% ArƟĮĐŝal Ňavors 44% 38% Aspartame (e.g., Equal) 33% 37% ArƟĮĐŝal preservaƟves (such as BHT)

36% ReĮned sugar 40% 34% Sucralose (e.g., Splenda) 21% 34% ParƟally hydrogenated vegetable oils 28% 33% GeneƟcally modiĮed ingredients 15% 2013 33% Caīeine 33% 2007

Source: The Hartman Group, A Culture of Wellness 2013 (n= 2,551 U.S. adults)

22 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 1.3.1 HEALTHY EATING Shoppers look to clues and cues for healthy food. The vast majority of food shoppers count healthy eating as one of their key priorities when selecting items for themselves and their families. Speciﬁ c health priorities may vary from person to person, but so, too, do the claims and clues that shoppers use to evaluate whether food options are consistent with their priorities. There is, therefore, no one claim such as “healthy for you” that even a majority of shoppers would say really matters to them when reading labels and product descriptions. Indeed, today’s wellness shoppers would likely doubt that such a broad “Some of the most important claim would do justice to their speciﬁ c situation and needs: decisions you make in your life their distinctive bodies, their distinctive selves. are about food.” Yet the cues shoppers use to identify foods likely to be -Millennial shopper healthful are not entirely unique to each shopper, and several are considered important by more than one-third of shoppers.

Chart 1.10 What’s Important when Shopping for Healthy Foods (Top-2 Box Important)

Heart healthy 44% No trans-fats 43% Made in USA 42% Minimally processed 40% Animals are humanely raised 39% No high-fructose corn syrup 39% No artificial preservatives 38% No artificial ingredients 38% 100% natural 38% Low sodium 36% Low sugar 33% Low calorie 32% Local 31% Low-fat 31% Premium 30% GMO-free 29% Sustainably produced 28% Nitrate/nitrite-free 27% Fat-free 26% Organic 25% Low-carb 24% Raw 21% Glycemic index 19% Gluten-free 19% Lactose-free 18% Dairy-free 16% Artisan 11%

Source: IDDBA, Engaging the Evolving Shopper 2014 (n=869 U.S. adults). Percentage = “Very Important” or “Extremely Important” response.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 23 Generally speaking, broad benefi t claims (“heart healthy”) and markers of overall quality (such as “minimally processed”) are considered important to health by a broader shopper audience than specifi c claims implicated in narrow health concerns (“low-carb” or “lactose-free”). But given that every shopper has his or her own concerns to worry about, it is important to understand more specifi cally how health + wellness priorities “I like having choices with milk group together and manifest themselves within various fresh now. We use it for our smoothies, perimeter areas. The following section explores the concerns our cereal and a snack.” and claims that are more or less relevant depending on which fresh perimeter category is being shopped. - Millennial shopper

1.3.2 HEALTH + WELLNESS IN FRESH PERIMETER Many contemporary health concerns—from diabetes and obesity to food allergies and hyperactivity—are linked to unhealthy, processed foods in the center store. In contrast, many foods found in the fresh perimeter categories are thought of as antidotes to those unhealthy, processed foods. Fresh perimeter categories cue up shoppers’ aspirations for fresh, real, whole, and minimally processed foods. They tap directly into current conversations about what is healthy and delicious to eat.

It is perhaps no surprise, then, that the shoppers of fresh perimeter categories seek those characteristics and claims that support the aspiration towards fresh and real. Across all of the food categories measured here, the most broadly sought claims are those that (a) reinforce “natural” as a positive beneﬁ t, and (b) reassure that category-speciﬁ c warning signs and health-implicated ingredients are absent.

The top-3 most commonly sought attributes by Dairy department shoppers, for example, include not only low-fat or fat-free but also “100% natural.” Shoppers in Prepared foods most commonly seek “100% natural” but also attempt to avoid artiﬁ cial ingredients (whose presence would reduce the distinction these shoppers seek between Prepared and center-store, packaged convenience foods) and an overabundance of sodium (which signals processing but also may concern shoppers substituting Prepared for a trip to foodservice). Similarly, shoppers in Bakery and in Specialty Meat and Cheese most commonly seek reassurance of freshness: no artiﬁ cial preservatives, HFCS or other ingredients perceived as inconsistent with real, whole and minimally processed qualities. Top Attributes Sought in Fresh Perimeter Categories

Low fat 100% natural 100% natural Fat free Low sodium PREPARED DAIRY Low sugar

100% natural

No high fructose corn syrup DELI Low sodium BAKERY 100% natural

100% natural Minimally processed 100% natural SPEC. MEATS SPEC. CHEESE Minimally processed

24 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Chart 1.11 Health + Wellness Attributes Sought Across Categories

Bakery Dairy Deli Prepared Specialty Cheese Specialty Meats 100% natural 16% 22% 21% 25% 25% 17% No artificial ingredients 19% 19% 21% 21% 21% 17% No artificial preservatives 18% 16% 19% 16% 18% 19% Low-fat 13% 27% 18% 18% 15% 11% Made in USA 14% 16% 18% 19% 16% 16% Low sodium 12% 11% 19% 20% 15% 16% Minimally processed 10% 11% 15% 18% 18% 18% No trans-fats 16% 12% 14% 19% 13% 11% Heart healthy 12% 17% 15% 18% 11% 11% Low sugar 16% 15% 11% 20% 9% 9% No high-fructose corn syrup 16% 12% 11% 15% 10% 16% Low calorie 11% 17% 13% 17% 12% 9% Premium 10% 8% 13% 13% 16% 14% Fat-free 7% 19% 10% 12% 10% 9% Organic 8% 13% 9% 13% 14% 10% Animals are humanely raised 5% 10% 14% 11% 10% 13% GMO-free 8% 10% 13% 11% 11% 9% Nitrate/nitrite-free 5% 7% 12% 14% 9% 12% Low-carb 8% 7% 7% 13% 9% 7% Local 8% 8% 7% 10% 7% 6% Sustainably produced 4% 6% 7% 9% 6% 4% Gluten-free 4% 4% 7% 9% 7% 5% Dairy-free 3% 5% 6% 7% 6% 4% Artisan 5% 2% 4% 7% 8% 3% Lactose-free 2% 8% 4% 6% 4% 3% Glycemic index 3% 3% 5% 6% 4% 2% Raw 1% 3% 3% 8% 3% 4%

Source: IDDBA, Engaging the Evolving Shopper 2014 (n=869 U.S. adults). Boxes denote top 3 attributes in each category.

Dairy remains central to shoppers’ health + wellness as it signiﬁ es a real-food source of protein in the form of yogurt, milk, eggs, cheese, and tofu. Dairy is no longer just about cow’s milk or breakfast. Dairy is increasingly satisfying healthier snacking and all day meal options. It is currently a section of the store where shoppers have permission to explore and freely add to their carts.

Bakery—which currently has slightly negative health halos associated with sodium, sugar, gluten, and carbs—is described as relatively healthy when compared to the center store bakery aisle. Retailers often successfully leverage cues of higher quality (e.g., artisanal, local, fresh baked) and healthy digestion (e.g., whole and alternative grains, gluten-free and vegan options, smaller portion sizes, and less sweet offerings). And while bread and sweets may not be an everyday indulgence, the Bakery category enables shoppers to have their bread and cake in a more intentional and mindful way.

Prepared foods departments, in addition to offering freshly prepared foods to eat right away, enable shoppers to explore new and interesting foods, especially ones they don’t know how to prepare for themselves. Prepared foods also offer healthier alternatives to both center store processed food offerings and to foodservice, for shoppers who are outsourcing more and more of their cooking. Fresh prepared, scratch made, colorful foods, clear ingredient listing, free-from options, ethnic and global dishes, and more vegetables all cue higher-quality, good food.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 25 CONSUMER HOMEWORK: What are foods from Dairy, Deli, and Bakery that support your Health and Wellness?

“We’ve all made the switch to whole grains. “I use real bu er for baking and Earth Balance It’s not a hardship…it’s delicious.” as a spread. I like mixing it up. Not too much of one or the other.” - Boomer shopper - Millennial shopper

“Organic milk is important to us because our “I snack on deli meat. It’s easy and tasty daughters s ll drink a lot of milk. I’m lactose protein.” intolerant, but my I can get ‘my’ milk too.” - Gen X shopper - Gen X shopper

1.3.3 INTENTIONAL HEALTH AND IMPLICIT WELLNESS DIMENSIONS IN FRESH PERIMETER CATEGORIES Approaches to health and wellness include shoppers seeking combinations of attributes with common benefi ts. By looking at how importance tends to be placed on several attributes in tandem, statistical (factor) analysis reveals the most powerful dimensions that drive specifi c shopper health + wellness interests. We fi nd these dimensions align along two distinct groups: Intentional Health dimensions and Implicit Wellness dimensions.

Intentional Health Dimensions Include: AVOID NEGATIVES: Shoppers who seek “low-carb” are also likely to seek “low calorie” and/or “low sodium,” and/or “low fat.” This corresponds to an approach to seeking health in food amounting to a tendency to Avoid Negative ingredients.

MODERATE SUGAR: Separately, those for whom healthy eating means “low sugar” or measuring a food’s “glycemic index” tend to look for these attributes in tandem, to the relative exclusion of other priorities. Older shoppers tend to be more engaged with this style of shopping for healthy food, and while this is clearly about age-related concerns about diabetes or pre-diabetes, the narrow focus for these shoppers connects as well with a distinctively medicalized style of health-beneﬁ t seeking.

26 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite SUPPORT DIGESTION: Although lower in importance relative to other intentional health priorities, this leading edge trend area is worth noting. The same shoppers who seek “gluten-free” tend to seek “raw” and/or “dairy-free.” Therefore, each should be understood as markers of shoppers who turn to a more generalized wellness approach wherein digestion is central to everyday and long-term well-being.

Chart 1.12 Intentional Health Dimensions and Attributes, by Category

Dimension Item Bakery Dairy Deli Prepared Specialty Cheese Specialty Meats Low-fat 13% 27% 18% 18% 15% 11% Low sodium 12% 11% 19% 20% 15% 16% No trans-fats 16% 12% 14% 19% 13% 11% Avoid Heart healthy 12% 17% 15% 18% 11% 11% Negatives Low calorie 11% 17% 13% 17% 12% 9% Fat-free 7% 19% 10% 12% 10% 9% Low-carb 8% 7% 7% 13% 9% 7% Moderate Low sugar 16% 15% 11% 20% 9% 9% Sugar Glycemic index 3% 3% 5% 6% 4% 2% Gluten-free 4% 4% 7% 9% 7% 5% Dairy-free 3% 5% 6% 7% 6% 4% Digestion Lactose-free 2% 8% 4% 6% 4% 3% Raw 1% 3% 3% 8% 3% 4%

Source: IDDBA, Engaging the Evolving Shopper 2014 (n=869 U.S. adults). Dimension groups created by Factor Analysis

Avoiding Negatives, Moderating Sugar and Supporting Digestion all speak to intentional health priorities that connect to health proﬁ les that understandably vary by shopper, even as they are shared by groups of shoppers connected by life-stage, genetic predispositions and health priorities. However, another set of dimensions signal a less obvious but equally powerful cohesion among shoppers.

Implicit Wellness Dimensions Include: NATURAL: Given several decades of public health messaging and USDA-mandated labeling around specifi c nutrients to include or moderate in one’s diet, it is remarkable how many shoppers today look beyond nutritional values. “Natural” is sought, and “processed” is avoided, as FRESH has come to signify a level of quality that bridges the promise between personal health and community wellness, between explicit, intentional health and implicit, experiential wellness. Shoppers with this approach to fi nding healthy foods tend to look in tandem for “No artifi cial ingredients,” and/or “Organic,” and/or “100% natural,” and today even “GMO-free.”

LOCAL/ARTISANAL: The recent call to get closer to your food and “know where it comes from” has taken food beyond “Natural” into the realm of authenticity, transparency, and storytelling through cues around “Local” and “Artisanal.” These attributes are markers of higher quality and, in their ideal expression, are more about having a personal and engaging relationship with food throughout the whole product lifecycle—from growing to sourcing, producing, distributing, and selling—and less about nostalgic longing for the past. This being said, there is a generational difference between “Local” (and tandem claims: “Made in USA,” “Premium”) and “Artisanal” (and tandem claims: “GMO-free,” “Sustainably produced”). Older shoppers are more likely to seek “Local,” while Millennials gravitate to “Artisanal.” This may be a simple difference in their historic frame of reference. Older shoppers are likely to be a generation or two away from the farm, and use this as their point of reference for soulful food; whereas most Millennials tend to be urban and have fewer experiences with farms. However, even Millennials do imagine a historic time before processed/fast foods, when food production was small-scale and based on wild seeds.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 27 Chart 1.13 Implicit Wellness Dimensions and Attributes, by Category

Dimension Item Bakery Dairy Deli Prepared Specialty Cheese Specialty Meats 100% natural 16% 22% 21% 25% 25% 17% No artificial ingredients 19% 19% 21% 21% 21% 17% No artificial preservatives 18% 16% 19% 16% 18% 19% Natural Minimally processed 10% 11% 15% 18% 18% 18% No high-fructose corn syrup 16% 12% 11% 15% 10% 16% Organic 8% 13% 9% 13% 14% 10% Animals are humanely raised 5% 10% 14% 11% 10% 13% Made in USA 14% 16% 18% 19% 16% 16% Local Premium 10% 8% 13% 13% 16% 14% Local 8% 8% 7% 10% 7% 6% GMO-free 8% 10% 13% 11% 11% 9% Artisan / Nitrate/nitrite-free 5% 7% 12% 14% 9% 12% Sustainable Sustainably produced 4% 6% 7% 9% 6% 4% Artisan 5% 2% 4% 7% 8% 3%

Source: IDDBA, Engaging the Evolving Shopper 2014 (n=869 U.S. adults). Dimension groups created by Factor Analysis.

Shoppers maintain their wellness Chart 1.14 Health + Wellness Attributes Sought for In-Store priorities across fresh perimeter Prepared Foods are Similar to those Sought in Casual QSR categories, but balance them Dimension Item Casual QSR Prepared differently. When reading labels and Heart healthy 25% 18% product descriptions in center store, Low sodium 21% 20% Low calorie 19% 17% shoppers may be on guard. Shelf-stable Avoid Low-fat 18% 18% Negatives itself is perceived as a sign of processing, No trans-fats 17% 19% a warning against freshness. In the fresh Low-carb 13% 13% perimeter, on the other hand, shoppers Fat-free 11% 12% Moderate Low sugar 19% 20% often trust that the food offered is Sugar Glycemic index 4% 6% healthy even in the absence of labeling. Intentional Health Gluten-free 7% 9% Lactose-free 7% 6% With the exception of Bakery, shoppers Digestion in each department say that, while health Dairy-free 5% 7% Raw 4% 8% concerns matter to them when shopping 100% natural 20% 25% the category, they have a baseline level No artificial ingredients 20% 21% of trust in the healthfulness of their No artificial preservatives 18% 16% Natural Minimally processed 16% 18% options at their preferred store (Part II of No high-fructose corn syrup 16% 15% this report will examine in greater detail Animals are humanely raised 13% 11% how this healthy halo is established and Organic 12% 13% Made in USA 17% 19% understood via freshness, enjoyment, and Local Local 16% 10% selection). Wellness Implicit Premium 12% 13% GMO-free 11% 11% However, even if they are mostly Artisan / Nitrate/nitrite-free 8% 14% Sustainable Sustainably produced 6% 9% trusting, shoppers in these categories do Artisan 5% 7% continue to explore their options through Source: IDDBA, Engaging the Evolving Shopper 2014 (n=869 U.S. adults) their healthy eating priorities. This is not unlike the tempering of health priorities generally seen in a casual food-service setting, where freshness and other wellness cues can mitigate the need for a litany of labels. Indeed, the speciﬁ c health + wellness attributes sought when shopping for Prepared foods are notably similar to those sought in this adjacent Quick Service Restaurant (QSR) channel.

28 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite The proﬁ le of health + wellness attributes sought across the full range of fresh perimeter categories is strikingly similar. Only two important differences emerge. While Dairy shoppers bring a greater balance of intentional health priorities, Bakery, Specialty Cheese and Specialty Meats are shopped with higher overall importance placed on more emotional, or implicit wellness, priorities. Prepared foods and Deli elicit a more even mix overall, with implications for day-part marketing opportunities discussed in Chapter 2. These distinctions can most easily be seen in the comparison of index scores for Intentional Health vs. Implicit Wellness dimensions at the very bottom of Chart 1.15 below.

Chart 1.15 Health + Wellness Attributes Across Categories, by Dimension

Intentional Moderate Low sugar 16% 15% 11% 20% 9% 9% Sugar Glycemic index 3% 3% 5% 6% 4% 2% Gluten-free 4% 4% 7% 9% 7% 5% Dairy-free 3% 5% 6% 7% 6% 4% Digestion Lactose-free 2% 8% 4% 6% 4% 3% Raw 1% 3% 3% 8% 3% 4% 100% natural 16% 22% 21% 25% 25% 17% No artificial ingredients 19% 19% 21% 21% 21% 17% No artificial preservatives 18% 16% 19% 16% 18% 19% Natural Minimally processed 10% 11% 15% 18% 18% 18% No high-fructose corn syrup 16% 12% 11% 15% 10% 16% Organic 8% 13% 9% 13% 14% 10% Animals are humanely raised 5% 10% 14% 11% 10% 13% Made in USA 14% 16% 18% 19% 16% 16% Implicit Local Premium 10% 8% 13% 13% 16% 14% Local 8% 8% 7% 10% 7% 6% GMO-free 8% 10% 13% 11% 11% 9% Artisan / Nitrate/nitrite-free 5% 7% 12% 14% 9% 12% Sustainable Sustainably produced 4% 6% 7% 9% 6% 4% Artisan 5% 2% 4% 7% 8% 3%

Source: IDDBA, Engaging the Evolving Shopper 2014. Responded to category questions n=426-Bakery; n=484-Dairy; n=414-Deli; n=408- Prepared; n=379-Specialty Cheese n=389-Specialty Meats. An index shows how a consumer group compares with the overall total, with an index = 100 indicating the consumer group is exactly the same as the Overall total. An index greater than 100 means the consumer group scores higher than the Overall total and an index less than 100 means the consumer group scores lower than the Overall total. Scores prior to indexing are computed from weighted average of highest-loading items for each dimension displayed.

More generally, these patterns amount to a toolkit for efﬁ cient delivery of health + wellness priorities. Not every item in every food department needs a full litany of speciﬁ c claims or assurances. Instead, a large portion of fresh perimeter shopper priorities can be addressed adequately by satisfying Natural and Avoid Negatives in category- appropriate ways and delivering solutions for shoppers who also seek support for their health + wellness priorities through Artisan quality, heightened need to Moderate Sugar or desire to connect with Locally sourced fresh items.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 29 1.4 DIGITAL ENGAGEMENT’S IMPACT ON FOOD CULTURE

Shoppers now choose, plan, experience, share, and buy food online. Today’s shoppers live in an environment where the once clear divisions between online and ofﬂ ine are increasingly blurred. From laptops to smart phones and beyond, shoppers have seamlessly integrated technology into their lives, fundamentally altering the way they engage with the world around them including how and what they eat.

There are now seemingly limitless ways to engage with food in the digital space and it is clear that these mediums – from blogs, to social media platforms, to online food retailers, have changed the way consumers think, talk about, and experience food. “I’ll always try new ways to get food.” Indeed, the digital space now can inﬂ uence and impact each stage of any given meal – from inception to consumption: - Millennial shopper

Planning – Social media platforms like Facebook and Instagram enable and accelerate conversations about how and what to eat, “Online is a vast place to get opening up new avenues of discovery previously unavailable to a recipes.” mass audience. Once the ‘what’ has been taken care of, shoppers can easily pull up recipes online and save shopping lists to their phone in - Boomer shopper preparation for their trip to the store.

Shopping – Online shopping has emerged as yet another channel “If I make something really in an already crowded ﬁ eld of food retailers. Leading online retailers fantas c, I Facebook it.” have learned from the mistakes of the ﬁ rst wave of online grocers and offer a much more intuitive and seamless experience that makes - Boomer shopper it easier for shoppers to move away from their entrenched ‘brick & mortar’ shopping habits. But still, there is a ways to go before online grocery shopping becomes truly mainstream.

Beyond online shopping, digital tools are also being used to enhance the in-store experience. This includes digital coupons, enhanced payment options, and information resources such as a QR code linked directly to information accessed via smart phone.

Preparing – Where aspiring chefs once had to rely on cookbooks or (if lucky) more culinary proﬁ cient friends for help with preparing food, today’s cooks can easily access any number of recipe websites (many with videos) that can help with the preparation process. Alternatively, any number of social media platforms (or a simple text message) can connect friends and family and provide access to a quick cooking advice.

Eating – Even the once sacred dinner table is not immune to the impact of technology. Today, people leverage social media and other platforms to connect and share eating experiences with others. Because of this type of sharing, social media and related technologies make new foods feel more accessible and desirable.

Digital technologies have substantially impacted how many consumers engage with food – simultaneously providing new sources of discovery and expanding access. The following sections provide a spotlight on social media and further explore the impact of smart phones on shopper behavior in the store.

30 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 1.4.1 SPOTLIGHT ON SOCIAL MEDIA

Social media touches all shoppers – not just the young. For Table 1.7 Social Media by the Numbers the past decade, “social media” has generally been understood % who use social to include any digital media website or platform through which networking sites audience members can participate by interacting with each other, All Internet users 18+ 73% either by contributing new materials that inﬂ uence the experience Men 69% of other audience members. This could include everything from Women 78% the product reviews contributed by shoppers on e-commerce Age websites to songs or video shared on so-called peer-to-peer 18-29 90% networks. With the widespread adoption of social-sharing features 30-49 78% across Internet-delivered media, social media today usually refers 50-64 65% 65+ 46% to social networking sites such as Facebook or Twitter, where the Race audience itself has become the content. White, Non-Hispanic 72% Black, Non-Hispanic 73% While Millennials may continue to comprise the heaviest users Hispanic 79% of social media, however deﬁ ned, these platforms are hardly Household Income the exclusive domain of the young. Recent polling by the Pew <30K per year 77% Research Center shows that 73% of Internet users ages 18+ use 30-49.9K per year 73% social networking sites. This includes a healthy 45% of Internet 50-74.9K per year 73% users aged 65 and up. Nor does social media engagement (at least 75K+ per year 75% Household Location on the whole) seem particularly related to a user’s income bracket Urban 76% as usage rates are relatively consistent across income brackets. Suburban 72% Rural 70% So, on a macro level, what other conclusions can be drawn about Source: Pew Research Center, Internet Project social media users? Beyond the obvious skew towards Millennials, Survey, July – September 30, 2013 (n= 5112 we also know a higher percentage of social media users live in urban Internet users ages 18). locations. Consistent with the broader adoption among younger adults, there is also a higher usage rate among Hispanics compared to non-Hispanic populations.

It is worth pausing here for a note of caution – while Millennials may be the most digitally connected generation, this does not mean that they are completely satisﬁ ed with all that is social media. In fact, many report that they are deliberately limiting some portions of their social media life which they view as time drain. The lesson for retailers and manufacturers? Don’t just assume Millennials will embrace or even welcome your social media campaign.

User profi les of the major social media platforms vary signifi cantly by generation and other factors. A closer look at some of the major social media platforms begins to reveal a more nuanced story in terms of the profi le of social media users.

As seen in Chart 1.16 on the following page, while Millennials consistently use all major social media platforms more often than Boomers, for some platforms this difference is much more pronounced than others. For example while job-oriented LinkedIn has roughly the same percentage of weekly users that are Millennials and Boomers+ , newer, more visually oriented platforms like Pinterest, Instagram, and Snapchat have much higher percentages of weekly users that are Millennials.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 31 Chart 1.16 Weekly Users of Social Media Sites

73% Facebook 81% 63%

38% YouTube 57% 24%

22% Twitter 32% 12%

17% Pinterest 27% 9%

16% Google+ 20% 11%

15% Instagram 31% 4%

14% Linkedin 15% 14%

7% Snapchat 16% 0%

5% Tumblr 12% 0%

3% MySpace 5% 2% Total 1% Flickr 2% 0% Millennials 18-35

16% None of these 7% Boomers+ 50-74 26%

Source: IDDBA Engaging the Evolving Shopper 2014. (n=869 Total; n=393 Millennials 18-35; n=345 Boomers+ 50-74)

Because of their broad reach and (at least on the surface) relative ease to manage, social media platforms have become a go-to tool for organizations attempting to develop closer (and more lucrative) relationships with their customers. But as many companies have discovered, establishing a social media presence that consumers trust and want to hear from is often a very difﬁ cult process.

So what steps can Dairy, Deli, and Bakery manufacturers and retailers take to establish this voice? For one, examine the type of social media platforms available and consider if their user “Looking at food online makes you proﬁ les match your intended audience. Equally as important, hungry. Food content is relatable, consider who from the store shoppers would prefer to hear easy to share, easy to like.” from, and about what. As a later section of this report reveals (see Voice of the Store), when shoppers are asked who they - Millennial shopper would be most interested in hearing from when it comes to

32 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite healthy eating, recipe ideas for the family and special occasions, and quick meals, shoppers of all ages prefer to hear from an established expert such as a nutritionist or chef, or from fresh perimeter category staff depending on the issue. Thus when establishing a social media based communications strategy in these areas, retailers and manufacturers should be sure that their voice is infused with this expertise.

1.4.2 SPOTLIGHT ON SMART PHONES For many shoppers, smart phones have become an Table 1.8 Smart Phones by the Numbers increasingly important component of purchasing behavior. With more than 80% of Millennials using a smart phone, % who have a members of this generation in particular have migrated many of smart phone their most common behaviors to their mobile devices, including All adults 18+ 58% many shopping-related behaviors formerly assisted by Internet Men 61% connectivity as well as newer innovative modes of product Women 57% research, needs assessment and coordination, in-trip or in-store Age navigation, and payment itself. In many product categories 18-29 90% outside of food and grocery, smart phones have been seen as 30-49 78% particularly disruptive to the extent that they have given the 50-64 65% 65+ 46% shoppers of a brick-and-mortar store access to information about Race the price of comparable items across competing retailers and White, Non-Hispanic 53% channels, and given these other retailers and channels access to Black, Non-Hispanic 59% the store’s shoppers. This dynamic not only drives prices down by Hispanic 61% introducing or accelerating competition, but also changes the way Household Income in which shoppers use stores: as product showrooms rather than <30K per year 47% sites for purchase. 30-49.9K per year 53% 50-74.9K per year 61% Food and grocery have been relatively resistant to this latter 75K+ per year 81% dynamic because shoppers have tended to be reluctant to leave Household Location one store to visit another for a meager amount of savings for Urban 64% only a single food item, and as well, reluctant to wait for an online Suburban 60% shipment of sometimes-perishable goods needed same day in Rural 43% light of Millennial meal-planning timeframes. Notwithstanding Source: Pew Research Center, Internet Project Survey, the nascent but growing presence of grocery e-commerce, the January 2014 (n= 1,006 adults) impact of smart phones at grocery has so far been less disruptive when it comes to pricing, but nevertheless has contributed to changes in the way in which food shoppers use food stores. Looking at the types of activities that shoppers have used their smart phones for at their primary stores provides an interesting portrait of how technology is impacting the grocery shopping trip.

Chart 1.7 Use of Smart Phones for Information and Purchase 68% Millennials Boomers 56%

34% 25% 8% 5%

I use a web enabled phone to gather I use a web enabled phone to buy I use the Internet to research products I information about products I might buy products (i.e., make purchases with the might buy (whether or not purchased phone itself) online) Source: The Hartman Group, Outlook on the Millennial Consumer 2014 (n=1328 Millennials 19-33; n=295 Boomers, 51-68)

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 33 CONSUMER HOMEWORK: Take screenshots of your mobile phone apps for social media, shopping and e-commerce

“My life is on my phone. I can stay connected with my friends and family. I discover new foods and use my phone when I cook. I ﬁ nd the best prices on groceries. I use my phone to shop.”

- Millennial shopper

Chart 1.18 Smart Phone Apps Used at Food Stores in Past Month

17% Make and manage lists 20% 10% Call friends or family for 17% 20% additional information 16% Use text/chat to contact friends or 17% 22% family for additional information 12% 12% Explore/find recipes 15% 7% Download online/mobile coupons 11% 11% from store 7% Compare prices with those at 11% 13% other stores 7% Browse retailer's digital catalog or 10% 11% circular 3% 9% Scan QR code or barcodes 10% 3% 8% Manage my budget 11% 3% Download online/mobile coupons 7% 8% from manufacturer 4% 7% Find stores (map) 8% 5% Manage my diet (e.g. calories 6% 9% consumed, points) 2% 5% Find item within stores 9% 2% Share shopping experience 4% 7% through social networking… 2% Use the phone at check-out to 4% 5% make a purchase 1% Get additional information about 3% 5% health profile of products 2% Get additional information about 3% Total taste/quality/ease of products 4% 0% Millennials 18-35 Use Photos/picture recognition 2% 3% Boomers+ 50-74 (such as SnapTell) 2%

Source: IDDBA Engaging the Evolving Shopper 2014. (n=559 Total Smart phone Users; n=312 Millennials 18-35; n=163 Boomers+ 50-74)

34 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Smart phone apps used for food shopping serve a variety of functions:

• Apps related to price/value shopping (mobile coupons from store; price comparison; mobile coupons from manufacturer)

• Apps related to personal organization (make and manage lists; manage my budget; manage my diet)

• Apps related to improving shopping convenience (Find stores; fi nd item in stores; use phone for check-out) “My dog is on a special diet so I • Apps related to sharing (Share shopping experience; use have a clean living app for him.” photo/picture recognition) - Millennial shopper • Apps related to information/discovery (call family/friend; use text/chat; explore/fi nd recipes; browse retailer digital catalog or circular; scan QR code or barcode; get additional information about health profi le of products; get additional information about taste/quality/ease of products)

While smart phone applications for product research, price checking and couponing are indeed used by food shoppers, they rank well behind others supporting the Millennial’s distinctive engagement with food. The smart phone apps most widely used today at food retail today assist shoppers with the inspiration and coordination of needs: making and managing lists (17% of adults each month), communicating and coordinating with other eaters who can either speak to what is needed at home or can provide other ideas about what to buy to eat, and recipe resources (many of which are socially enabled) that the shopper can access directly (12% monthly).

The mix of apps already adopted and currently succeeding for food shopping reﬂ ect Millennial food and wellness engagement more than any general technology or e-commerce preferences. In spite of their reputation for sharing experiences, only 7% of Millennials say they regularly share their food shopping experiences. (With the exception of recipe platforms, social media is therefore a more potent medium outside of the store, during the so-called “pre-shopping” phase of food consumption.)

Convenience features like navigation or mobile wallets are present, but still used by a small niche at food retail. Instead, personal organization enables personalized wellness as well as support for the Millennial’s family household. The smart phone represents an on-demand encyclopedia of eating and cooking, and a gateway to food knowledge: their selective adoption of information/discovery features connect with Millennials’ habits of same-day meal planning, and desires for recipe-inspired eating experiences.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 35 1.5 KEY RECOMMENDATIONS

Leverage the health halo that the fresh perimeter has by communicating fresh, less processed and real in a variety of ways – through store signage, ingredient labels on Bakery/Deli/ Prepared foods, store website, loyalty coupons, cross department promotions with other fresh items. Give freshness cues in-store by showcasing “made-on” dates where possible in Bakery, Deli and Prepared sections. Cue real, whole and minimally processed within Dairy and Specialty Cheese departments by showcasing short ingredient lists.

Natural is the most sought health + wellness attribute in all categories. Meet shopper wellness priorities by curating a greater selection of all natural foods and those with no artiﬁ cial ingredients or preservatives wherever possible.

Leverage the growth of snacking. Consumers expect snacks to do more for them – quality of calories, nutrition density, meal-bridge, energy, better for you indulgence. Give shoppers fresh, real food choices. Offer more snack-able formats to support on-the-go eating and immediate consumption trends. Offer “bites” or small hand-held portions of items from the Deli and Prepared departments, store-baked whole grain snacks from the Bakery, yogurt and cheese selections that are paired with nuts and whole grain or gluten-free crackers from the Dairy department.

Boomers are more loyal to their primary stores. Retailers should continue to reward this loyalty by offering customized coupons and promotions for Specialty items. Continue to deliver quality experiences that satisfy Boomers’ preference for classic American cooking, while curating a wider variety and selection of fresh, less processed choices. Provide this group with semi-prepared foods that tap their skills and comfort with cooking but which also offer customization and convenience.

Millennials are shopping more proximate to eating, which means they are going to be in the store more frequently and bring an appetite for in-the-moment food discovery and inspiration. Offer them deals and coupons that start to engage their loyalty.

• Retailers: Punch-cards in the Deli department for repeat lunch visits and Facebook promotions that offer one-day specials can engage Millennials. Provide plenty of well-merchandised healthy snacks in each fresh perimeter category: showcase on-the-go portable formats in the Dairy department, healthy whole grain cookies with “baked fresh today” callouts in the Bakery department. Incorporate artisan breads and specialty meats and cheeses into higher quality Deli sandwiches, including global ﬂ avor condiments. Help feed Millennials’ taste preference for anything new and different by offering tasting and sampling opportunities on days/times with the greatest Millennial trafﬁ c.

• Manufacturers: Become relevant to Millennials with more offerings of foods and ingredients that showcase natural, organic and local – organic is especially important to Millennials (41% vs 19% for Boomers). Find opportunities to offer smaller portion sizes to allow for easier experimentation and less waste for smaller Millennial households.

Harness the evolving digital food landscape through mobile. Shoppers will increasingly migrate their food discovery, planning and shopping onto their mobile devises. Mobile technology has enabled shoppers to have access to a diverse and dynamic food landscape in their own neighborhoods and beyond. As the division between online and brick & mortar will continue to blur, retailers must explore ways to engage shoppers digitally in order to be relevant in the changing food landscape.

36 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite ENGAGING THE EVOLVING SHOPPER: SERVING THE NEW AMERICAN APPETITE Chapter 2: The Store

THE STORE In Chapter 1, we described the shifting nature of the fresh perimeter shopper in a range of dimensions:

• WHO: U.S. demographics are evolving to include more single-person households, more varied family structures, changing the nature of food eating and sourcing. Millennials are proving a dominant force in shaping food trends, both now and for the future, particularly in fresh perimeter categories.

• WHAT/WHERE/WHEN: These changing demographics, when combined with the new demands of modern life have resulted in an eating culture deﬁ ned by a blurring of boundaries, rituals and food traditions. Today, eating can happen anytime and anywhere; both snacking and immediate consumption behaviors are shaping how shoppers think about fresh perimeter.

• WHY: Why shoppers eat what they do has shifted; trends in health + wellness have redeﬁ ned how shoppers see the role of food in their lives. Food choices now reﬂ ect a growing aspiration towards an experiential, positive, holistic and proactive approach to wellness.

• WITH: As online and ofﬂ ine have blurred, technology has become totally integrated into shoppers’ lives and, more speciﬁ cally, their interactions with food as they choose, plan, experience, share and buy food online.

In this section, attention will now turn to how these cultural trends are brought by shoppers into food stores.

• THE RETAIL LANDSCAPE: How these trends have been changing the shopper’s understanding of their food retail choices as they select WHICH STORES to shop for fresh perimeter food categories.

• THE RETAIL EXPERIENCE: How fresh perimeter food categories and the departments that serve them are experienced by shoppers as part of a fuller store experience: the expectations they bring to each department when it comes to meeting health + wellness needs throughout a day of eating, and shopper receptivity to different types of information and communication from and about different fresh perimeter food categories.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 37 As in the previous section, an emphasis will be placed on the behaviors and priorities of Millennials, due to their prominent role in food culture today. We ﬁ nd that Millennial shoppers, more than previous generations, meet their fresh perimeter category requirements for quality, selection and value on a department by department basis i.e. they may leave their primary store for another (perhaps more specialized in fresh categories), to ensure they can meet the standards they require in these categories. Millennials are also more likely to use fresh perimeter departments for everyday “We love fresh baked bread. It’s needs, rather than just for special occasions. a splurge, but can’t have pasta night without it.” For Millennial shoppers, wellness is less about using health information to enable moderation or avoidance of medically - Millennial shopper implicated ingredients, and more about using it for inspiration, experimentation and reassurance. Their priorities, their preferences for communications, and their use of interactive technologies within the store, center to a surprising degree on getting ideas about what to eat and buy, rather than just about how best to fulﬁ ll their desires at the best available value. Together, these developments open new opportunities for Deli, Dairy and Bakery departments to attract shoppers to the store, enhance basket size, and build cross-department loyalty by telling an integrated shopper relevant health + wellness stories.

2.1 THE RETAIL LANDSCAPE Today’s shoppers have access to a multitude of retail places from which to procure food, including both traditional mainstream channels and newer retail establishments. The grocery store is still the most commonly visited retail type as it offers a variety of products and services that speak to a wide variety of consumer needs. Among primary shoppers, 82% have visited a conventional Grocery store in the past three months.

Chart 2.1 Types of Channels Shopped in Past 3 Months

Grocery/Supermarket 82% Supercenter/Discount Store (e.g., Walmart, Target) 63% Club Store 36% Dollar store 26% Pharmacy/Drugstore 21% Convenience Store 17% Conventional Internet-based sources 9% Channels Vitamin Store 6% Direct Mail / Printed Catalog 3% Direct from sales rep/manufacturer 2% Specialty Store (e.g., Trader Joe's) 18% Natural/Health Food Store (e.g., Whole Foods Market) 16% Bakery shop 11% Farmer's market 10% Ethnic Food store 7% Wine store 7% Butcher 5% Delicatessen 5% Fish/seafood store 5% Specialty/gourmet food shop 4% Fresh/Specialty Specialty meats shop 3% Channels Roadside stand 2% Food co-op 2% Brewery 2% Specialty cheese shop 2% Fresh-prepared meals delivery 2% Bread/baked-goods by mail 2% Milk delivery 2% Community supported agriculture 1% Other, please specify 1%

Source: IDDBA Engaging the Evolving Shopper 2014. Total Primary Shoppers n=1439.

38 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Beyond the conventional channels, which have achieved Average Number of Channels Shopped scale by providing a wide selection of packaged goods, fresh in Past 3 Months perimeter categories are also served by a number of single- Millennials 4.2 category specialty channels such as bakeries and butchers. Boomers 3.3 When these alternative channels are considered, Millennial shoppers (those 18-35 years old) tend to shop in more channels to get their foods, with an average of 4.2 channels shopped in the past 3 months. They are more engaged with exploring, learning about new channels and relying on different types of channels to meet their needs than are Boomers, shopping only 3.3 channels in the same period.

Fresh/specialty stores appear to be growing at a faster rate than food retail overall. Even as traditional supermarkets face declining sales growth and other conventional channels grow at a rate that barely keeps up with inﬂ ation, the so-called “fresh format” stores, which emphasize fresh perimeter categories and a “natural” positioning, experienced over a 12.1% CAGR growth [per Willard Bishop, IDDBA What’s In Store 2015]. Fresh produce sales at retail have grown modestly (0.2%), even as farmers markets have exploded over the past decade and continue to grow both in volume and number (greater than 3% annually [per USDA]). While deli prepared foods at grocery stores have seen 4.7% CAGR [per IDDBA/Fresh Look Marketing], the adjacent fast casual QSR sector reports even higher ongoing growth in visits (8% [per NPD Crest]). All this taken together suggests that shoppers are increasingly willing to take at least some of their spending to channels specializing in fresh categories.

2.1.1. PREFERRED STORES In this study we asked shoppers about their “preferred store” for each of the fresh perimeter categories. A preferred store for a category is a retailer where the shopper buys most of the speciﬁ ed fresh perimeter category, and it may be a store other than their primary store (the retailer where shopper buys most all of their food and grocery items.) This section will touch on the emerging risk some stores face with shopper migration to fresh perimeter departments that are not their primary store.

The shopper’s “primary store” is typically relied on for everyday shopping of many fresh and most packaged foods, and these primary stores are typically conventional channel stores. Only 5% of shoppers select a fresh/specialty store (such as a single-category specialist or a natural-positioned store) as the primary store for their food shopping. But, for fresh perimeter categories, shoppers turn to these specialists at a higher rate. For Specialty Cheese shoppers for example, one-sixth (16%) say they buy most of their Specialty Cheese from a fresh/specialty store. Shoppers are at least twice as likely (10-16%) to prefer a fresh/specialty store for purchasing a fresh perimeter category, than choose such a store for the bulk of their food purchases.

Chart 2.2 Fresh/Specialty Stores as Share of Shopper’s Preferred Store, by Category

16.2% 10.1% 10.0% 10.6% 9.8% 7.0% 5.0%

As Primary Bakery Dairy Deli Prepared Specialty Specialty Meats Store Overall Cheese

Source: IDDBA Engaging the Evolving Shopper 2014. Responded to category questions n=405-Bakery; n=460-Dairy; n=372-Deli; n=356- Prepared; n=318-Specialty Cheese; n=325-Specialty Meats.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 39 Category-speciﬁ c needs inﬂ uence shopper behaviors to such an extent that, depending on the fresh perimeter category, between a quarter and half of category shoppers will look beyond their primary store to get what they need. Three-out-of-four Dairy shoppers (74%) purchase most of their Dairy at their “primary store,” (i.e., the store where they spend the most on food overall), while one-out-of-four (26%) have a separate preferred store for Dairy. More than one-third of shoppers of Bakery, Deli, Prepared, and Specialty Meats categories (36% to 40%), spend most of their category dollars at stores other than their primary store. And, in the most extreme case, half of Specialty Cheese shoppers prefer a different store for Specialty Cheese.

Chart 2.3 Where Shoppers Say they Buy Most of their Specialty Food, by Category

Bakery 64% 36%

Dairy 74% 26%

Deli 63% 37%

Prepared 60% 40%

Specialty Cheese 50% 50%

Specialty Meats 62% 38%

Stay in Primary Store Migrate to Preferred Store in Category

Source: IDDBA Engaging the Evolving Shopper 2014. Responded to category questions n=426-Bakery; n=484-Dairy; n=414-Deli; n=408- Prepared; n=379-Specialty Cheese; n=389-Specialty Meats.

In this fragmentation of spending towards preferred stores for fresh perimeter categories, Millennials lead the way. Instead of buying specialty categories at their primary store, Millennial shoppers in every category are more likely than older shoppers to choose speciﬁ c destinations for their fresh/specialty purchases. This is especially true in Specialty Meats, where half of Millennials – but only one-fourth of Boomers – will leave their primary store to buy from a different store that they prefer for that category. Interestingly, this comes in spite of the fact that Millennials are more likely to use primary stores that have a Specialty Meats department in the ﬁ rst place.

Chart 2.4 Preferred Store for Fresh Perimeter Category is Different from Primary Store, by Generation

36% Bakery 41% 30% 26% Dairy 28% 25% 37% Deli 37% 35% 40% Prepared 46% 35% 50% Specialty Cheese 50% 46% Total 38% Millennials 18-35 Specialty Meats 48% 26% Boomers+ 50-74

Source: IDDBA Engaging the Evolving Shopper 2014. Responded to category questions n=426-Bakery; n=484-Dairy; n=414-Deli; n=408- Prepared; n=379-Specialty Cheese; n=389-Specialty Meats.

40 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite The migration of the shopper’s fresh perimeter spending away from the primary store is more about quality and experience than it is about price. The speciﬁ c stores that shoppers say they prefer over their primary store are far more likely to have a fresh/specialty orientation than a discount orientation.

Chart 2.5 Where Do Shoppers Go for Each Fresh Perimeter Category?

Primary store 50% 64% 63% 60% 62% 74% Leave for Conventional Grocery Retailer 22% Not Primary, but Not 22% 23% 23% 18% Having a Preferred Store 17% 15% 14% 4% 10% Leave for Fresh/ Specialty 4% 8% 11% 7% 4% 3% 5% 5% market Retailer Bakery Dairy Deli Prepared Specialty Specialty Meats Cheese Source: IDDBA Engaging the Evolving Shopper 2014. Responded to category questions n=426-Bakery; n=484-Dairy; n=414-Deli; n=408- Prepared; n=379-Specialty Cheese; n=389-Specialty Meats.

These are the places where fresh perimeter shoppers can go to obtain their category: at their Primary store; leaving their Primary store for another Conventional Grocery Retailer; not at their Primary store but not having a preferred store for the category; and leaving their Primary store for a Fresh/Specialty Market Retailer. Importantly, while some of this migration of specialty spending is to Fresh/Specialty stores, the vast majority is to conventional, multi- category food retailers, selected as specialty destinations by shoppers for doing a better job in speciﬁ c categories than their primary store. Additionally, if a shopper leaves their Primary store in search of their category, they are more likely to shop at another Conventional Grocery Retailer. One Millennial shopper we spoke with absolutely loved the cheesecake at Safeway, but ventures off to QFC for their tiramisu.

2.1.2 WHAT MAKES A STORE A DESTINATION? If shoppers are willing to go out of their way to get what they need in the fresh perimeter categories they shop, what are the shopper perceptions that help to make a store a destination?

Regression modeling can assess the relative importance of various perceptions in driving a shopper’s overall “likelihood to recommend” a food store. This summary measure of advocacy corresponds closely with a shopper’s perception that a store is special enough to go out of the way to shop at, with higher scores for destination stores and moderate or low scores for stores selected entirely on convenience. And, indeed, IDDBA’s own survey data reveal that convenience – even the overall convenience of “making it easier to get shopping done” – is a relatively weak driver of store advocacy, accounting for only 7% of the variation in advocacy explained by the regression model. Brands matter even less (2%), likely because brand selection on its own is perceived as relatively even across the stores that shoppers might choose.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 41 On the other hand, being perceived as “an enjoyable place Chart 2.6 Importance of Store-Level to shop” is a relatively large part of becoming a destination Beneﬁ ts Driving Store Advocacy store, accounting for one-third (33%) of the advocacy model’s Is an ENJOYABLE explanatory power. Enjoyment captures a broad array of store place to shop features and experiences, but for shoppers of fresh perimeter

33% Help you get the Likelihoodrecommend to store categories, the fresh perimeter departments themselves clearly MOST FOR YOUR account for a great deal of what they enjoy about their food MONEY Help you eat shopping experiences. Perceptions of value – “helping you to HEALTHIER get the most for your money” matters too, and undoubtedly 18% attracts shoppers to stores they might otherwise ignore Help you get IDEAS FOR WHAT TO EAT or avoid, but matters only about half as much as overall shopping “enjoyment.” 17% Make it EASIER for you to get your shopping done Health + wellness plays a considerable role here as well. 17% Carry the FOODS YOU Shoppers are likely to recommend – and go out of their way LIKE to buy to visit – stores which they believe “help them eat healthier” 7% Carry the BRANDS on the one hand, and “help them get ideas for what to eat” 6% YOU LIKE to buy on the other. As discussed elsewhere in this document, for 2% Millennials especially, inspiration and enjoyment are central to Source: IDDBA, Engaging the Evolving Shopper 2014 wellness. (n=3406 store ratings from 869 U.S. adults). Standard- ized regression coeffi cients scaled to 100%.

2.2 THE RETAIL EXPERIENCE 2.2.1 DEPARTMENT WELLNESS FEATURES HELP TO MAKE A STORE A DESTINATION Underlying these high-level perceptions about stores are perceptions of fresh perimeter departments and how well they deliver against key shopper needs in each department. Gauging the relative importance of specifi c department features in driving perceptions of store-level benefi ts sheds light on what both store-level benefi ts and department features mean to food shoppers today.

For example, among the various store features that may help to make a store “an enjoyable place to shop,” the most strongly correlated are how well a store’s Dairy and Deli departments are perceived as offering unique items. This supports the idea that “enjoyment” is in large part about the experience of discovery and perceptions of curation in fresh perimeter departments. In general, compared to other departments measured, a store’s Dairy area is hard-pressed to receive “excellent” marks for product selection, such that those which are perceived as exceptional in these ways help to make a store stand out from the crowd. Shoppers also tend to “enjoy” stores which offer sufﬁ cient information on nutrition in their Bakery departments to put visitors at ease there, and stores whose Specialty Cheese and Prepared departments are perceived as delivering especially fresh items, perhaps by virtue of high trafﬁ c or rapid product turnover and ongoing change.

42 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Chart 2.7 Perimeter Perceptions Correlate with Store-Level Beneﬁ ts

Perimeter perceptions Importance of Store-level benefits driving Store-level benefits driving store advocacy

ENJOYABLE driven by: 1. Dairy - Unique items 2. Deli - Unique items 3. Bakery - Info on nutrition 4. Cheese - Freshness of items HEALTHIER driven by: 5. Prepared - Freshness of items 1. Cheese - Unique items 33% 6. Deli - Info on nutrition 2. Deli - Unique items 3. Deli - Wide variety Is an ENJOYABLE place to 4. Prepared - Healthy foods shop 5. Cheese - Freshness of items

6. Cheese - Wide variety Help you eat HEALTHIER Likelihoodrecommend to store 7. Dairy - Unique items 8. Meats - Info on nutrition 17% Help you get IDEAS FOR GET IDEAS driven by: WHAT TO EAT 1. Dairy - Wide variety 2. Dairy - Unique items 3. Prepared - Wide variety 17% Help you get the MOST 4. Prepared - Unique items FOR YOUR MONEY MOST FOR MONEY driven by: 5. Dairy - Freshness of items Make it EASIER for you to 1. Dairy - Value 6. Prepared - Healthy foods get your shopping done 2. Cheese - Value 7. Deli - Unique items 3. Dairy - Info on nutrition 8. Deli - Wide variety 18% 4. Prepared - Healthy foods Carry the FOODS YOU LIKE 5. Deli - Value to buy 6. Prepared - Value 7% 7. Meats - Value Carry the BRANDS YOU 8. Bakery - Value 6% LIKE to buy 2%

Source: IDDBA, Engaging the Evolving Shopper 2014 (n=3406 store ratings from 869 U.S. adults). Standardized regression coeffi cients scaled to 100%. Rankings of department features based on bivariate correlations of features rating (poor-excellent) against presence/absence of Store-level benefi t.

Most helpfully, this correlation analysis reveals that the benefi ts accounting for health on the one hand and wellness on the other – how well a store helps shoppers to “eat healthier” and how well it helps them “get ideas for what to eat” – are largely driven by similar department features, and the health/nutrition of available items and information about nutrition are NOT chief among these health + wellness features. Instead, to establish whether a store delivers on the health + wellness benefi ts that drive preference and patronage, shoppers look to the uniqueness and variety of product selection in the Specialty Cheese, Deli, Dairy and Prepared foods departments. This is in part because variety and quality distinction within these departments are typically “about” either health (such as with cultured or alternative milk products) or wellness (such as with locale-specifi c cheeses, or global fl avors in hot foods).

It is only with respect to Prepared foods that the health and nutrition of the available offerings correlates highly with helping the shopper eat healthier. While the implications of this relationship are complex, at a bare minimum this indicates two things: that some Prepared foods are perceived as substantially less healthful at some stores than at others, and that shoppers connect these differences to the store’s healthfulness at large.

In these ways and others, high-performing fresh perimeter departments not only pull in trafﬁ c, but also create a “halo” that helps to establish the store as a destination more holistically.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 43 Freshness is enough: Shoppers prefer fresh perimeter departments that deliver implicit wellness, not just health

The halo that fresh perimeter departments provide their stores is of course only part of the story. Because shoppers tend to split their business among stores when it comes to these categories, fresh perimeter departments must compete to earn the shopper’s preference within their own category by providing category-speciﬁ c beneﬁ ts. While performance within individual departments is examined in greater detail elsewhere in this document, a cross-category perspective here allows for some high-level observations that puts those details in perspective.

In the IDDBA Engaging the Evolving Shopper 2014 survey, category shoppers were asked to rate their preferred store from “poor” to “excellent” on a number of features ranging from Environment (attractiveness and tidiness of presentation) to Freshness, from Value to Variety and from Enjoyment to Health/Nutrition. Areas that most consistently obtain high scores of “Excellent” or “Good” can be understood to be important points of distinction: strong perceived performance must be achieved in these areas in order for shoppers to select a given store’s department as their preferred source. On the other hand, features which obtain the highest share of “Poor” or “Fair” ratings are those which shoppers are most willing to “forgive” in a department, at least in a behavioral sense; shoppers choose to shop at these departments in spite of giving them relatively low scores in these areas.

Table 2.1 Department Features Rated “Excellent” at Preferred Store, by Category (Highlights = Top 2)

Specialtyl Specialty Bakery Dairy Deli Prepared Cheese Meats Freshness of items 36% 37% 41% 35% 35% 33% Food that I enjoy eating 34% 35% 36% 35% 37% 26% Environment 29% 33% 36% 33% 37% 24% Wide variety 29% 33% 34% 29% 32% 24% Value 25% 31% 25% 31% 28% 21% Unique items 26% 22% 25% 26% 31% 19% Information on nutrition 18% 28% 25% 25% 25% 20% Healthy foods 15% 28% 23% 26% 24% 21%

Source: IDDBA Engaging the Evolving Shopper 2014. Responded to category questions n=405-Bakery; n=460-Dairy; n=372-Deli; n=356- Prepared; n=318-Specialty Cheese; n=325-Specialty Meats.

At the shopper’s preferred store across all fresh perimeter categories, the features most consistently rated as “Excellent” included Freshness of items and Foods that I enjoy eating. This strongly suggests that perceived freshness and enjoyment drive shopper preference among stores in these categories, even as perceptions of unique items and wide variety shape a broader story about the store as a destination.

On the other hand, stores can often be selected as the preferred destination for fresh perimeter categories even when shoppers give them low marks for information on nutrition or for offering healthy foods. One or other of these explicitly health-related features ranks among the top-two “forgivable” aspects of all fresh perimeter departments other than Dairy, which is more frequently forgiven for lacking unique items.

44 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Table 2.2 Department Features Rated “Poor” or “Fair” at Preferred Store, by Category (Highlights = Top 2 Rated Poor/Fair)

Specialty Specialty Bakery Dairy Deli Prepared Cheese Meats Freshness 10% 5% 8% 8% 10% 11% Food that I enjoy eating 9% 6% 9% 9% 8% 9% Environment 13% 12% 13% 9% 11% 14% Wide variety 17% 13% 12% 12% 17% 19% Value 20% 12% 18% 13% 21% 19% Unique items 24% 27% 26% 24% 14% 29% Information on nutrition 25% 13% 23% 21% 17% 17% Healthy foods 29% 9% 19% 21% 15% 24%

Source: IDDBA Engaging the Evolving Shopper 2014. Responded to category questions n=405-Bakery; n=460-Dairy; n=372-Deli; n=356- Prepared; n=318-Specialty Cheese; n=325-Specialty Meats.

Taken together, it therefore appears that having a well presented selection of fresh items that consumers enjoy is a baseline requirement across all categories. Explicitly “healthy food” per se isn’t a must have for preference in these categories - freshness conveys “healthy enough.”

One of the key goals of any retailer is to attract more customers to their fresh perimeter departments and increase revenue. So to stem the migration of shoppers buying the fresh perimeter category “I look for ‘made here’ or away from their primary store, stores can address and improve ‘made on dates’ to see if it’s various facets of their department to appeal to current store fresh.” customers. This is vital because it is easier and cheaper to make a sale to an existing customer (who is already in the store) than it is to - Boomer shopper generate a sale to a new customer you have no relationship with.

Providing more Value is the top way to entice Dairy and Deli shoppers to buy more of the category at their primary store. For shoppers that did not buy Dairy at their primary store, 53% mentioned improving the value of the Dairy department would prompt them to purchase more Dairy at the primary store. For Deli shoppers, it was 34%.

Providing Variety/Selection is the top factor that primary stores can improve for the four other categories. Between 31% and 40% of consumers that didn’t buy the category at the primary store would buy more Bakery, Prepared, Specialty Cheese, or Specialty Meats at the primary store if there was a better selection of items available. One way to address this is to have seasonal specialty items available or to have unique varietals or ﬂ avors of items available for consumers.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 45 Table 2.3 Factors that Primary Store Can Improve to Stem the Migration to Other Retailers (Highlights = Top 3)

Specialty Specialty Bakery Dairy Deli Prepared Cheese Meats Value 33% 53% 34% 31% 31% 24% Variety/selection 40% 25% 26% 35% 37% 31% Freshness of items 34% 17% 22% 26% 16% 17% Unique/specialty items 28% 15% 15% 20% 28% 20% Health/nutrition 23% 21% 18% 23% 13% 16% Attractiveness of presentation 25% 13% 15% 21% 16% 18% Tidiness or cleanliness of 20% 15% 14% 15% 9% 8% presentation

Source: IDDBA Engaging the Evolving Shopper 2014. Shopper did not purchase category at primary store n=155-Bakery; n=120-Dairy; n=144-Deli; n=164-Prepared; n=190-Specialty Cheese; n=160-Specialty Meats.

2.2.2 CATEGORIES ALIGN WITH WELLNESS PRIORITIES THROUGHOUT THE DAY When shoppers are asked how well their preferred fresh perimeter destinations serve their needs across a variety of eating occasions, they tell a remarkably consistent story. Each department plays a distinctive role in fulﬁ lling eating requirements aligned with its own relatively narrow range of dayparts.

Table 2.4 Dayparts Served, by Category: “Would the [Area/Department] at [Your Preferred Store] Be a Good Source for your Needs When it Comes to Getting Something Quick to Prepare or Eat For...?”

Specialty Specialty Bakery Dairy Deli Prepared Cheese Meats Breakfast 36% 57% 18% 20% 20% 29% Lunch right away for myself 22% 24% 40% 38% 27% 24% Lunch right away for my household 16% 18% 32% 27% 17% 17% Lunch to eat later 28% 34% 58% 42% 33% 38% Dinner right away for myself 21% 21% 27% 40% 26% 24% Dinner right away for my household 21% 17% 26% 36% 22% 25% Dinner to eat later 38% 33% 40% 51% 36% 52% Healthy snacks 28% 52% 28% 35% 44% 28% Indulgent or interesting snacks 42% 27% 23% 25% 39% 22% A special occasion 39% 21% 22% 25% 38% 34%

Source: IDDBA Engaging the Evolving Shopper 2014. Responded to category questions n=405-Bakery; n=460-Dairy; n=372-Deli; n=356- Prepared; n=318-Specialty Cheese; n=325-Specialty Meats. Highlighted percentages indicate top categories for each daypart.

46 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite The strongest connections made by shoppers between dayparts and fresh perimeter departments are as follows:

• Breakfast: Dairy

• Lunch: Deli (lunch right away and for later); Prepared (lunch right away for myself); Specialty Cheese (lunch now and later for Boomers+)

• Dinner: Prepared (dinner right away for myself and “I always get sliced turkey for household) my lunches. I know it’s all turkey breast, not mystery meat.” • Healthy Snacks: Dairy (more so for Millennials); Cheese (more so for Boomers+) - Gen X shopper

• Indulgent Snacks/Special Occasions: Specialty Cheese; Bakery; Prepared (Boomers+)

Supermarket formats have historically achieved scale by providing within their walls a vast selection of packaged goods across numerous food categories, to provision a virtually complete set of eating occasions for a broad range of shoppers and families. Therefore, they are challenged to appeal to Millennial shoppers who begin their trip with speciﬁ c occasions in mind. By offering integrated, daypart-aligned experiences, fresh perimeter categories can support stores pivoting towards occasion-speciﬁ c relevance for Millennial shoppers.

Aligning with dayparts entails a targeted approach to communicating health + wellness beneﬁ ts, matching the shopper’s balance of priorities as it changes throughout the day and therefore across fresh perimeter categories. As noted in an earlier section, the shopper carries an array of wellness priorities into each department; underlying the shopper’s interest in speciﬁ c product attributes and claims is a set of more general priorities broadly understood as those related to Intentional or Explicit Health (intentionally avoiding “bad” or “negative” ingredients such as fat, sodium and cholesterol) or Implicit Wellness (natural, local, artisan – i.e. where healthful is implicitly understood and if something is, for example, all natural, it will be lacking the “bad” ingredients by default). The balance between these two sets of priorities shifts throughout the shopper/consumer’s day of eating, with corresponding shifts in the communications needed by daypart-positioned fresh perimeter departments.

Chart 2.8 Shopper’s Wellness Priorities Shift Throughout the Day

Shopper Wellness Priorities Avoiding negatives INTENTIONAL OR EXPLICIT HEALTH Seeking nutrients Have real food IMPLICIT HEALTH Use best ingredients 100

0 Early Breakfast Morning Lunch Afternoon Dinner After dinner Late night morning snack snack snack meal/snack snack

Source: Hartman Compass, n=57,409 U.S. adult eatings. Priorities indexed against daily average for each priority across all eatings.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 47 Category-speciﬁ c discussions will provide a more detailed exposition of speciﬁ c H+W attributes sought. Meanwhile, broader, summary-level measures of the shopper’s wellness needs are instructive:

Chart 2.9 H+W Claims and Dimensions Sought When Shopping for Fresh Perimeter Categories

Low-fat 13% 27% 18% 18% 15% 11% Low sodium 12% 11% 19% 20% 15% 16% No trans-fats 16% 12% 14% 19% 13% 11% Avoid Heart healthy 12% 17% 15% 18% 11% 11% Negatives Low calorie 11% 17% 13% 17% 12% 9% Fat-free 7% 19% 10% 12% 10% 9% Low-carb 8% 7% 7% 13% 9% 7% Gluten-free 4% 4% 7% 9% 7% 5% Intentional Dairy-free 3% 5% 6% 7% 6% 4% Digestion Lactose-free 2% 8% 4% 6% 4% 3% Raw 1% 3% 3% 8% 3% 4% Moderate Low sugar 16% 15% 11% 20% 9% 9% Sugar Glycemic index 3% 3% 5% 6% 4% 2% 100% natural 16% 22% 21% 25% 25% 17% No artificial ingredients 19% 19% 21% 21% 21% 17% No artificial preservatives 18% 16% 19% 16% 18% 19% Natural Minimally processed 10% 11% 15% 18% 18% 18% No high-fructose corn syrup 16% 12% 11% 15% 10% 16% Organic 8% 13% 9% 13% 14% 10% Animals are humanely raised 5% 10% 14% 11% 10% 13% Made in USA 14% 16% 18% 19% 16% 16% Implicit Local Premium 10% 8% 13% 13% 16% 14% Local 8% 8% 7% 10% 7% 6% GMO-free 8% 10% 13% 11% 11% 9% Artisan / Nitrate/nitrite-free 5% 7% 12% 14% 9% 12% Sustainable Sustainably produced 4% 6% 7% 9% 6% 4% Artisan 5% 2% 4% 7% 8% 3%

SCORES INDEXED Bakery Dairy Deli Prepared Specialty Cheese Specialty Meats INTENTIONAL Avoid Negatives 80 144 102 118 90 65 HEALTH Digestion 54 133 111 134 99 69 IMPLICIT Natural 94 92 107 103 106 99 WELLNESS Local+Artisan 86 86 107 124 105 93

Source: IDDBA Engaging the Evolving Shopper 2014. Responded to category questions n=426-Bakery; n=484-Dairy; n=414-Deli; n=408- Prepared; n=379-Specialty Cheese n=389-Specialty Meats. An index shows how a consumer group compares with the overall total with an index = 100 indicating the consumer group is exactly the same as the Overall total. An index greater than 100 means the consumer group scores higher than the Overall total and an index less than 100 means the consumer group scores lower than the Overall total. Scores prior to indexing are computed from weighted average of highest-loading items for each dimension displayed.

Just as morning – and breakfast in particular – is the peak period for the shopper’s engagement in intentional, explicit health concerns, so too does the breakfast-associated Dairy category pique the shopper’s wellness motivations around avoiding negatives and supporting digestion. Just as dinner tends to tap into the broadest array of wellness priorities, including the height of shopper/eater interest in implicit wellness, so too does the shopper bring these concerns into the dinner-associated Prepared category. Bakery is least about wellness among the categories. And lunch is the happy medium, where several categories are relevant, including those where health + wellness priorities are most evenly balanced.

48 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 2.3 RETAIL COMMUNICATIONS 2.3.1 TO CURATE OR TO INFORM? A common high-level question for fresh perimeter merchandisers is how much health-related information to provide shoppers. After all, shoppers in these categories may be ﬂ eeing center-aisle categories in part to bypass the paradigm of quantiﬁ ed health and nutrition in order to focus more on enjoyment and food experience. The previous section described a way to think about this question department by department on the basis of WHEN: for different times of day, shoppers have different eating priorities in mind, and therefore different expectations for explicit health information “I need to trust the store to as opposed to more experiential wellness-as quality cues such as really shop their Prepared Natural or Artisan. For departments connected to health-oriented department” times of day (such as Breakfast), health information is expected more than at departments linked to eating occasions (such as - Millennial shopper Dinner) where experiential wellness is a higher priority.

Another important lens to consider, however, is WHO. Clearly shoppers with speciﬁ c, medically urgent health conditions will try to be ever vigilant about monitoring and often modulating their intake of ingredients and nutrients, and therefore will seek some way to render these visible, either through labeling or other shopper-accessible information resources. While older shoppers may be more likely to shop this way due to life-stage, aging-related health concerns such as diabetes, a more important distinction is generational.

Millennials want to trust, Boomers want to verify. As noted earlier, fresh perimeter shoppers tend to prefer stores they rate high for freshness and enjoyment, and tend to forgive stores which deliver on this even if information on health is lacking. As a result, for the most part shoppers are satisﬁ ed with the health and nutrition provided by their preferred store in each fresh perimeter category. Underneath this satisfaction lies two different ways that stores achieve it: some shoppers say that their store “does a good job of providing the information” they need, while others say that they “trust most everything at the store’s department [in this category] is healthy enough for me.” Consistent with the daypart-occasion framework, categories linking more to health (e.g. Dairy) rely more on providing health + wellness information to satisfy the shopper’s health + wellness concerns, while categories linking more to experiential wellness (e.g. Specialty Meats and Prepared) rely more on establishing trust in the full assortment on offer.

Table 2.5 How Retailers Can Succeed with Dayparts and Wellness

Daypart Category Wellness PrioriƟes Breakfast Dairy IntenƟonal Health Deli Balanced Lunch Prepared Balanced Specialty Cheese (Boomers+) Implicit Wellness Dinner Prepared Implicit Wellness Dairy (Millennials) IntenƟonal Health Healthy Snacks Cheese (Boomers+) Balanced Specialty Cheese Implicit Wellness Indulgent Snacks/ Special Occasions Bakery Balanced Prepared (Boomers+) Implicit Wellness

Table shows both qualitative insights and survey results on daypart and wellness concerns. Balanced = consumer equally concerned with Intentional Health and Implicit Wellness.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 49 Chart 2.10 How Shopper Needs for Nutrition and Health are Satisﬁ ed, by Category

81% 71% 66% 69% 70% 69% Store does a good job of providing 41% the info I need 28% 32% 32% 36% 29%

Trust that most everything at this 38% 39% 37% 37% 36% 41% store’s [dept.] is healthy enough for me

Bakery Dairy Deli Prepared Specialty Specialty Cheese Meats

Source: IDDBA Engaging the Evolving Shopper 2014. Responded to category questions n=405-Bakery; n=460-Dairy; n=372-Deli; n=356- Prepared; n=318-Specialty Cheese n=325-Specialty Meats.

In other words, some shoppers prefer fresh perimeter stores whose selections they fundamentally trust are aligned with their nutrition and health priorities, while others prefer stores which provide information so that nutrition and health credentials of speciﬁ c items can be veriﬁ ed while shopping. Some shoppers prefer food stores that curate the category, while others prefer stores that inform on health.

And it turns out that category-by-category differences in the desire to trust versus the need to verify wellness credentials pale in comparison to the difference between Millennials and previous generations. In virtually every fresh perimeter category, more Boomers and older shoppers choose a store which satisﬁ es their health priorities by providing information than by establishing general trust in its selection. By contrast, across all categories, more Millennials choose a store which satisﬁ es their health priorities by establishing trust in its selection than one which does so through providing health-related information.

Whole Foods Market and Trader Joe’s are two grocers that do a great job helping consumers with trust. When consumers shop there, they count on the store to do more of the curating to select only the food products that are healthier and more nutritious. These stores will “vet” products to ensure selection meet shoppers’ needs and expectations. So these shoppers can spend less time in the store with ingredient monitoring since the store has already provided that service.

These same stores also provide detailed information on health and nutrition within the stores. Information includes such details as whether a product is locally sourced from a nearby farm, or whether the meat is free from hormones and is raised humanely. The survey results also show Kroger and Publix with above average scores of providing the health information for consumers to review and help them make a purchase decision.

50 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Chart 2.11 How Shopper Needs for Nutrition and Health are Satisﬁ ed, by Generation

Trust in Bakery 45% Trust in Dairy 42% Trust in Deli 42% Trust in Prepared 37% Trust in Specialty Cheese 39% MILLENNIALS Trust in Specialty Meats 38% Verify in Bakery 19% Verify in Dairy 37% Verify in Deli 25% Verify in Prepared 28% Verify in Specialty Cheese 25% Verify in Specialty Meats 25%

Trust in Bakery 35% Trust in Dairy 38% Trust in Deli 33% Trust in Prepared 37% Trust in Specialty Cheese 33% BOOMERS+ Trust in Specialty Meats 43% Verify in Bakery 33% Verify in Dairy 44% Verify in Deli 36% Verify in Prepared 35% Verify in Specialty Cheese 44% Verify in Specialty Meats 31%

Trust = Trust most everything at my preferred store’s department is healthy enough for me.

Verify = My preferred store’s department does a good job of providing the nutritional or health information I need to verify the food is healthy enough for me.

Source: IDDBA Engaging the Evolving Shopper 2014. Responded to category questions n=405-Bakery; n=460-Dairy; n=372-Deli; n=356- Prepared; n=318-Specialty Cheese n=325-Specialty Meats.

Millennials assess the alignment of a department or store with their wellness priorities primarily through its curation, through its range of choices providing both emerging quality distinctions (often bearing on health) and a discovery experience that allows them to assemble compelling meals and snacks meeting their culturally dynamic tastes.

Boomers+ on the other hand, want a store to BOTH curate wellness and provide product information addressing health and nutrition. Boomers+ are looking for more health information because they generally have more pressing health issues than Millennials do. So Boomers+ are watching what they eat in order to manage health conditions such as diabetes, high blood pressure, high cholesterol, and joint pain.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 51 2.3.2 THE VOICE OF THE STORE The earlier discussion of health + wellness concluded that shoppers carry with them a balance of generalized wellness priorities that shifts in subtle but important ways as they navigate across the different fresh perimeter categories and departments. And, now it’s clear that there is a method to this diversity that fresh perimeter categories connect to different dayparts and corresponding eating needs that correspond to different types of wellness concerns, spanning from Intentional Health to Implicit Wellness. This certainly has implications for merchandising, how products are presented within each fresh perimeter department and across departments, what sorts of information is available and in what form. But what about communications more generally? What types of communications do shoppers expect from the areas of the store they visit? And how might communications “roll up” to an overall voice for the store?

Recall that when shoppers are in the store, they say that among the smart phone applications they rely on, recipe- related resources are as widely used as those offering coupons or health information. Recall as well that among the factors driving shoppers to destination stores, beyond simply an in-store experience creating an enjoyable place to shop, shoppers in equal measure sought stores to:

• Help them eat healthier

• Help them get ideas for what to eat

• Help them get the most for their money

If shoppers assign credibility on these three issues to different areas of the store, then a synergistic store-level communications strategy would leverage each department’s distinctive credibility.

The bar for relevant healthy-eating expertise is high. Among different voices in the store, whose perspectives do shoppers ﬁ nd relevant when it comes to helping them eat healthier? While fresh perimeter departments are often assumed to have healthier options than center store, this health halo is built less through health-related information provided and more through the curation of product selection and the qualities assumed to be present in the foods themselves. And what’s more, shoppers increasingly have understood that healthy eating is not only about what is eaten, but also in large part how: everything from cooking oils to portion control to time-of-day to number of chews is implicated in a healthy diet.

For all these reasons and more, it is not surprising that even fresh perimeter category department experts are perceived by shoppers to have relatively little to tell them about healthy eating. Only nutritionists enjoy healthy credibility when it comes to healthy eating, with the potential for supporting roles to be played by a chef connected with the store (presumably through Prepared foods) or staff in the Produce area.

This concentration of authority and credibility in the role of the nutritionist does not mean that shoppers have no interest in hearing from the store: when asked about this issue, three-fourths of shoppers ﬁ nd someone to name, just as many as other issues where credibility is more widely shared and more broadly available.

52 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Chart 2.12 Healthy Eating - Whose Perspectives Do Shoppers Want?

Nutritionist 50%

Chef 19%

Produce dept staff 12%

Customer service 5%

Staff behind meat or fish counter 5%

Pharmacist 4%

Prepared foods staff 4%

Cashier 3%

Staff in aisles of store 3%

Staff behind deli counter 3%

Dairy dept staff 3%

Other shoppers 3%

Store manager 2%

Want nothing from store about this 26%

Source: IDDBA, Engaging the Evolving Shopper 2014 (n=869 U.S. adults)

Culinary expertise is sought for inspiration. Among different voices in the store, whose perspectives do shoppers fi nd relevant when it comes to getting ideas about what to eat? Chefs and Prepared food staff enjoy the most credibility among the department-specifi c voices in the fresh perimeter. The presence of meat, fi sh and deli on the shopper’s list of viable authorities refl ects as well the legacy (perhaps on the wane) of building meals around a fresh-sourced protein.

Interestingly, while shoppers ﬁ nd nutritionists to be relevant sources of recipe ideas for family eating, the nutrition focus virtually disappears when the shopper seeks inspiration for special occasions. Inspiration can be about nutrition. But for special occasions, not only do nutritionists play less of a role, so too do most other perimeter staff. Instead, shoppers are especially likely to seek ideas from other shoppers, or from customer service staff with little connection to culinary expertise. This signals an opportunity to address unmet needs around special events, when event management and planning, as well as non-food items, can be sources of anxiety on par with the food experience. This is therefore also an area where truly social media – where shoppers can share ideas with other shoppers within a moderated, branded community such as a Facebook page or store-hosted community site – can support the authority and credibility of the store itself.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 53 Chart 2.13 Recipe Ideas - Whose Perspectives Do Shoppers Want?

31% Chef 19% 27% Nutritionist 6% 13% Prepared foods staff 4% 10% Staff behind meat or fish counter 12% 7% Other shoppers 13% 7% Staff behind deli counter 1%

Produce dept staff 6% 2% Recipe Ideas for family 5% Staff in aisles of store 4% Recipe Ideas for Special 4% Customer service 9% Occasions 3% Cashier 2% 2% Store manager 4% 2% Dairy dept staff 5% 1% Pharmacist 1% 30% Want nothing from store about this 26%

Source: IDDBA, Engaging the Evolving Shopper 2014 (n=869 U.S. adults)

2.33 DEALS ARE EXPECTED FROM STORE MANAGEMENT AND STAFF DETACHED FROM THE PERIMETER Among different voices in the store, whose perspectives do shoppers ﬁ nd relevant when it comes to deals; when it comes to getting the most for their money? Shoppers currently do not expect information about deals to come from fresh perimeter staff, per se. Instead, shoppers would look to the store manager, customer service and staff in the aisles sooner than they would expect “deals” in the fresh perimeter.

That is not to say that shoppers would distrust or ignore the opinions of fresh perimeter staff when it comes to VALUE. After all, freshness and fresh expertise is often voiced in terms of “what’s in season.” However, manager’s specials are perceived to be about something different, and in fact may signal that the low price is less about fresh and more about selling overstocked goods.

Since circulars are among the main vehicles for communicating deals, store management can continue to represent the voice of these circulars. However, to the extent that an ambition emerges to extend the content of circulars beyond deals, or to re-position a store’s digital presence to ensure that shoppers look beyond price towards higher-margin quality distinctions, fresh perimeter voices will be helpful in building this credibility and establishing permission for that type of dialogue.

54 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Chart 2.14 Deals - Who are Shoppers Interested in Hearing From?

Store manager 26% Customer service 23% Staff in aisles of store 19% Other shoppers 10% Cashier 10% Nutritionist 7% Chef 6% Produce dept staff 6% Prepared foods staff 5% Staff behind meat or fish counter 5% Staff behind deli counter 4% Dairy dept staff 3% Pharmacist 1% Want nothing from store about this 23%

Source: IDDBA, Engaging the Evolving Shopper 2014 (n=869 U.S. adults)

A harmony of information and inspiration. In this way, some voices in the store are expected by shoppers to provide information (about health, about deals), while others are tuned in more for inspiration (about ideas). A few key domain owners include the Nutritionist (for Health), the Chef (for Recipe ideas, and for health to a less extent) and the Store manager (for deals). Fresh perimeter voices can supplement and support these voices if the store has clearly identiﬁ ed nutritionists or chefs, or can take their place to build a store-level expertise in these domains.

Table 2.6 Whose Opinions Do Shoppers Want, by Topic (Highlighted = Top 3-4 Opinions Preferred)

Recipe Ideas Healthy Recipe Ideas for Special Deals Snack Ideas Eating for family Occasions INFORM Nutritionist 50% 27% 19% 7% 24% Produce dept. staff 12% 6% 6% 6% 5% Customer service 5% 4% 4% 23% 7% Cashier 3% 3% 2% 10% 5% Staff in aisles of store 3% 5% 4% 19% 15% Other shoppers 3% 7% 5% 10% 11% Store manager 2% 2% 4% 26% 4% INSPIRE Chef 19% 31% 31% 6% 13% Staff behind meat or fish counter 5% 10% 12% 5% 2% Prepared foods staff 4% 13% 13% 5% 9% Staff behind deli counter 3% 7% 9% 4% 7% Dairy dept staff 3% 2% 2% 3% 3% Pharmacist 4% 1% 1% 1% 1%

Source: IDDBA, Engaging the Evolving Shopper 2014 (n=869 U.S. adults)

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 55 To be most credible and compelling in the communications needed to develop a retailer’s position as a destination, and, therefore, to realize the benefi ts of incremental traffi c driven by fresh perimeter assets, a store would therefore do well to maintain a multi-vocal editorial voice. Whether it’s a paper newsletter, an email newsletter or a Facebook page, a multi-vocal presence would allow specifi c category-associated voices to emerge and be heard by shoppers. Depending on the store’s organization, staffi ng and distinctive shopper base, communications could be consolidated into the voice of a chef, a nutritionist and a manager, or could maintain a more fragmented or category-specifi c chorus. And in any event, direct communications from category-specifi c voices ought to be developed with intent of leading, of building the store’s overall credibility – on the issue where they enjoy the most credibility, whether it’s about health information or eating inspiration.

2.4 KEY RECOMMENDATIONS How can fresh perimeter departments stem the migration of their shoppers to other stores’ fresh departments? More importantly, how can these departments attract shoppers to their stores?

Fresh perimeter departments are a large part of what shoppers enjoy about their food shopping experiences. Shoppers are likely to recommend, and go out of their way to visit, stores which they believe “help” them eat healthier and help them get ideas for what to eat. Be a source of ideas and inspiration for shoppers.

More than any other feature that stores can focus on, being an “enjoyable place to shop” is paramount – it is the largest factor driving store advocacy. While variety/selection and value are key satisﬁ ers for all fresh perimeter categories, and therefore mandatory for strategic focus, the drivers of enjoyment within each department are also worthy of focus.

• In the Bakery department, offering information on nutritional content correlates highly with enjoyment. Give shoppers the indulgences they seek, while assuring fresh, real, less processed and no artiﬁ cial ingredients or preservatives wherever possible. Highlight whole, alternative and ancient grains through artisan bread offerings. Use hand-made signs to inform shoppers about the origin and healthiness of less familiar ingredients.

• In the Dairy department, offering unique items correlates strongly with enjoyment. Leverage the department’s association with healthy breakfast items for the introduction or expansion of new categories such as Keﬁ r. Expanding the range of ﬂ avors and texture solutions, offering locally sourced, small producer items and new combinations of dairy and other protein sources for sustained energy (such as nuts and grains) are ways to add unique experiences in Dairy.

• In the Deli department, unique items can add to enjoyment as well. This department has one of the strongest opportunities to offer discovery, convenience, wellness and inspiration. To reinforce the freshness and wellness advantages of Deli offerings, create signage to inform and educate about nutritional content of items. Change offerings frequently, leverage new ﬂ avor and ingredient trends, curate new foods with quality distinctions and become shoppers’ “sous chef ” to create engaging experiences.

• In Prepared foods, freshness of items drives enjoyment. Freshness can be communicated many ways, – “fresh sheets” communicating daily rotations, similar to restaurants, and “made today” labels and identiﬁ cation of any local sourcing of ingredients are all ways to help elevate freshness perceptions.

• In Specialty Cheeses, freshness of items assures quality and enjoyment. Specialty Cheese is well aligned with today’s growth trends in snacking and enjoys a position as a unique snack – both healthy and indulgent. Rotate features of new varieties to underscore wide selection and freshness.

56 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite ENGAGING THE EVOLVING SHOPPER: SERVING THE NEW AMERICAN APPETITE Chapter 3: Bakery Department Deep Dive

Definition of Terms Purchase the designated category at least monthly, along with at least one other fresh Category Shopper/Purchaser perimeter category Shop two or more of the following categories at least monthly: Bakery, Dairy, Deli, Fresh Perimeter Shopper Prepared, Specialty Cheese, Specialty Meat Retailer where shopper buys most of the specified product category, e.g., Bakery Preferred Store department items (may differ from primary store) Retailer where shopper buys most of their food and grocery items (where shopper Primary Store spends most money on grocery-type items)

While most shoppers will admit to (at least occasionally) enjoying treats from their store’s Bakery department, an analysis of shopper profi les and preferences in Bakery reveals that retailers and manufacturers face unique challenges in terms of matching product off erings with evolving consumer preferences. Bakery has always been seen as a place for indulgence, and this perception, combined with continued ‘carb-fatigue’ and growing preferences for gluten-free products with healthy wheat alternatives, means that Bakery departments should assess how they can best serve shoppers.

This is not to say that Bakery can’t be a vibrant and contemporary area of the fresh perimeter. Bakery is still one of the most frequently visited departments among all generations and one of the primary places that shoppers go to fi nd a treat or item for a special occasion. Moving ahead, understanding what exactly this means for diff erent shopper bases will be key in keeping shoppers coming back for more.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 57 3.1 BAKERY SHOPPER PROFILE For shoppers of all ages and backgrounds, Bakery remains one the most frequently visited fresh perimeter categories. While indulgence may be the underlying need state that drives shoppers to Bakery, it is the ‘split personality’ of the Bakery department’s typical product mix — offering both sweet (cookies, cakes, etc.) and savory (breads) items help to keep shoppers of all ages ﬂ owing through this part of the store. However, while Bakery is the second most frequently visited section among all shoppers, it is important to note that its reach is much more in line with the Deli and Prepared sections rather than the Dairy section, which is by far the most Consumer Homework: visited of the fresh perimeter areas. A favorite from the bakery department — fresh bagueƩ es

Table 3.1 Monthly Reach of Fresh Perimeter Categories, by Generation and Ethnicity

Fresh perimeter Shoppers of Each LaƟno/ Category Total Shoppers Millennials Index Boomers+ Index Hispanic Index Dairy 70% 76% 108 68% 96 74% 105 Bakery 55% 61% 111 51% 92 60% 110 Deli 50% 59% 118 44% 87 57% 114 Prepared 44% 56% 127 37% 84 47% 107 Specialty Meats 39% 51% 130 32% 84 44% 112 Specialty Cheese 36% 48% 132 29% 79 45% 124

Source: IDDBA Engaging the Evolving Shopper 2014. (n=1439 Total Primary Shoppers; n=624 Millennials 18-35; n=580 Boomers+ 50-74; n=141 Latino/Hispanic). An index shows how a consumer group compares with the overall total with an index = 100 indicating the consumer group is exactly the same as the Overall total. An index greater than 100 means the consumer group scores higher than the Overall total and an index less than 100 means the consumer group scores lower than the Overall total.

Because Bakery has such broad monthly reach, there is little difference demographically between Bakery shoppers and U.S. shoppers overall. However, it is worth noting that shoppers with children in the household are more likely than the average shopper to visit the Bakery Department.

58 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Table 3.2 Demographic Proﬁ le of Category Purchasers

Total Shoppers Bakery Index Gender Male 41% 44% 106 Female 59% 56% 96 Age Cohort Millennials 18-35 33% 37% 111 Gen X 36-49 23% 22% 98 Boomers 50-68 40% 36% 91 Silent 69+ 5% 5% 103 Average Age 44.9 43.4 97 Respondent's race Caucasian 80% 81% 101 African American 13% 12% 93 Other 7% 7% 107 Latino/Hispanic 11% 12% 110 2013 Income* Less than $35K 31% 30% 97 $35K-$99K 44% 46% 103 $100K+ 19% 20% 105 Education High school or less 20% 21% 102 Some College 34% 35% 103 College graduate 27% 27% 98 Graduate school 19% 18% 95 Household Structure Average Household size 2.4 2.6 109 Live alone 27% 20% 76 With children 26% 33% 125 Adults only 47% 47% 100 Marital status Married 50% 49% 98 Living with partner 8% 8% 102 Single 27% 29% 104 Separated 1% 1% 108 Divorced 11% 10% 97 Widowed 3% 3% 93 N/A 0% 1% 111 Household shopping

responsibility Half 17% 15% 86 More than half 15% 18% 117 All/nearly all 67% 67% 100

Source: IDDBA Engaging the Evolving Shopper 2014. (n=1439 Total Primary Shoppers; n=787 Bakery department visitors in past month and 2+ Categories purchased. *Income unreported for some respondents. An index shows how a consumer group compares with the overall total with an index = 100 indicating the consumer group is exactly the same as the Overall total. An index greater than 100 means the consumer group scores higher than the Overall total and an index less than 100 means the consumer group scores lower than the Overall total.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 59 Table 3.2 Continued: Demographic Proﬁ le of Category Purchasers

Total Shoppers Bakery Index US Census Division East North Central 15% 15% 101 West North Central 7% 6% 94 Middle Atlantic 13% 14% 115 New England 4% 5% 116 East South Central 6% 7% 105 South Atlantic 20% 19% 96 West South Central 11% 11% 102 Mountain 7% 5% 75 Pacific 16% 16% 98 Where do you live? Large city 29% 29% 101 Smaller city or town 30% 30% 101 Suburbs of large city 27% 28% 102 Rural area 14% 13% 93

Source: IDDBA Engaging the Evolving Shopper 2014. (n=1439 Total Primary Shoppers; n=787 Bakery department visitors in past month and 2+ Categories purchased. An index shows how a consumer group compares with the overall total with an index = 100 indicating the consumer group is exactly the same as the Overall total. An index greater than 100 means the consumer group scores higher than the Overall total and an index less than 100 means the consumer group scores lower than the Overall total.

3.2 BAKERY SOURCING 3.2.1 WHERE DO BAKERY SHOPPERS GO AND WHY? Conventional stores continue to capture the vast majority of shoppers in Bakery but shoppers also utilize a number of other retailers to satisfy their Bakery needs. Nearly 90% of Bakery shoppers say they get most of their baked goods at a conventional store, rather than from fresh/specialty channels (like natural supermarkets or smaller specialists). However, it is also important for conventional retailers to pay attention to selections offered by more niche fresh/specialty retailers which are the preferred destination for 10% of Bakery department shoppers “Bread is bread wherever as seen in Chart 3.1. Millennial shoppers demonstrate a greater tendency than Boomers+ to look to fresh/specialty when not I go.” shopping their primary store’s Bakery department. - Boomer shopper

60 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 3.2.2 SOURCES USED FOR FOOD BY Chart 3.1 Where Bakery Shoppers Prefer to Get BAKERY SHOPPERS their Bakery, by Store Type Outside of the preferred store for Bakery, many Fresh/ Specialty shoppers, during the past 3 months, made use of a Retailer, 10% wide assortment of retailers for food, with about one in ﬁ ve shoppers having visited a Specialty Store or Natural/Health food store. Conventional Retailer, 90%

Source: IDDBA, Engaging the Evolving Shopper 2014 (n=405 Bakery department visitors and mentioned a store where purchased Bakery)

Chart 3.2 Sources Used for Food by Bakery Shoppers, Past 3 Months Six Department Average

82% Grocery/Supermarket 81%

64% Supercenter/Discount Store (e.g., Walmart, Target) 67%

37% Club Store (e.g., Sam's, Costco) 38%

30% Dollar store (e.g., Dollar General) 32%

22% Convenience Store (e.g., 7-Eleven) 24%

21% Specialty Store (e.g., Trader Joe's) 21%

18% Natural/Health Food Store (e.g., Whole Foods) 19%

15% Bakery shop 17%

13% Farmer's market 15%

9% Ethnic Food store (e.g., Fiesta, H-Mart) 10%

6% Free-standing Delicatessen 7%

5% Specialty/gourmet food shop 5%

2% Bread/baked-goods by mail 3%

Source: IDDBA Engaging the Evolving Shopper 2014. (n=707 Bakery department monthly visitors)

3.2.3 PRIMARY STORE SOURCING Primary stores (retailer where a shopper buys most of their food and grocery items) still capture the majority of shopper’s Bakery dollars, but a signiﬁ cant number of shoppers go outside their primary store for baked goods. In Table 3.3 below we see that 64% of those who shop Bakery departments stay in their primary store to do so. Further down, in Table 3.4, we more closely examine the 34% who leave their primary store for a Bakery elsewhere. Today’s food shoppers have many retail options at their disposal and are increasingly utilizing

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 61 multiple stores to fulﬁ ll their needs. Older Bakery department shoppers (age 50 -74=Boomers+) are very loyal to their primary store’s Bakery department, with 70% shopping Bakery in their primary store compared to signiﬁ cantly fewer Millennials (59%). This chapter will take a closer look at some of the ways that retailers can better serve Millennials to keep them from leaving their primary store’s Bakery department.

Table 3.3 % Purchasing Fresh-Perishable Category at Primary Store

Total Category Category Purchased at Primary Store Purchasers Millennials Boomers+ Dairy 74% 72% 75% Bakery 64% 59% 70% Deli 63% 63% 65% Specialty Meats 62% 52% 74% Prepared 60% 54% 65% Specialty Cheese 50% 50% 54%

Source: IDDBA Engaging the Evolving Shopper 2014. (Responded to category questions: n=484 Dairy; n=426 Bakery; n=414 Deli, n=389 Specialty Meats; n=408 Prepared; n=379 Specialty Cheese)

3.2.4 WHERE DO BAKERY SHOPPERS GO WHEN THEY DO NOT PURCHASE AT THEIR PRIMARY STORE? The impact of fragmentation of shopper dollars is most pronounced among Millennials, with 39% of Millennials purchasing their baked goods outside of their primary store (2% claim no primary store), compared to 27% for Boomers+ (3% claim to have no primary store).

As with other perimeter categories, Bakery shoppers who leave their primary store for Bakery elsewhere most often go to another conventional grocery store. Only 7% of Bakery department shoppers leave for a fresh/specialty retailer. This ﬁ gure is slightly higher for Millennials at 10%.

Table 3.4 Non-Primary Store Bakery Purchase Location

Purchase Location Bakery Millennials Boomers+ Primary store 64% 59% 70% Non-Primary store: Conventional Grocery Retailer 23% 24% 18% Fresh/Specialty market Retailer 7% 10% 6% Not Primary, but No Preferred Store 4% 5% 3% No Primary store 2% 2% 3%

Source: IDDBA Engaging the Evolving Shopper 2014. (Responded to category questions: n=426 Bakery; n=182 Millennials 18-35; n=173 Boomers+ 50-74)

62 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 3.3 IMPORTANT BAKERY ATTRIBUTES 3.3.1 BAKERY ATTRIBUTES SOUGHT WHEN SHOPPING AT PRIMARY STORE Due to the indulgent nature of many Bakery items, shoppers in the Bakery department are less likely to be seeking a variety of wellness attributes compared to shoppers of other departments. However, they are interested in avoiding artiﬁ cial ingredients and preservatives and look for lower “In an ideal bakery, I’m not going sugar items. Retailers can leverage opportunities for signage to see funfe … I’m going to see and messaging around Bakery items that do meet these shopper needs. a pastry chef behind the counter making really yummy stuﬀ ” - Millennial shopper

Chart 3.3 What Bakery Shoppers Look for When Shopping at Primary Store

19% No artificial ingredients 20% 18% No artificial preservatives 18% 16% Low sugar 13% 16% No trans-fats 14% 16% 100% natural 21% 15% No high-fructose corn syrup 13% 14% Made in USA 17% Bakery 13% Low-fat 17% Overall 12% Heart healthy 14% 12% Low sodium 15% 11% Low calorie 13% 10% Premium 12% 10% Minimally processed 15% 8% Local 8%

Low-carb 8% 8% Source: IDDBA Engaging the Evolving Shopper 2014. n=2500 Overall Fresh Perimeter visitors; n=426-Bakery department visitors.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 63 Bakery shoppers do, however, seek specifi c ingredients associated with positive nutrition and overall wellness, prioritizing whole grain content (39%) and high fi ber (25%). To retain shoppers, retailers must consider the growing trend in the broader food culture around interest in a wide array of wheat and non-wheat whole grains. Whether for gluten-free needs or general wellness, the benefi t of complex whole and ancient grains is starting to gain broader appeal. Bakery departments that create signage and list whole grain ingredients present in their fresh bakery items can give shoppers information that is increasingly of interest for both wellness and discovery.

Chart 3.4 Additional Factors Sought When Shopping for Bakery

Whole grain 39%

High fiber 25%

Used for sandwiches, etc. in store's fresh-prepared foods 18%

Uses ingredients found elsewhere in store 9%

Dairy-free 7%

With heritage grains (such as spelt or amaranth) 7%

Vegetarian 6%

Source: IDDBA Engaging the Evolving Shopper 2014. n=2500-Total; n=426-Bakery department visitors.

3.3.2 PERFORMANCE OF THE BAKERY DEPARTMENT Looking at the store attributes that consumers believe their preferred stores are getting right for any given category illuminates the baseline level of service that a retailer must achieve to be seen as a viable option to shoppers. Across all perimeter categories, we ﬁ nd that shoppers say their preferred stores are doing the best when it comes to providing food that they enjoy eating, ensuring that the items they have are fresh, and providing a pleasant environment to shop in. These are the ‘must haves’ for any store if they want any chance at earning shopper’s loyalty. In addition, Bakery shoppers feel that it is important for stores to provide a wide selection of choices in the key product areas. Boomer+ shoppers, already more loyal to their primary store’s Bakery department, are more satisﬁ ed than Millennial shoppers with the freshness and selection in the Bakery departments they shop.

64 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Chart 3.5 “Excellent” Ratings of Preferred Store’s Bakery Department

36% Freshness 29% 48%

34% Foods I enjoy eating 24% 46%

29% Wide variety 31% 29%

29% Environment 31% 33%

26% Unique items 26% 27%

25% Value 24% 27%

18% Nutritional information 17% 22% Total

15% Millennials 18-35 Healthy foods 17% 15% Boomers+ 50-74

Source: IDDBA Engaging the Evolving Shopper 2014. (n=405 Total Bakery; n=172 Millennials 18-35; n=167 Boomers+ 50-74; Bakery department visitors and mentioned a store where purchased Bakery)

3.3.3 WHAT PRIMARY STORE COULD DO TO IMPROVE THE BAKERY DEPARTMENT Given the attributes it takes to earn a baseline level of shopper trust, what can primary stores do to attract a greater share of their shopper’s Bakery dollars? When it comes to Bakery, it appears that retailers have several areas to focus on. Bakery shoppers mention attractiveness of presentation, tidiness or cleanliness of presentation, and freshness of items. Considering how quickly a hard loaf of stale bread can turn off a prospective buyer, this last response is especially not surprising. Retailers can be proactive with signage to tell shoppers when the bread was “freshly baked today” and even better, what time it came out of the oven.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 65 Chart 3.6 What Primary Store Could Do to Improve the Bakery

Six Department Average

33% Variety/selection 40%

22% Freshness of items 34%

34% Value 33%

21% Unique/specialty items 28% Note: a higher % in Attractiveness of presentation (attractive, 18% 25% the bar vs. the six appetizing) department

19% Health/nutrition 23% average means the primary store is not Tidiness or cleanliness of presentation (well- 13% 20% doing as well on kept, hygienic) this attribute as

13% Culinary expertise 16% other departments

Source: IDDBA Engaging The Evolving Shopper 2014. (n=155 Bakery department visitors who did not purchase from their primary store)

3.4 BAKERY OCCASIONS AND HEALTH + WELLNESS CONSIDERATIONS

Bakery is about indulgence, discovery, and special occasions. When it comes to meals and snacks throughout the day, shoppers utilize categories in the fresh perimeter in very different ways. Bakery shoppers of all ages ﬁ nd this section to be a particularly good source of special treats throughout the day, particularly on special occasions. Generational cohorts have slightly different approaches to this notion of ‘treats.’ Millennials approach Bakery as a place to get something special to accompany a meal (for example, a baguette sourced from a local bakery). Boomers+ are more apt to see Bakery as a place of discovery and indulgence. Bakery shouldn’t strictly be viewed through the lenses of indulgence however. For products like freshly baked sliced bread, the Bakery area is viewed as an area for shoppers to upgrade from the center store in terms of health and freshness.

66 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Chart 3.7 Suitability of Bakery Department at Preferred Store for Something Quick to Prepare or Eat for...

36% Breakfast 31% 43% 22% Lunch right away for myself 16% 27% 16% Lunch right away for my household 13% 16% 28% Lunch to eat later 26% 33% 21% Dinner right away for myself 15% 23% Total Millennials 18-35 21% Dinner right away for my household 19% 22% Boomers+ 50-74 38% Dinner to eat later 32% 43% 28% Healthy snacks 25% 30% 42% Indulgent or interesting snacks 38% 41% 39% A special occasion 32% 43% 9% None of these 8% 12%

Source: IDDBA Engaging the Evolving Shopper 2014. (n=405 Total Bakery department visitors and mentioned a store where purchased Bakery; n=172 Millennials 18-35; n=167 Boomers+ 50-74)

Findings from our qualitative interviews with Millennial shoppers suggest that conventional Bakery departments may face an issue of relevance “I don’t eat a ton of with Millennial shoppers. When asked to rank the fresh perimeter categories in order of importance, Millennials prioritized Produce, Dairy baked goods or bread.” and Deli ahead of Bakery. Probing further, Millennials discuss interest in - Millennial shopper artisan breads from their local bakery and lunches un-tethered from the traditional sandwich.

3.5 INFORMATION SOURCE PREFERENCES FOR BAKERY For retailers and manufacturers alike, understanding how consumers incorporate notions of health + wellness into their daily eating routine is an essential part of doing business in the context of modern eating culture.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 67 Because the Bakery department is so closely connected to notions of indulgence, when compared to most other fresh perimeter categories, shoppers largely approach this section of the store with limited expectations in terms of health + wellness. Special occasions or notions of discovery particularly minimize concerns related to ‘intentional’ health + wellness such as avoiding negatives (sodium, calories, fat, etc.). If anything, shoppers will tend to care more about implicit notions of health + wellness in Bakery such as production methods and authenticity.

As seen in other categories, when it comes to what information to show and how to display it, on the whole, consumers prefer a full list of ingredients and nutrition facts listed on the product package. It should be noted that this preference for labeling on the product package is largely driven by older generations, especially Boomers+. In contrast, Millennials are generally more comfortable seeking out health + wellness information from a variety of sources and are not as reliant on labels.

Bakery departments should especially take note of the higher interest in store created signage among Millennials. Store created signage can deliver a level of authenticity that is generally important to the Millennials. Store created signage can also be an opportunity to educate and provide discovery experiences that Millennials appreciate.

Chart 3.8 Preference for Information in Bakery Department by Cohort

82% 75%

Label on the product package 61%

43% 42% Store created signage 32% 25%

Store staff 14% 12%

Millennials 18-35 Gen-X 36-49 Boomers+ 50-74

Source: IDDBA Engaging the Evolving Shopper 2014. (n=331 Bakery department visitors and would like to see information; n=136 Millennials 18-35; n=54 Gen-X 36-49; n=141 Boomers+ 50-74)

3.6 KEY TAKE AWAYS FOR BAKERY DEPARTMENT: Bakery is still one of the most frequently visited areas of the fresh perimeter among all generations. It is largely associated with indulgence and special occasions, although older consumers (Boomers+) view Bakery as a good source for breakfast and dinner items too. Moving ahead, understanding what different shopper bases are looking for in Bakery will be a key means to keep shoppers coming back for more.

Older shoppers (Boomer+) are the most loyal to their primary store’s Bakery, with 70% shopping Bakery in their primary store compared to 59% of Millennials. Boomers+ are generally satisﬁ ed with the Bakery department’s freshness and selection. In contrast, Millennial Bakery shoppers are the least loyal, with 39% leaving their primary store for baked goods elsewhere. While some Millennials take their business to fresh/specialty retailers, most are going

68 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite to other conventional retailers, suggesting that stores examine how they can do a better job of meeting existing Millennial shoppers’ needs.

Compared to older shoppers (Boomers+), Millennials give half as many “excellent” ratings (24% vs. 46%) to their Bakery department for foods that I enjoy eating. Findings from qualitative interviews with Millennial shoppers suggest that Bakery departments should examine their range of offerings and assess how well they meet Millennials’ overall needs. While artisan breads are of interest to Millennials, cupcakes and sugar-ﬁ lled baked goods are less relevant. Retailers may be well-served to examine the personality or primary visual impression conveyed to shoppers entering the Bakery Department. Cues of whole grains, authentic and freshly baked items and healthy snacks may deliver an image of greater relevance for the Millennial shopper.

As shoppers continue to navigate their personal wellness journeys, they increasingly want to know what is in the food they eat. In Chapter 2 we saw that 29% of Bakery shoppers rated the department “fair” or “poor” on having healthy foods, the poorest performance of any of the six fresh perimeter categories included in this study. Similarly, one in four Bakery shoppers give a “fair” or “poor” rating on information on nutrition. This suggests an opportunity for more intentional and proactive signage and ingredient labeling around attributes that shoppers seek as part of a healthy lifestyle –whole grains, ﬁ ber, fresh/less processed and no artiﬁ cial ingredients or preservatives.

For implicit messages of quality and wellness, retailers can look for ways to communicate a stronger freshness message with signage on items baked in store daily, e.g., “freshly baked today.”

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 69 ENGAGING THE EVOLVING SHOPPER: SERVING THE NEW AMERICAN APPETITE Chapter 4: Dairy Department Deep Dive

Retailer where shopper buys most of the specified product category, e.g., Bakery Preferred Store department items (may differ from their primary store)

Retailer where shopper buys most of their food and grocery items (where shopper spends Primary Store most money on grocery-type items)

In many ways, the Dairy department remains the cornerstone of the fresh perimeter – a place frequented by shoppers of all ages and at least on the surface, where the impact of modern eating culture is not as pronounced as in other categories. In part, this is due to the fact that the category’s defi ning category – milk – is frequently perceived to be a commodity. As a result, the Dairy aisle is a place where value reigns supreme and shoppers are to a large degree satisfi ed with the off ering of conventional (i.e. non-specialty) retailers.

This said, retailers and manufacturers alike would be remiss to rest on their Dairy laurels. Shoppers see Dairy as a key place to fi nd healthy snacks – an ever more important meal occasion and there are key diff erences between generations as to what form this snack takes. While Boomers+ may still prefer a glass of milk with a meal or as a healthy snack, younger generations prefer to ‘eat their dairy’ in the form of yogurt and similar products. Younger shoppers especially, credit those stores as wellness destinations which off er an exceptional Dairy selection, as this entails quality support for digestion and implies wellness relevance more broadly. Retailers and manufacturers should make sure to understand these diff erences as well as how consumers approach messaging related to health + wellness in the Dairy aisle.

70 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 4.1 DAIRY DEPARTMENT SHOPPER PROFILE For shoppers of all ages and backgrounds, the Dairy department is the most frequently visited of the perimeter categories. When it comes to shopping frequency, the picture is clear: shoppers visit the Dairy section more often than any other section on the fresh perimeter. Equally as important, unlike most of the other perimeter categories (Prepared, Specialty Meats, and Specialty Cheese in particular) this shopping frequency crosses all generational cohorts – Millennials and Boomers+ (ages 50-74) shop Dairy at approximately the same rate.

Table 4.1 Monthly Reach of Fresh Perimeter Categories, by Generation and Ethnicity

Fresh perimeter Shoppers LaƟno/ of Each Category Total Shoppers Millennials Index Boomers+ Index Hispanic Index Dairy 70% 76% 108 68% 96 74% 105 Bakery 55% 61% 111 51% 92 60% 110 Deli 50% 59% 118 44% 87 57% 114 Prepared 44% 56% 127 37% 84 47% 107 Specialty Meats 39% 51% 130 32% 84 44% 112 Specialty Cheese 36% 48% 132 29% 79 45% 124

Because Dairy has such broad monthly reach, there is little difference demographically between Dairy shoppers and U.S. shoppers overall. However, it is worth noting that Dairy shoppers are more likely to be engaged with just the Dairy category rather than the remaining ﬁ ve fresh perimeter categories. Among monthly Dairy shoppers, 17% shop in only the Dairy category and shop an average of 3.5 categories which is the lowest among the six category shoppers.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 71 Table 4.2 Demographic Proﬁ le of Category Purchases

Total Shoppers Dairy Index Gender Male 41% 42% 102 Female 59% 58% 99 Age Cohort Millennials 18-35 33% 36% 108 Gen X 36-49 23% 22% 95 Boomers 50-68 40% 38% 96 Silent 69+ 5% 5% 101 Average Age 44.9 44.2 98 Respondent's race Caucasian 80% 81% 102 African American 13% 12% 92 Other 7% 7% 96 Latino/Hispanic 11% 12% 105 2013 Income* Less than $35K 31% 29% 94 $35K-$99K 44% 46% 103 $100K+ 19% 20% 106 Education High school or less 20% 20% 101 Some College 34% 33% 99 College graduate 27% 27% 100 Graduate school 19% 19% 100 Household Structure Average Household size 2.4 2.5 105 Live alone 27% 21% 80 With children 26% 30% 114 Adults only 47% 49% 103 Marital status Married 50% 50% 101 Living with partner 8% 8% 102 Single 27% 27% 99 Separated 1% 1% 94 Divorced 11% 11% 97 Widowed 3% 3% 98 N/A 0% 0% 105 Household shopping

responsibility Half 17% 17% 95 More than half 15% 17% 108 All/nearly all 67% 67% 99

Source: IDDBA Engaging the Evolving Shopper 2014. (n=1439 Total Primary Shoppers; n=1006 Dairy department visitors in past month and 2+ Categories purchased. *Income unreported for some respondents. An index shows how a consumer group compares with the overall total with an index = 100 indicating the consumer group is exactly the same as the Overall total. An index greater than 100 means the consumer group scores higher than the Overall total and an index less than 100 means the consumer group scores lower than the Overall total.

72 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Table 4.2 Continued: Demographic Proﬁ le of Category Purchasers

Total Shoppers Dairy Index US Census Division East North Central 15% 16% 102 West North Central 7% 7% 97 Middle Atlantic 13% 14% 113 New England 4% 4% 99 East South Central 6% 6% 99 South Atlantic 20% 20% 99 West South Central 11% 12% 104 Mountain 7% 6% 81 Pacific 16% 16% 97 Where do you live? Large city 29% 29% 101 Smaller city or town 30% 30% 101 Suburbs of large city 27% 27% 99 Rural area 14% 14% 99

Source: IDDBA Engaging the Evolving Shopper 2014. (n=1439 Total primary shoppers; n=1006 Dairy department visitors in past month and 2+ Categories purchased. An index shows how a consumer group compares with the overall total with an index = 100 indicating the consumer group is exactly the same as the Overall total. An index greater than 100 means the consumer group scores higher than the Overall total and an index less than 100 means the consumer group scores lower than the Overall total.

4.2 DAIRY DEPARTMENT SOURCING 4.2.1 WHERE DO DAIRY DEPARTMENT SHOPPERS GO AND WHY?

Dairy specialty retailers and services exist, but conventional stores continue to capture the vast majority of shopper preference in the category. Over 81% of Dairy shoppers say they get most of their Dairy products at a conventional store, rather than from fresh/specialty channels (like natural supermarkets or smaller specialists). A small number of category shoppers go outside large-format stores to get what they need, with farmers markets and similar smaller providers serving as a touchstone of emerging quality distinctions and introducing alternative brands which subsequently may make their way to local retail chains. A select number of urban areas in the U.S., including San Francisco and Seattle, have seen a minor resurgence of “the milk man,” with milk serving as the centerpiece of family-oriented home delivery services that offer other refrigerated options in the basket. Examples of these Dairy specialty retailers are Smith Brothers Farms or Oberweis milk delivery.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 73 4.2.2 Sources Used for Food by Dairy Chart 4.1 Where Dairy Department Shoppers Department Shoppers Prefer to Get their Dairy, by Store Type Outside of the preferred store for Dairy case products, many shoppers make use of a wide Fresh/ Specialty assortment of retailers for food during the past Retailer, 7% 3 months with about one in ﬁ ve shoppers having visited a Specialty Store or Natural/Health food Conventional store. Retailer, 93%

Source: IDDBA, Engaging the Evolving Shopper 2014 (n=460 Dairy department visitors and mentioned a store where purchased Dairy)

Chart 4.2 Sources Used by Dairy Case Shoppers, Past 3 Months

Six Department Average

82% Grocery/Supermarket 83%

64% Supercenter/Discount Store (e.g., Walmart, Target) 65%

37% Club Store (e.g., Sam's, Costco) 38%

30% Dollar store (e.g., Dollar General) 31%

22% Convenience Store (e.g., 7-Eleven) 22%

21% Specialty Store (e.g., Trader Joe's) 20%

18% Natural/Health Food Store (e.g., Whole Foods) 18%

13% Farmer's market 13%

9% Ethnic Food store (e.g., Fiesta, H-Mart) 9%

5% Specialty/gourmet food shop 5%

2% Milk delivery 3%

Source: IDDBA, Engaging the Evolving Shopper 2014 (n=828 Dairy department monthly visitors

4.2.3 PRIMARY STORE SOURCING More so than other perimeter categories, primary stores are getting the job done when it comes to the Dairy case. Despite shoppers today moving away from the ‘one store ﬁ ts all’ model, when it comes to the Dairy department, shoppers appear to be relatively satisﬁ ed with the offerings at their primary store. Moreover, the high utilization of the primary store is consistent across generations. In the table below we see that 74% of all Dairy department shoppers purchase from their primary store, a higher retention than any of the other fresh perimeter categories.

74 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Table 4.3 % Purchasing Fresh-Perishable Category at Primary Store

Source: IDDBA Engaging the Evolving Shopper 2014. (Responded to category questions: n=484 Dairy; n=426 Bakery; n=414 Deli, n=389 Specialty Meats; n=408 Prepared; n=379 Specialty Cheese)

4.2.4 WHERE DAIRY DEPARTMENT SHOPPERS GO WHEN THEY DO NOT PURCHASE DAIRY AT THEIR PRIMARY STORE Only 25% of Dairy department shoppers purchase at a store other than their primary store (2% claim to have no primary store) – by far, the lowest rate of the perimeter categories explored in this study. Where do Dairy department shoppers go to meet Dairy needs when they leave their primary store’s Dairy department? As with other perimeter categories, they are most likely to go to another conventional grocery store rather than specialty store.

Table 4.4 Non-Primary Store Dairy Purchase Location

Purchase Location Dairy Millennials Boomers+ Primary store 74% 72% 75% Non-Primary store: Conventional Grocery Retailer 17% 18% 15% Fresh/Specialty market Retailer 4% 4% 3% Not Primary, but No Preferred Store 4% 3% 6% No Primary store 2% 3% 1%

Source: IDDBA Engaging the Evolving Shopper 2014. (Responded to category questions: n=484 Dairy; n=198 Millennials 18-35; n=216 Boomers+ 50-74)

4.3 IMPORTANT DAIRY ATTRIBUTES 4.3.1 DAIRY ATTRIBUTES SOUGHT WHEN SHOPPING AT PRIMARY STORE Dairy department shoppers prioritize positive nutrition and wellness attributes, placing even higher priority around low-fat and fat-free attributes compared to shoppers overall. Being 100% natural and having no artiﬁ cial ingredients is as important to Dairy department shoppers as it is for other department shoppers.

As seen in in Chart 4.4 on the following page, in addition to trying to avoid fat, Dairy department shoppers are looking for Dairy products enhanced with vitamin D (31%) as well as pasteurized products (25%), a sign of safety and quality. Another 23% are looking for Dairy products that do not make use of hormones such as rBST. The ﬁ rst two factors have been traditional labels and identiﬁ ers of quality for Dairy products while Hormone-free is a relatively newer factor sought by evolving shoppers.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 75 Chart 4.3 What Dairy Department Shoppers Look for When Shopping at Primary Store 27% Low-fat 17% 22% 100% natural 21% 19% Fat-free 12% 19% No artificial ingredients 20% 17% Low calorie 13% 17% Heart healthy 14% Made in USA 16% 17% Dairy 16% No artificial preservatives 18% Overall 15% Low sugar 13% 13% Organic 11% 12% No trans-fats 14% 12% No high-fructose corn syrup 13% 11% Minimally processed 15% 11% Low sodium 15% 10% GMO-free 10%

Source: IDDBA Engaging the Evolving Shopper 2014. n=2500 Overall Fresh Perimeter visitors; n=484-Dairy department visitors.

Chart 4.4 What Dairy Department Shoppers Look for When Shopping at Primary Store

With vitamin D 31% Pasteurized 25% Hormone-free 23% Probiotics 14% Alternative beverages such as goat milk, soy or almond milk 11% Free-range/humanely treated/raised 11% Grass-fed 8% Cultured 8% Used in entrees or sides in store's fresh-prepared foods 4% UHT (ultra-high temperature) pasteurization 4% Goat milk-based 4% W/DHA 4% Kosher 4% Jersey 3%

A2 2% Source: IDDBA Engaging the Evolving Shopper 2014. n=2500-Total; n=484-Dairy department visitors.

76 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 4.3.2 PERFORMANCE OF THE DAIRY DEPARTMENT Looking at the store attributes that consumers believe their preferred stores are getting right for any given category illuminates the baseline level of service that a retailer must achieve to be seen as a viable option to shoppers. Across all perimeter categories, we ﬁ nd that shoppers say their primary stores are doing the best when it comes to providing food that they enjoy eating, ensuring that the items they have are fresh, and providing a pleasant environment to shop in. These are the ‘must haves’ for any store if they want any chance at earning shopper’s loyalty. In addition, for Dairy, shoppers feel that it is important for their primary stores to provide a wide selection of choices in the key product areas.

Chart 4.5 “Excellent” Ratings of Preferred Store’s Dairy Department

37% Freshness 32% 42%

35% Foods I enjoy eating 36% 34%

33% Wide variety 35% 30%

33% Environment 33% 31%

31% Value 26% 35%

28% Healthy foods 31% 28%

28% Nutritional information 31% 26% Total Millennials 18-35 22% Unique items 25% Boomers+ 50-74 19%

Source: IDDBA Engaging the Evolving Shopper 2014. (n=460 Total Dairy; n=188 Millennials 18-35; n=205 Boomers+ 50-74; Dairy department visitors and mentioned a store where purchased Dairy)

In Chapter 2, Table 2.2 we saw that among all the features (above) which shoppers were asked to rate their preferred Dairy store on from Excellent to Poor, Dairy department shoppers were most critical of their Dairy stores on unique items, with 27% rating their store only “fair” or “poor.” Interestingly, the second most criticized feature, but with only 13% “fair” or “poor” ratings, was wide variety, suggesting the need for Dairy departments to curate more specialty items for their shoppers to discover.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 77 4.3.3 WHAT PRIMARY STORES COULD DO TO IMPROVE THE DAIRY DEPARTMENT What can primary stores do to attract a greater share of their shopper’s Dairy dollars? The chart below suggests value is a key driver for those who go elsewhere. Although competitive milk pricing is a factor, value can take on many forms beyond price or price promotions alone. Stores can offer value through higher quality, discovery through unique and specialty items, fl avor “Everyone has diff erent needs, distinctions, personal recommendations, freshness cues, healthier offerings, compelling narratives, and portion/package sizes that so I’m looking for variety…fat- reduce waste. free to whole milk, goat, almond, and soy…and not just Yoplait but lots of diff erent brands to accommodate more par cular tastes and specifi c dietary needs.” - Millennial shopper

Chart 4.6 What Primary Store Could Do to Improve the Dairy Department

Six Among the 25% of shoppers who buy their Dairy in a store Department other than their Primary store Average

34% Value 53%

33% Variety/selection 25%

19% Health/nutrition 21%

22% Freshness of items 17% Note: a higher % in the bar vs. 21% Unique/specialty items 15% the six department average means the primary store is doing 13% Tidiness or cleanliness of presentation 15% less well on this attribute than 18% other departments Attractiveness of presentation 13% 13% Culinary expertise 10%

Source: IDDBA Engaging the Evolving Shopper 2014. (n=120 Dairy department visitors who did NOT purchase from their primary store)

78 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 4.4 DAIRY OCCASIONS AND HEALTH + WELLNESS CONSIDERATIONS Dairy is about breakfast and healthy snacks. When it comes to meals and snacks throughout the day, shoppers utilize categories in the fresh perimeter in very different ways. Dairy shoppers (especially Millennials) ﬁ nd this section to be a particularly good source for quick breakfast foods and healthy snacks. While Dairy may signal these occasions for shoppers of all ages, that does not mean they are all necessarily reaching for the same products. For example, for Millennials, Dairy is a food, not a beverage – i.e., they won’t be reaching for a glass of milk but will have some yogurt for a snack.

Chart 4.7 Suitability of Dairy Department at Preferred Store for Something Quick to Prepare or Eat for...

57% Breakfast 62% 57%

24% Lunch right away for myself 18% 30%

18% Lunch right away for my household 19% 16%

34% Lunch to eat later 37% 36%

21% Dinner right away for myself 17% 23% Total 17% Dinner right away for my household 19% Millennials 18-35 17% Boomers+ 50-74 33% Dinner to eat later 34% 35%

52% Healthy snacks 57% 49%

27% Indulgent or interesting snacks 29% 27%

21% A special occasion 17% 22%

12% None of these 6% 14%

Source: IDDBA Engaging the Evolving Shopper 2014. (n=460 Dairy department visitors and mentioned a store where purchased Dairy; n=188 Millennials 18-35; n=205 Boomers+ 50-74)

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 79 4.5 INFORMATION SOURCE PREFERENCES FOR DAIRY For retailers and manufacturers alike, understanding how consumers incorporate notions of health + wellness into their daily eating routine is an essential part of doing business in the context of modern eating culture.

In Dairy, customers are generally looking for health + wellness attributes associated with intentional health. This includes things like avoiding negatives (salt, fat, calories, etc.) and managing digestive health (lactose or dairy free).

When it comes to communicating this type of information, more than half of Dairy shoppers feel that it is important to see health + wellness information when shopping for Dairy products. Unsurprisingly, since consumers are used to seeing core Dairy products (such as milk and yogurt) have a full list of ingredients and nutritional data, it is most important for consumers to see this type of information on Dairy products. Along these lines, shoppers – especially Boomers+ – like to see this information on a label on the product’s package.

Chart 4.8 Preference for Information in Dairy Department by Cohort

85%

Label on the product package 69% 60%

37% Store created signage 30% 24%

Store staff 17% 12% 12%

Millennials 18-35 Gen-X 36-49 Boomers+ 50-74

Source: IDDBA Engaging the Evolving Shopper 2014. (n=395 Dairy department visitors and would like to see information; n=165 Millennials 18-35; n=56 Gen-X 36-49; n=174 Boomers+ 50-74)

80 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 4.6 KEY TAKE AWAYS FOR DAIRY DEPARTMENT: The Dairy department is a cornerstone of the fresh perimeter in grocery. It has broad reach among shoppers of all ages and is largely seen as a destination for some of the most health-centric eating occasions – breakfast and healthy snacks. As a result, the Dairy department has a large opportunity to serve as a wellness beacon for the store. Shoppers are generally satisﬁ ed with the Dairy department in their primary store and less likely to migrate to a competitor for their Dairy needs. While this suggests that Dairy departments are currently meeting customer needs overall, evolving food culture suggests that to stay relevant to the growing diversity of shopper needs, Dairy departments must think about value differently. In combination with offering competitive prices on staple items like milk, Dairy departments will increasingly need to curate opportunities for discovery, selection and variety that address customer needs around high opportunity eating occasions.

• The Dairy department is highly associated with healthy eating occasions – breakfast and healthy snacks. In Chapter 2, we saw that shopper wellness priorities are highest during morning eating occasions. The Dairy department can leverage its health halo by marketing solutions to shoppers around breakfast and healthy snacking occasions. Messaging around ‘real food,’ fresh, less processed qualities and nutrients sought on these occasions will speak to key needs. Emphasizing fast and easy, portability, energy and satiety will also connect with shoppers for morning occasions.

• Dairy departments can offer more diversity within growing categories such as Greek yogurt and Keﬁ r (which are increasingly sought for greater digestive health); place more focus on interesting ﬂ avor/texture solutions for sustained energy through dairy items combined with protein sources such as nuts and whole grains; offer more convenient, healthy on-the-go formats.

• The Dairy department enjoys the highest trafﬁ c and satisfaction among the six fresh perimeter departments examined in this study. High trafﬁ c means the Dairy department can be a great place to anchor cross merchandising and special promotions for lesser shopped or center-store categories. Ideas include leveraging Millennial needs through cross merchandising of energy/ granola bars or snack nuts alongside yogurts, or tapping Boomer interest in freshness and value by cross merchandising breakfast biscuits and blueberries with milks.

• Although migration away from one’s primary store occurs less often to satisfy Dairy needs compared to other fresh perimeter categories, value is a key driver for those who do go elsewhere. Through qualitative interviews we learned that consumers currently associate the Dairy department most strongly with milk and milk prices, but value can take on many forms beyond price or price promotions alone. Stores can offer value through higher quality, discovery through unique and specialty items, ﬂ avor distinctions, personal recommendations, freshness cues, healthier offerings, compelling narratives, and portion/package sizes that reduce waste.

• Millennials and Boomers alike are frequent shoppers within their primary store’s Dairy department, but each generation is motivated differently.

• Millennial shoppers prioritize variety and having access to foods they enjoy from their store’s Dairy department. Qualitative interviews underscore the importance of the Dairy department to reach Millennials with quick breakfast food solutions or healthy snacks to eat –they view dairy as food rather than a beverage.

• Boomers also appreciate variety and having access to foods they enjoy, but prioritize freshness and value even more.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 81 ENGAGING THE EVOLVING SHOPPER: SERVING THE NEW AMERICAN APPETITE Chapter 5: Deli and Specialty Meats Department Deep Dive

Retailer where shopper buys most of the specified product category, e.g., Bakery Preferred Store department items (may differ from their primary store)

Retailer where shopper buys most of their food and grocery items (where shopper spends Primary Store most money on grocery-type items)

The Deli and Specialty Meats departments are integral to many food retailers, but are even more vital for today’s busy shoppers who seek short-cuts in meal preparation, foods to eat on-the-go and variety to spice up daily routines. The Deli department has broader reach among shoppers than Specialty Meats because of the greater diversity of items. These two departments are embraced by Millennials in particular. Millennials appreciate the ability to buy portions appropriate for single or small households, quick meals for their busy lives, and help for their more limited cooking expertise. Households with children also use Deli departments as a vital part of their shopping and eating.

Shoppers look to Deli as a meal solution for lunch while Specialty Meats are more often a solution for dinner, especially for later eating.

82 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 5.1 DELI AND SPECIALTY MEATS DEPARTMENT SHOPPER PROFILES: The Deli department is frequented by half of all shoppers at least monthly, while the Specialty Meats department is shopped by fewer people, about two in ﬁ ve shoppers overall. Millennials are more likely to use both Deli and Specialty Meats departments than their Boomer+ counterparts. As well, Latinos/Hispanics have slightly greater usage rates of these two departments.

Table 5.1 Monthly Reach of Fresh Perimeter Categories, by Generation and Ethnicity

Deli is a widely used category so shoppers resemble the primary shopper proﬁ le. There are a few demographic skews for Deli shoppers beyond the fact that they are more likely to be Millennials, have children in the household, and live in the Middle Atlantic states. Specialty Meats shoppers tend to be more male, Millennials, and have children in the household (especially those 12 and under).

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 83 Table 5.2 Demographic Proﬁ le of Category Purchasers

Total Specialty Shoppers Deli Index Meats Index Gender Male 41% 43% 104 50% 121 Female 59% 57% 97 50% 85 Age Cohort Millennials 18-35 33% 39% 118 43% 130 Gen X 36-49 23% 22% 99 20% 88 Boomers 50-68 40% 35% 89 34% 86 Silent 69+ 5% 3% 69 3% 60 Average Age 44.9 42.5 95 41.3 92 Respondent's race Caucasian 80% 80% 100 79% 98 African American 13% 13% 98 13% 104 Other 7% 7% 100 8% 116 Latino/Hispanic 11% 13% 114 13% 112 2013 Income* Less than $35K 31% 28% 91 30% 96 $35K-$99K 44% 47% 106 47% 105 $100K+ 19% 21% 106 20% 103 Education High school or less 20% 21% 102 23% 116 Some College 34% 34% 100 35% 103 College graduate 27% 28% 105 24% 90 Graduate school 19% 17% 91 17% 91 Household Structure Average Household size 2.4 2.6 108 2.7 110 Live alone 27% 19% 72 19% 72 With children 26% 34% 128 34% 130 Adults only 47% 47% 100 46% 99 Marital status Married 50% 49% 100 47% 95 Living with partner 8% 8% 108 10% 127 Single 27% 28% 101 29% 106 Separated 1% 1% 105 2% 139 Divorced 11% 10% 89 9% 83 Widowed 3% 3% 109 3% 91 N/A 0% 1% 123 1% 153 Household shopping

responsibility Half 17% 17% 96 15% 87 More than half 15% 18% 114 19% 122 All/nearly all 67% 66% 98 66% 98

Source: IDDBA Engaging the Evolving Shopper 2014. (n=1439 Total Primary Shoppers; n=724 Deli department visitors in past month and 2+ Categories purchased; n=565 Specialty Meat department visitors in past month and 2+ Categories purchased) *Income unreported for some respondents. An index shows how a consumer group compares with the overall total with an index = 100 indicating the consumer group is exactly the same as the Overall total. An index greater than 100 means the consumer group scores higher than the Overall total and an index less than 100 means the consumer group scores lower than the Overall total.

84 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Table 5.2 Continued: Demographic Proﬁ le of Category Purchasers

Specialty Total Shoppers Deli Index Meats Index US Census Division East North Central 15% 16% 107 16% 102 West North Central 7% 6% 85 6% 83 Middle Atlantic 13% 16% 131 15% 118 New England 4% 5% 114 4% 100 East South Central 6% 6% 91 6% 97 South Atlantic 20% 20% 101 20% 102 West South Central 11% 11% 98 13% 117 Mountain 7% 5% 70 4% 56 Pacific 16% 14% 87 16% 98 Where do you live? Large city 29% 29% 103 31% 108 Smaller city or town 30% 29% 97 28% 92 Suburbs of large city 27% 28% 101 27% 100 Rural area 14% 14% 100 14% 101

Source: IDDBA Engaging the Evolving Shopper 2014. (n=1439 Total Primary Shoppers; n=724 Deli department visitors in past month and 2+ Categories purchased; n=565 Specialty Meat department visitors in past month and 2+ Categories purchased). An index shows how a consumer group compares with the overall total with an index = 100 indicating the consumer group is exactly the same as the Overall total. An index greater than 100 means the consumer group scores higher than the Overall total and an index less than 100 means the consumer group scores lower than the Overall total.

5.2 DELI AND SPECIALTY MEATS SOURCING 5.2.1 WHERE DO DELI AND SPECIALTY MEATS SHOPPERS GO AND WHY?

Sourcing Deli or Specialty Meats from Fresh/Specialty Retailers exists, but Conventional Stores continue to capture the vast majority of shopper preference in the category. About 90% of Deli/Specialty Meats shoppers say they get most of their Deli/Specialty Meats at a conventional retailer, rather than from fresh/specialty stores (like natural supermarkets or small butcher shops).

Chart 5.1 Where Deli Shoppers Prefer to Get Chart 5.2 Where Specialty Meats Shoppers Prefer their Deli, by Store Type to Get their Specialty Meats, by Store Type

Fresh/ Fresh/ Specialty Retailer, Specialty Retailer, 10% 10%

Conventional Conventional Retailer, 90% Retailer, 90%

Source: IDDBA Engaging the Evolving Shopper 2014. (n=372 Deli Source: IDDBA Engaging the Evolving Shopper 2014. (n=325 Specialty department visitors and mentioned a store where purchased Deli) meats department visitors and mentioned a store where purchased Specialty Meats)

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 85 About one in ten Deli/Specialty Meats shoppers go outside mainstream retailers and engage with specialized smaller- scale retailers that emphasize fresh or craftsmanship. These specialized retailers include natural grocers with well- developed charcuterie sections, specialty meat or gourmet shops, or perhaps a vendor at a farmers’ market selling their in-season products.

5.2.2 SOURCES USED FOR FOOD BY DELI AND SPECIALTY MEATS SHOPPERS Outside of the preferred store for Deli and Specialty Meats, many shoppers, during the last three months, made use of a wide assortment of retailers for food, with more than one in ﬁ ve shoppers having visited a specialty store or natural/health food store. About 9% visit a free-standing delicatessen, 8% visit a butcher, and 5% visit a Specialty Meats store.

Chart 5.3 Sources Used for Food by Deli Shoppers, Past 3 Months Six Department Average

82% Grocery/Supermarket 81%

64% Supercenter/Discount Store (e.g., Walmart, Target) 66%

37% Club Store (e.g., Sam's, Costco) 40%

30% Dollar store (e.g., Dollar General) 32%

22% Convenience Store (e.g., 7-Eleven) 24%

21% Specialty Store (e.g., Trader Joe's) 23%

18% Natural/Health Food Store (e.g., Whole Foods) 21%

13% Farmer's market 15%

6% Free-standing Delicatessen 9%

9% Ethnic Food store (e.g., Fiesta, H-Mart) 9%

6% Butcher 8%

5% Specialty/gourmet food shop 6%

Source: IDDBA Engaging the Evolving Shopper 2014. (n=662 Deli department monthly visitors)

86 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Chart 5.4 Sources Used for Food by Specialty Meats Shoppers, Past 3 Months Six Department Average

82% Grocery/Supermarket 79%

64% Supercenter/Discount Store (e.g., Walmart, Target) 65%

37% Club Store (e.g., Sam's, Costco) 40%

30% Dollar store (e.g., Dollar General) 34%

22% Convenience Store (e.g., 7-Eleven) 26%

21% Specialty Store (e.g., Trader Joe's) 23%

18% Natural/Health Food Store (e.g., Whole Foods) 22%

13% Farmer's market 15%

9% Ethnic Food store (e.g., Fiesta, H-Mart) 10%

6% Free-standing Delicatessen 9%

6% Butcher 8%

5% Specialty/gourmet food shop 7%

4% Specialty meats shop 5%

Source: IDDBA, Shopper Survey 2014 (n=541 Specialty meats department monthly visitors

5.2.3 PRIMARY STORE SOURCING The majority of shoppers are sourcing Deli and Specialty Meats from the store they consider their primary store for groceries. From Table 5.3 below, we see 63% of Deli shoppers and 62% of Specialty Meat shoppers shop those categories in their primary store. In Table 5.1 we saw that Deli and Specialty Meat department shoppers are more likely to be Millennials, but when it comes to loyalty to their primary store’s Deli department, whether Millennial or Boomer, shoppers are equally likely to be migrating to a store other than their primary store. In contrast, within Specialty Meats, Boomers exhibit strong loyalty to their primary store (74%), while Millennials do not (52%).

Table 5.3 % Purchasing Fresh-Perishable Category at Primary Store

Source: IDDBA Engaging the Evolving Shopper 2014. (Responded to category questions: n=484 Dairy; n=426 Bakery; n=414 Deli, n=389 Specialty meats; n=408 Prepared; n=379 Specialty Cheese)

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 87 WHERE DO DELI AND SPECIALTY MEATS SHOPPERS GO WHEN THEY DO NOT PURCHASE AT THEIR PRIMARY STORE? As with other fresh perimeter categories, when Deli and Specialty Meats shoppers go somewhere other than their primary store, they shop another conventional grocery store most often. In the Deli category, Millennial and Boomer+ shoppers migrate away from their primary store at relatively similar levels (33% and 32% respectively). In contrast, Specialty Meat Millennial shoppers migrate from their primary store more often than Boomer+ shoppers (55% vs. 26%). These differences suggest that stores have an opportunity to make Specialty Meat offerings more relevant for Millennial shoppers’ needs.

Table 5.4 Non-Primary Store Deli Purchase Location

Purchase Location Deli Millennials Boomers+ Primary store 63% 63% 65% Non-Primary store: Conventional Grocery Retailer 23% 22% 21% Fresh/Specialty market Retailer 3% 4% 3% Not Primary, but No Preferred Store 8% 7% 8% No Primary store 3% 4% 4%

Source: IDDBA Engaging the Evolving Shopper 2014. (Responded to category questions: n=379 Deli; n=195 Millennials 18-35; n=124 Boomers+ 50-74)

Table 5.5 Non-Primary Store Specialty Meats Purchase Location

Purchase Location Specialty Meats Millennials Boomers+ Primary store 62% 52% 74% Non-Primary store: Conventional Grocery Retailer 18% 23% 12% Fresh/Specialty market Retailer 5% 8% 3% Not Primary, but No Preferred Store 14% 14% 11% No Primary store 1% 2% 0%

Source: IDDBA Engaging the Evolving Shopper 2014. (Responded to category questions: n=389 Specialty meats; n=211 Millennials 18-35; n=127 Boomers+ 50-74)

5.3 IMPORTANT DELI AND SPECIALTY MEATS ATTRIBUTES 5.3.1 DELI AND SPECIALTY MEATS ATTRIBUTES SOUGHT WHEN SHOPPING AT PRIMARY STORE Similar to other fresh perimeter shoppers, Deli department shoppers are looking for foods that are natural, with no artiﬁ cial ingredients or preservatives. Deli department shoppers also look to avoid negative ingredients, seeking products that are low in sodium and low in fat and minimally processed. Humane treatment of animals is also a consideration for Deli department shoppers.

88 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Chart 5.5 What Deli Shoppers Look for When Shopping at Primary Store

21% No artificial ingredients 20% 21% 100% natural 21% 19% Low sodium 15% 19% No artificial preservatives 18% 18% Made in USA 17% 18% Low-fat 17% 15% Minimally processed 15% 15% Heart healthy 14% 14% Animals are humanely raised 10% 14% No trans-fats 14% 13% GMO-free 10% 13% Premium 12% 13% Low calorie 13% 12% Deli Nitrate/nitrite-free 10% Overall 11% Low sugar 13%

Source: IDDBA Engaging the Evolving Shopper 2014. n=2500 Overall Fresh Perimeter visitors. n=414-Deli department visitors.

Chart 5.6 Additional Factors Sought when Shopping for Deli

Hormone-free 27%

Free-range/humanely treated/raised 14%

Grass-fed 12%

Kosher 10%

House recipe 8%

Recipe available for duplicating at home 8%

Made on premises 7%

Vegetarian 7%

Uses ingredients found elsewhere in store 6%

Source: IDDBA Engaging the Evolving Shopper 2014. n=2500 Overall Fresh Perimeter visitors. n=414-Deli department visitors.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 89 Shoppers are increasingly concerned with issues tied to sustainability, especially when it comes to what animals are fed “If I’m going to have deli meat, and how they are treated (for shoppers’ personal health and I go for the good stuﬀ ” well-being) and how humanely the animals are raised (for ethical responsibility). Deli departments that can message around - Boomer shopper these attributes in their products can start to build a positive sustainability and wellness halo to earn shopper trust.

Chart 5.7 What Specialty Meats Shoppers Look for When Shopping at Primary Store

19% No artificial preservatives 18% 18% Minimally processed 15% 17% No artificial ingredients 20% 17% 100% natural 21% 16% Made in USA 17% 16% Low sodium 15% 16% No high-fructose corn syrup 13% 14% Premium 12%

Animals are humanely raised 13% 10% Specialty Meats 12% Nitrate/nitrite-free 10% Overall 11% No trans-fats 14% 11% Heart healthy 14% 11% Low-fat 17% 10% Organic 11%

Fat-free 9% 12%

Source: IDDBA Engaging the Evolving Shopper 2014. n=2500-Total; n=389-Meat department visitors.

Shoppers in the Specialty Meats department are also looking for foods that are free of artiﬁ cial preservatives and artiﬁ cial ingredients, with minimal processing. Compared to the other categories, Specialty Meat shoppers are less likely to be looking for products that are low-fat.

Not surprisingly, top factors that Specialty Meats shoppers are interested in are animal-related factors, with products that are hormone-free (25%) at the top of the list. As we saw with Deli department shoppers, attention to how meat and poultry are raised and fed is an important consideration for shoppers of Specialty Meats.

90 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Chart 5.8 Additional Factors Sought when Shopping for Specialty Meats

Hormone-free 25%

Free-range/humanely treated/raised 17%

Grass-fed 12%

Recipe available for duplicating at home 11%

House recipe 10%

Uses ingredients found elsewhere in store 9%

Made on premises 7%

Kosher 7%

Vegetarian 6%

Source: IDDBA Engaging the Evolving Shopper 2014. n=2500-Total; n=389-Meat department visitors.

5.3.2 PERFORMANCE OF THE DELI AND SPECIALTY MEATS DEPARTMENTS Looking at the store attributes that consumers believe their preferred stores are getting right for any given category illuminates the baseline level of service that a retailer must achieve to be seen as a viable option to shoppers. Across both Deli and Specialty Meats shoppers, we fi nd that the top three signs of Excellence are the same: ensuring that the items are fresh, providing a pleasant environment to shop in, and providing foods those shoppers “(My store’s) new ea ng sec on enjoy eating. Deli shoppers fi nd these factors to be even more is lively…good deli food, friendly, important for their preferred store than Specialty Meats shoppers hardwood fl oors, Wi-Fi, plugs… do. For example, freshness and environment are rated excellent by it’s my new me- me.” 41% and 36%, respectively among Deli shoppers versus 33% and 24%, respectively for Specialty Meats shoppers. Older shoppers - Boomer shopper (Boomers+) rate their preferred Deli departments especially highly for freshness and wide variety, suggesting these are most critical to get right to satisfy shoppers. Millennials give more recognition to their preferred Deli departments for unique items. Deli departments can deliver uniqueness and discovery through more global foods.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 91 Chart 5.9 “Excellent” Ratings of Preferred Store’s Deli Department

41% Freshness 37% 49%

36% Environment 36% 39%

36% Foods I enjoy eating 35% 40%

34% Wide variety 30% 40%

25% Value 26% 22%

25% Nutritional information 31% 23%

25% Unique items 30% 22% Total

23% Millennials 18-35 Healthy foods 23% 26% Boomers+ 50-74

Source: IDDBA, Shopper Survey 2014 (n=372 Total Deli; n=167 Millennials 18-35; n=146 Boomers+ 50-74; Deli department visitors and mentioned a store where purchased Deli)

Chart 5.10 “Excellent” Ratings of Preferred Store’s Specialty Meats

33% Freshness 31% 35%

26% Foods I enjoy eating 20% 29%

24% Environment 21% 26%

24% Wide variety 22% 23%

21% Value 21% 17%

21% Healthy foods 27% 15%

20% Nutritional information 20% 18% Total 19% Millennials 18-35 Unique items 21% 13% Boomers+ 50-74

IDDBA Engaging the Evolving Shopper 2014. (n=325 Total Specialty Meats; n=173 Millennials 18-35; n=113 Boomers+ 50-74; Specialty meats department visitors and mentioned a store where purchased Specialty Meats)

92 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 5.3.3 WHAT PRIMARY STORES COULD DO TO IMPROVE THE DELI AND SPECIALTY MEATS DEPARTMENT What can primary stores do to attract a greater share of their shopper’s Deli and Specialty Meats dollars? Charts 5.11 and 5.12 suggest better value (34%) and better variety and selection (26%) for Deli shoppers and better variety and selection (31%) for Specialty Meats shoppers. How specifi cally can retailers do this? Tap growing interest in global fl avors, rotate in trending “Variety makes a deli the best… ingredients and fl avor experiences, provide more nutrient dense deli sandwiches, hoagies, sliced selections and healthy and portable snacking options. Above meats and cheese for kids, sushi, all, provide narratives that tell shoppers the stories behind the salads, chickens, pizzas.” products, citing local sourcing and unique ingredients. - Boomer shopper

Chart 5.11 What Primary Store Could Do to Improve the Deli

Six Department Among the 34% of shoppers who buy Deli in a Average store other than their Primary store

34% Value 34%

33% Variety/selection 26%

22% Freshness of items 22%

19% Health/nutrition 18%

21% Unique/specialty items 15% Note: a higher % in the bar vs. the six department 18% Attractiveness of presentation (attractive, appetizing) 15% average means the primary store is not doing 13% Tidiness or cleanliness of presentation (well-kept, hygienic) 14% as well on this attribute as other departments 13% Culinary expertise 9%

Source: IDDBA Engaging the Evolving Shopper 2014. (n=144 Deli department visitors who did NOT purchase from primary store)

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 93 Chart 5.12 What Primary Store Could Do to Improve the Specialty Meats Department

Six Department Among the 37% of shoppers who buy Specialty Average Meats in a store other than their Primary store

33% Variety/selection 31%

34% Value 24%

21% Unique/specialty items 20% Attractiveness of presentation (attractive, 18% 18% appetizing) Note: a higher % in the 22% Freshness of items 17% bar vs. the six department average 19% Health/nutrition 16% means the primary store is not doing as well on 13% Culinary expertise 11% this attribute as other Tidiness or cleanliness of presentation (well- 13% 8% departments kept, hygienic)

Source: IDDBA Engaging the Evolving Shopper 2014. (n=160 Specialty meats department visitors who did NOT purchase from primary store)

5.4 DELI AND SPECIALTY MEATS OCCASIONS AND HEALTH + WELLNESS CONSIDERATIONS Deli and Specialty Meats are about the lunch and dinner occasions, especially to be consumed later (with some slight twists). Deli department shoppers are more likely to associate the Deli as a source for lunches, especially for eating later (58%). Specialty meats shoppers, on the other hand, associate those foods with dinner, especially for a later time (52%).

There are also generational differences at play. With Deli, Boomers+ are more likely to eat for lunch at a later time (63%) and to eat for a special occasion (28%). For Specialty Meats, Boomers+ are more likely to eat for both lunch and dinner at a later time (46% and 56%, respectively).

94 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Chart 5.13 Suitability of Deli Department at Preferred Store for Something Quick to Prepare or Eat For...

18% Breakfast 21% 15% 40% Lunch right away for myself 34% 38% 32% Lunch right away for my household 32% 31% 58% Lunch to eat later 49% 63% 27% Dinner right away for myself 25% 24% Total 26% Dinner right away for my household 28% Millennials 18-35 23% Boomers+ 50-74 40% Dinner to eat later 38% 47% 28% Healthy snacks 27% 31% 23% Indulgent or interesting snacks 21% 24% 22% A special occasion 11% 28% 8% None of these 9% 7%

Source: IDDBA Engaging the Evolving Shopper 2014. (n=372 Total Deli; n=167 Millennials 18-35; n=146 Boomers+ 50-74; Deli department visitors and mentioned a store where purchased Deli)

Chart 5.14 Suitability of Specialty Meats Department at Preferred Store for Something Quick to Prepare or Eat For... 29% Breakfast 24% 35% 24% Lunch right away for myself 22% 28% 17% Lunch right away for my household 20% 14% 38% Lunch to eat later 30% 46% 24% Dinner right away for myself 24% 23% 25% Dinner right away for my household 20% 22% 52% Dinner to eat later 39% 56% 28% Healthy snacks 27% 22% Total 22% Indulgent or interesting snacks 21% Millennials 18-35 26% Boomers+ 50-74 34% A special occasion 28% 37% 7% None of these 7% 8%

Source: IDDBA Engaging the Evolving Shopper 2014. (n=325 Total Specialty Meats; n=173 Millennials 18-35; n=113 Boomers+ 50-74; Specialty meats department visitors and mentioned a store where purchased Specialty Meats)

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 95 5.5 INFORMATION SOURCE PREFERENCES FOR DELI AND SPECIALTY MEATS For retailers and manufacturers alike, understanding how consumers incorporate notions of health + wellness into their daily eating routine is an essential part of doing business in the context of modern eating culture.

Since consumers do not expect to see Deli and Specialty Meats with a full list of ingredients and nutritional data as with packaged foods, it is less important for consumers to see this type of information on these products. Along these lines, shoppers – especially Boomers+ like to see this information on a label on the product’s package whereas younger consumers are looking for the information provided by the store.

Chart 5.15 Preference for Information in Deli Department by Cohort

74%

Label on the product package 55% 53% 48% Store created signage 37% 37%

25% 27% 20%

Store staff

Millennials 18-35 Gen-X 36-49 Boomers+ 50-74

Source: IDDBA Engaging the Evolving Shopper 2014. (n=317 Deli department visitors and would like to see information; n=141 Millennials 18-35; n=51 Gen-X 36-49; n=125 Boomers+ 50-74)

Chart 5.16 Preference for Information in Specialty Meats Department by Cohort

86%

Label on the product package 59%

47% 46% Store created signage 45%

16% 17% Store staff 10% 15%

Millennials 18-35 Gen-X 36-49 Boomers+ 50-74

Source: IDDBA Engaging the Evolving Shopper 2014. (n=296 Specialty meats department visitors and would like to see information; n=160 Millennials 18-35; n=36 Gen-X 36-49; n=100 Boomers+ 50-74)

96 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 5.6 KEY TAKE AWAYS FOR DELI AND SPECIALTY MEATS DEPARTMENT

The Deli department attracts about half of all store shoppers on a monthly basis, fewer than Dairy but slightly ahead of Prepared foods or Specialty Meats. Of all fresh perimeter categories studied, Deli may represent one of the greatest opportunity areas to build trafﬁ c and loyalty. The Deli department can be a broad palette from which to paint experiences that resonate in food culture today - discovery, convenience, wellness and inspiration.

Across both Deli and Specialty Meats shoppers, the top three signs of Excellence are the same: ensuring that the items are fresh, providing a pleasant environment in which to shop, and providing foods that shoppers enjoy eating.

Older shoppers (Boomers+) rate their preferred Deli departments especially highly for freshness and wide variety, suggesting these are most critical to get right to satisfy shoppers.

Retailers need to be vigilant about keeping deli items appearing and tasting fresh. Signage that can underscore “made on” date is a way to underscore freshness and provide information that many shoppers want. At a minimum, retailers should do internal checks to assess quality and freshness – does it measure up to foodservice quality? Consumers mention this as a gauge they use to assess Deli offerings.

Millennials are a strong potential source of new business if courted properly. Millennials are more likely to be attracted to the Deli and Specialty Meats departments compared to older age groups. The appeal is fresh fast food: snacks and meals to eat in the short term with little time or effort invested. Millennials thrive on discovery, global ﬂ avors and new experiences. So it’s no surprise that Millennials are looking for more unique items from the Deli. Deli departments that can change offerings frequently, leverage new ﬂ avor and ingredient trends, curate new foods with quality distinctions and become Millennials’ “sous chef ” will have an opportunity to build trust and long term relationships with this important group.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 97 ENGAGING THE EVOLVING SHOPPER: SERVING THE NEW AMERICAN APPETITE Chapter 6: Prepared Food Department Deep Dive

Retailer where shopper buys most of the specified product category, e.g., Bakery Preferred Store department items (may differ from their primary store)

Retailer where shopper buys most of their food and grocery items (where shopper spends Primary Store most money on grocery-type items)

Fresh Prepared food departments can set the tone of a store: greeting shoppers with wafting aromas and engaging theatrics of cooking, tantalizing them with food experiences that they can eat at their very next meal or snack (the appeal of immediate gratifi cation), off ering shoppers a low-resistance gateway into both experimental and sumptuously familiar food experiences.

However, despite the potential for alignment between Prepared food off erings and modern consumer lifestyles (which demand convenience for their time-starved schedules, quality for their health + wellness aspirations, frequent shopping trips to ensure freshness and the opportunity to satisfy multiple tastes in a single meal), visits to Prepared food departments are not yet routine. Shoppers are shopping the category with less frequency than other fresh perimeter categories, they are regularly straying from their primary store for Prepared food purchases in search of better options (refl ecting the wide variance in quality across stores), and they are not considering Prepared foods for some key eating occasions, particularly breakfast.

98 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite The threat of an ever-more diverse and sophisticated foodservice sector also looms large over in-store Prepared options. However, in-store Prepared food options have the potential to speak to modern consumer lifestyles and values, and integrate into their lives in a distinct and meaningful way. For example, they can speak to shoppers’ expectations of grocery as being healthier, quicker and better value than foodservice, while also supporting meal solutions that combine both Prepared options and raw ingredients. Millennials are already seeing the potential more clearly than other generations. As such, Prepared foods represent an often untapped opportunity to capture shoppers’ imaginations (and dollars) for many conventional retailers.

6.1 PREPARED SHOPPER PROFILE

Among all primary shoppers, the Prepared department is frequented on at least a monthly basis by almost half of all shoppers (44%), making it more of a ‘one off ’ occasion than a routine purchase overall. This suggests that current store offerings are missing an opportunity to speak to shoppers’ modern food needs and lifestyles.

Millennials are substantially more engaged with this category (at 56% vs Boomers’ 37%, and a 127 over index). This reﬂ ects an array of values and behaviors more vividly represented in the Millennial cohort; a growing interest in convenient options to meet both their on-the-go lifestyles and the variance in their children’s preferences, a desire to experiment without the need for culinary prowess and the prioritization of high quality, fresher options. Notably, Prepared department visitors are engaged with the fresh perimeter category as a whole, shopping an average of 4.7 categories on a monthly basis. In comparison to Millennials, Boomers may be more likely to cook or, when in need of convenience, turn to frozen categories.

Table 6.1 Monthly Reach of Fresh Perimeter Categories, by Generation and Ethnicity

Source: IDDBA Engaging the Evolving Shopper 2014. (n=1439 Total Primary Shoppers; n=624 Millennials 18-35; n=580 Boomers+ 50- 74; n=141 Latino/Hispanic). An index shows how a consumer group compares with the overall total with an index = 100 indicating the consumer group is exactly the same as the Overall total. An index greater than 100 means the consumer group scores higher than the Overall total and an index less than 100 means the consumer group scores lower than the Overall total.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 99 Table 6.2 Demographic Proﬁ le of Category Purchasers

Total Shoppers Prepared Index Gender Male 41% 46% 113 Female 59% 54% 91 Age Cohort Millennials 18-35 33% 42% 127 Gen X 36-49 23% 21% 91 Boomers 50-68 40% 33% 84 Silent 69+ 5% 4% 85 Average Age 44.9 41.7 93 Respondent's race Caucasian 80% 80% 99 African American 13% 12% 91 Other 7% 9% 124 Latino/Hispanic 11% 12% 107 2013 Income* Less than $35K 31% 31% 101 $35K-$99K 44% 43% 97 $100K+ 19% 21% 108 Education High school or less 20% 21% 104 Some College 34% 33% 99 College graduate 27% 28% 102 Graduate school 19% 18% 94 Household Structure Average Household size 2.4 2.6 106 Live alone 27% 23% 88 With children 26% 31% 119 Adults only 47% 45% 96 Marital status Married 50% 46% 92 Living with partner 8% 9% 115 Single 27% 32% 116 Separated 1% 1% 107 Divorced 11% 9% 86 Widowed 3% 2% 79 N/A 0% 1% 138 Household shopping responsibility Half 17% 16% 91 More than half 15% 17% 112 All/nearly all 67% 67% 100

Source: IDDBA Engaging the Evolving Shopper 2014. (n=1439 Total Primary Shoppers. n=639 Prepared department visitors in past month and 2+ Categories purchased) *Income unreported for some respondents. An index shows how a consumer group compares with the overall total with an index = 100 indicating the consumer group is exactly the same as the Overall total. An index greater than 100 means the consumer group scores higher than the Overall total and an index less than 100 means the consumer group scores lower than the Overall total.

100 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Table 6.2 Continued: Demographic Proﬁ le of Category Purchasers

Total Shoppers Prepared Index US Census Division East North Central 15% 15% 99 West North Central 7% 6% 91 Middle Atlantic 13% 15% 117 New England 4% 5% 104 East South Central 6% 6% 95 South Atlantic 20% 21% 103 West South Central 11% 12% 109 Mountain 7% 5% 76 Pacific 16% 15% 92 Where do you live? Large city 29% 31% 108 Smaller city or town 30% 28% 93 Suburbs of large city 27% 28% 103 Rural area 14% 13% 93

Source: IDDBA Engaging the Evolving Shopper 2014. (n=1439 Total Primary Shoppers. n=639 Prepared department visitors in past month and 2+ Categories purchased). An index shows how a consumer group compares with the overall total with an index = 100 indicating the consumer group is exactly the same as the Overall total. An index greater than 100 means the consumer group scores higher than the Overall total and an index less than 100 means the consumer group scores lower than the Overall total.

6.2 PREPARED SOURCING 6.2.1 WHERE DO PREPARED SHOPPERS GO AND WHY? While conventional retailers represent the main source of Prepared food purchases, some shoppers are trading up to the fresh/specialty channel. The vast majority of shoppers (83%) prefer to source Prepared foods from conventional retailers, rather than from fresh/specialty stores (like natural supermarkets or smaller specialists).

6.2.2 SOURCES USED FOR FOOD BY Chart 6.1 Where Prepared Shoppers Prefer to Get PREPARED FOOD DEPARTMENT Their Prepared, by Store Type SHOPPERS About one in ten Prepared food shoppers (11%) Fresh/ Specialty go outside mainstream retailers and engage with Retailer, 11% specialized smaller-scale retailers that emphasize fresh. These channels include specialty and natural grocers with well-developed fresh Prepared sections Conventional that have become a destination for discerning Retailer, 89% shoppers and eaters with a desire for higher quality fresh options. Other innovative enterprises are Source: IDDBA Engaging the Evolving Shopper 2014. (n=356 meeting consumer needs by delivering ready-to-eat Prepared department visitors and mentioned a store where pur- organic meals conveniently delivered to shoppers’ chased Prepared) doors.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 101 Chart 6.2 Sources Used for Food by Prepared Shoppers, Past 3 Months Six Department Average

82% Grocery/Supermarket 79%

64% Supercenter/Discount Store (e.g., Walmart, Target) 66%

37% Club Store (e.g., Sam's, Costco) 37%

30% Dollar store (e.g., Dollar General) 32%

22% Convenience Store (e.g., 7-Eleven) 26%

21% Specialty Store (e.g., Trader Joe's) 23%

18% Natural/Health Food Store (e.g., Whole Foods) 22%

13% Farmer's market 15%

9% Ethnic Food store (e.g., Fiesta, H-Mart) 10%

6% Free-standing Delicatessen 9%

5% Specialty/gourmet food shop 6%

3% Fresh-prepared meals delivery 3%

Source: IDDBA Engaging the Evolving Shopper 2014. (n=596 Prepared department monthly visitors)

6.2.3 PRIMARY STORE SOURCING Shoppers are routinely trading up for better quality options within the conventional store consideration set. While shoppers are not often trading up to fresh/specialty channels for their Prepared food purchasing, 37% are leaving behind their primary conventional retailer in favor of another conventional option. While this reﬂ ects a more general trend towards shoppers, particularly Millennials, shopping a greater diversity of stores for their total food needs, the level of ‘store switching’ is particularly high in the Prepared food category (falling in the top 2 fresh perimeter categories for switching to an alternative store). This represents a failure on the part of some primary stores to adequately address shoppers’ needs in quality, rather than value. Table 6.3 below shows that just 60% of those who shop in Prepared foods at least monthly, do so in their primary store.

Table 6.3 % Purchasing Fresh-Perishable Category at Primary Store

Source: IDDBA Engaging the Evolving Shopper 2014. (Responded to category questions: n=484 Dairy; n=426 Bakery; n=414 Deli, n=389 Specialty Meats; n=408 Prepared; n=379 Specialty Cheese)

102 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite WHERE DO PREPARED SHOPPERS GO WHEN THEY DO NOT PURCHASE AT THEIR PRIMARY STORE? As with other perimeter categories, when shopping away from their primary store for Prepared foods, the majority will not ‘trade-up’ and shop at a fresh/specialty retailer. Instead, Prepared food shoppers are more likely to stick with another conventional retailer (22%) while 5% are going to shop for Prepared at a fresh/specialty market retailer.

Table 6.4 Non-Primary Store Prepared Purchase Location

Purchase Location Prepared Millennials Boomers+ Primary store 60% 54% 65% Non-Primary store: Conventional Grocery Retailer 22% 24% 18% Fresh/Specialty market Retailer 5% 6% 4% Not Primary, but No Preferred Store 10% 14% 9% No Primary store 3% 3% 4%

Source: IDDBA Engaging the Evolving Shopper 2014. (Responded to category questions n=408 Prepared; n=191 Millennials 18-35; n=161 Boomers+ 50-74)

6.3 IMPORTANT PREPARED ATTRIBUTES 6.3.1 PREPARED ATTRIBUTES SOUGHT WHEN SHOPPING AT PRIMARY STORE Shoppers in the Prepared department are most focused on the product being 100% natural, free from artiﬁ cial ingredients and low in sodium. Attributes that are also important to Prepared shoppers are low sugar, no trans-fats, and low calorie. Chart 6.3 What Prepared Shoppers Look for When Shopping at Primary Store

25% 100% natural 21% 20% No artificial ingredients 20% 20% Low sodium 15% 19% Low sugar 13% 19% No trans-fats 14% 18% Made in USA 17% Low-fat 18% 17% Prepared 18% Minimally processed 15% Overall 17% Heart healthy 14% 17% Low calorie 13% 17% No artificial preservatives 18% 15% No high-fructose corn syrup 13% 13% Nitrate/nitrite-free 10% 13% Organic 11% Premium 13% 12%

Source: IDDBA Engaging the Evolving Shopper 2014. n=2500 Overall Fresh Perimeter visitors; n=408-Prepared department visitors.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 103 One of the top factors sought by Prepared food shoppers is hormone-free animal products (23%). Related to this is the desire for humanely treated animal products, something that was also key for Deli and Specialty Meat shoppers. Prepared foods actually made in the store (22%) are almost as important as being 100% natural (25%, previous chart) and hormone-free. Being made on the store premises ensures the shopper that the Prepared food is as fresh and local as possible.

Chart 6.4 Additional Factors Sought When Shopping for Prepared

Hormone-free 23%

Made on premises 22%

Free-range/humanely treated/raised 14%

Recipe available for duplicating at home 14%

Vegetarian 13%

House recipe 13%

Uses ingredients found elsewhere in store 11%

Grass-fed 8%

Kosher 8%

Source: IDDBA Engaging the Evolving Shopper 2014. n=2500-Total; n=408-Prepared department visitors.

6.3.2 PERFORMANCE OF THE PREPARED DEPARTMENT

Stores need to provide enjoyable, fresh food in an appealing environment. Looking across the store attributes that consumers believe their preferred stores are getting right for any given category illuminates the baseline level of service that a retailer must achieve to be seen as a viable option to shoppers. Across all Prepared shoppers, we ﬁ nd that their primary stores are doing the best when it comes to providing food that they enjoy eating, ensuring that the items they have are fresh, and providing a pleasant environment to shop in. These are the ‘must haves’ for any store if they want any chance at earning shopper’s loyalty.

104 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Chart 6.5 “Excellent” Ratings of Preferred Store’s Prepared Department

35% Foods I enjoy eating 33% 39%

35% Freshness 34% 41%

33% Environment 30% 38%

31% Value 30% 30%

29% Wide variety 31% 27%

26% Healthy foods 25% 27%

26% Unique items 26% 27% Total

25% Millennials 18-35 Nutritional information 26% Boomers+ 50-74 24%

Source: IDDBA Engaging the Evolving Shopper 2014. (n=356 Total Prepared; n=160 Millennials 18-35; n=143 Boomers+ 50-74; Prepared department visitors and mentioned a store where purchased Prepared)

6.3.3 WHAT PRIMARY STORE COULD DO TO IMPROVE THE PREPARED DEPARTMENT To attract a greater share of their shopper’s food dollars, Prepared food departments can focus on a wide variety and better selection (35%), better value (31%) and freshness (26%). Shoppers use a standard of comparison to foodservice and Prepared food departments will be well served to self-assess this way too. Freshness can be communicated many ways, but chalkboard “fresh” specials similar to restaurants, “made today” labels and identiﬁ cation of any local sourcing of ingredients are all ways to help elevate freshness perceptions.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 105 Chart 6.6 What Primary Store Could Do to Improve the Prepared Department

Six Department Among the 37% of shoppers who buy Prepared in a store Average other than their Primary store

33% Variety/selection 35%

34% Value 31% 22% Freshness of items 26% 19% Health/nutrition 23% 18% Attractiveness of presentation (attractive, Note: a higher % in the 21% appetizing) bar vs. the six 21% Unique/specialty items 20% department average 13% means the primary Culinary expertise 16% store is not doing as well on this attribute 13% Tidiness or cleanliness of presentation (well- 15% kept, hygienic) as other departments

Source: IDDBA Engaging the Evolving Shopper 2014. (n=164 Prepared department visitors who did NOT purchase from their primary store)

6.4 PREPARED OCCASIONS AND HEALTH + WELLNESS CONSIDERATIONS Prepared food is about getting something to eat for lunch and dinner, especially for eating later. Shoppers make use of Prepared food more for the two later meal periods but less so for breakfast. In many cases, shoppers are already out of the house and the Prepared department at the retailer is a close nearby option. Prepared is also a convenient and money-saving option for grabbing something to eat for lunch and dinner without having to spend more time and pay more at foodservice establishments. Dinner to be eaten later is the most common use of the Prepared department at 51%. Boomers+ are especially likely to utilize the convenience of Prepared for a “I ran to Whole Foods Market dinner to be eaten later (63%). to get some Chinese noodles for lunch because I was out doing errands” - Millennial shopper

106 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Chart 6.7 Suitability of Prepared Department at Preferred Store for Something Quick to Prepare or Eat for...

20% Breakfast 24% 15% 38% Lunch right away for myself 33% 41% 27% Lunch right away for my household 29% 23% 42% Lunch to eat later 41% 42% 40% Dinner right away for myself 36% 42% Total 36% Millennials 18-35 Dinner right away for my household 37% 35% Boomers+ 50-74 51% Dinner to eat later 45% 63% 35% Healthy snacks 31% 35% 25% Indulgent or interesting snacks 23% 33% 25% A special occasion 23% 29% 5% None of these 6% 7%

Source: IDDBA Engaging the Evolving Shopper 2014. (n=356 Total Prepared department visitors and mentioned a store where purchased Prepared; n=160 Millennials 18-35; n=143 Boomers+ 50-74.

6.5 INFORMATION SOURCE PREFERENCES FOR PREPARED FOOD For retailers and manufacturers alike, understanding how consumers incorporate notions of health + wellness into their daily eating routine is an essential part of doing business in the context of modern eating culture.

When it comes to communicating this type of information, 57% of Prepared food shoppers feel that it is important to see health + wellness information when shopping for Prepared products. Unsurprisingly, since consumers are less likely to see Prepared food products with a full list of ingredients and nutritional data as it is more available with packaged food products, it is less important for consumers to see this type of information on Prepared products. Along these lines, shoppers – especially Boomers+ – like to see this information on a label on the product’s package. Millennial shoppers are looking for the information provided by the store.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 107 Chart 6.8 Preference for Information in Prepared Department by Cohort 85%

62% Label on the product package 55% 48%

Store created signage 50% 31% 25% 24% 17% Store staff

Millennials 18-35 Gen-X 36-49 Boomers+ 50-74

Source: IDDBA Engaging the Evolving Shopper 2014. (n=323 Prepared department visitors and would like to see information; n=147 Millennials 18-35; n=47 Gen-X 36-49; n=129 Boomers+ 50-74)

6.6 KEY TAKE AWAYS FOR PREPARED FOOD DEPARTMENT

The Prepared foods department is most strongly connected with dinner. With dinner serving as the largest and least often skipped meal of the day, the Prepared foods department has a large opportunity to grow. Yet, currently, this department is frequented by less than half of all shoppers (44%), meaning that visits are not yet routine.

Not only are shoppers using the category with less frequency than other fresh perimeter categories, they are regularly straying from their primary store for Prepared food purchases elsewhere, suggesting shoppers are in search of better options. Retailers looking to build more loyalty to their Prepared food departments can communicate higher quality through variety and unique items which enable healthy eating and food enjoyment.

Modern eating is outsourcing cooking to fresh perimeter categories that can compete head on with food service, delivery, takeout and grab-n-go offerings. Consumers may not want to cook, but they don’t want restaurant food every day. Prepared foods are on trend with today’s eating culture and retailers can expect to see this area of the store grow, if executed properly. Prepared foods can speak to shoppers’ needs for healthier, quicker and better value than foodservice.

Millennials are substantially more engaged with Prepared foods (at 56% vs Boomers’ 37%) and offer a key target for business building efforts, including promotions that speak to the way Millennials eat and cook. The Prepared food department can resonate with Millennials through meal solutions that combine both Prepared options and raw ingredients. Millennials are the generation seeking ways to customize, be creative and develop new skills. Recipes provided along with prepared foods are a good way to keep these shoppers engaged.

To attract a greater share of their shopper’s food dollars, Prepared food departments can focus on wider variety and better selection (35%), better value (31%) and freshness (26%). Freshness can be communicated many ways, but “fresh sheets” similar to restaurants, “made today” labels and identiﬁ cation of any local sourcing of ingredients are all ways to help elevate freshness perceptions.

108 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite ENGAGING THE EVOLVING SHOPPER: SERVING THE NEW AMERICAN APPETITE Chapter 7: Specialty Cheese Department Deep Dive

Retailer where shopper buys most of the specified product category, e.g., Bakery Preferred Store department items (may differ from their primary store)

Retailer where shopper buys most of their food and grocery items (where shopper spends Primary Store most money on grocery-type items)

Specialty cheese is a perfect example of a category that has grown into prominence due in large part to the long-term economic and cultural shifts that redefi ned food culture in America. Gone are the days when cheese was largely defi ned by simple fl avor profi les that customers accessed at the deli counter or via pre- wrapped, highly processed off erings lurking in other parts of the grocery store.

Today, for many consumers, Specialty Cheese can be seen as the wine of the food world (and it is no coincidence that the two products are often paired together). Shoppers, especially Millennials, are increasingly looking for cheeses that incorporate a wide spectrum of textures, fl avors, and formats that refl ect their globalized palate. In order to fi nd this experience Specialty Cheese shoppers are more likely than other fresh perimeter shoppers to turn to fresh/specialty retailers to fi nd what they want. This points to an opportunity for conventional retailers but also highlights the challenges in getting product mix and presentation correct.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 109 7.1 SPECIALTY CHEESE SHOPPER PROFILE

Millennials and Hispanics shop for Specialty Cheese at much higher rates than the general population. It probably does not come as much of a surprise that, overall, Specialty Cheese is one of the less frequently visited areas of the fresh perimeter. But to dismiss this area as simply an intriguing aside would be to miss the more important story. While the ‘staple’ perimeter categories of Dairy and Bakery are generally utilized by shoppers of all ages and backgrounds at the same rate, in Specialty Cheese, Specialty Meats, and Prepared foods, we see distinct differences in shopping frequency between generations. Millennials are much more likely to visit the Specialty Cheese department compared to Boomers+. Hispanic shoppers are also more likely to frequent this area of the store compared to primary shoppers as a whole.

Table 7.1 Monthly Reach of Fresh Perimeter Categories, by Generation and Ethnicity

Although it comes as no surprise that wealthier consumers over-index for Specialty Cheese, several additional consumer segments are willing to trade up to the higher price points of Specialty Cheese as well. Millennials, Hispanics, and households with children also shop the Specialty Cheese department at higher rates, suggesting this category taps both cultural and experiential needs.

110 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Table 7.2 Demographic Proﬁ le of Category Purchasers

Total Shoppers Specialty Cheese Index Gender Male 41% 47% 114 Female 59% 53% 90 Age Cohort Millennials 18-35 33% 44% 132 Gen X 36-49 23% 21% 94 Boomers 50-68 40% 31% 78 Silent 69+ 5% 4% 82 Average Age 44.9 41.0 91 Respondent's race Caucasian 80% 81% 101 African American 13% 11% 84 Other 7% 8% 117 Latino/Hispanic 11% 14% 124 2013 Income* Less than $35K 31% 26% 85 $35K-$99K 44% 46% 102 $100K+ 19% 26% 133 Education High school or less 20% 18% 90 Some College 34% 34% 102 College graduate 27% 27% 99 Graduate school 19% 21% 109 Household Structure Average Household size 2.4 2.6 109 Live alone 27% 20% 75 With children 26% 33% 124 Adults only 47% 47% 101 Marital status Married 50% 45% 90 Living with partner 8% 9% 122 Single 27% 32% 118 Separated 1% 1% 109 Divorced 11% 9% 81 Widowed 3% 3% 94 N/A 0% 1% 177 Household shopping

responsibility Half 17% 16% 91 More than half 15% 20% 128 All/nearly all 67% 64% 96

Source: IDDBA Engaging the Evolving Shopper 2014. (n=1439 Total Primary Shoppers; n=503 Cheese department visitors in past month and 2+ Categories purchased). *Income unreported for some respondents. An index shows how a consumer group compares with the overall total with an index = 100 indicating the consumer group is exactly the same as the Overall total. An index greater than 100 means the consumer group scores higher than the Overall total and an index less than 100 means the consumer group scores lower than the Overall total.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 111 Table 7.2 Continued: Demographic Proﬁ le of Category Purchasers

Specialty Total Shoppers Cheese Index Dairy Index US Census Division East North Central 15% 14% 89 16% 102 West North Central 7% 6% 93 7% 97 Middle Atlantic 13% 17% 133 14% 113 New England 4% 4% 92 4% 99 East South Central 6% 5% 74 6% 99 South Atlantic 20% 21% 103 20% 99 West South Central 11% 12% 106 12% 104 Mountain 7% 5% 69 6% 81 Pacific 16% 17% 105 16% 97 Where do you live? Large city 29% 33% 115 29% 101 Smaller city or town 30% 28% 93 30% 101 Suburbs of large city 27% 27% 100 27% 99 Rural area 14% 12% 84 14% 99

Source: IDDBA Engaging the Evolving Shopper 2014. (n=1439 Total primary shoppers; n=503 Cheese department visitors in past month and 2+ Categories purchased). An index shows how a consumer group compares with the overall total with an index = 100 indicating the consumer group is exactly the same as the Overall total. An index greater than 100 means the consumer group scores higher than the Overall total and an index less than 100 means the consumer group scores lower than the Overall total.

7.2 SPECIALTY CHEESE SOURCING Chart 7.1 Where Specialty Cheese Shoppers Prefer 7.2.1 WHERE DO SPECIALTY CHEESE to Get their Specialty Cheese, by Store Type SHOPPERS GO AND WHY? More than in other fresh perimeter categories, Fresh/ Specialty Specialty Cheese shoppers are apt to look for items at Retailer, 16% fresh/specialty channels. Specialty cheese and Dairy are at opposite ends of the spectrum when it comes to shopper satisfaction with conventional retailers and Conventional their primary stores. While Dairy shoppers by and Retailer, 84% large stick to conventional channels and do not tend to stray beyond their primary stores, Specialty Cheese shoppers of all generations are much more about Source: IDDBA Engaging the Evolving Shopper 2014. (n=318 Specialty exploration. cheese department visitors and mentioned a store where purchased Specialty Cheese)

112 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 7.2.2 SOURCES USED FOR FOOD BY SPECIALTY CHEESE SHOPPERS Outside of the preferred store for Specialty Cheese, many shoppers, during the past 3 months, made use of a wide assortment of retailers for food, with more than a quarter of shoppers having visited a Specialty Store or Natural/ Health food store.

Chart 7.2 Sources Used for Food by Specialty Cheese Shoppers, Past 3 Months Six Department Average

82% Grocery/Supermarket 79%

64% Supercenter/Discount Store (e.g., Walmart, Target) 62%

37% Club Store (e.g., Sam's, Costco) 40%

30% Dollar store (e.g., Dollar General) 31%

22% Convenience Store (e.g., 7-Eleven) 27%

21% Specialty Store (e.g., Trader Joe's) 28%

18% Natural/Health Food Store (e.g., Whole Foods) 26%

13% Farmer's market 17%

9% Ethnic Food store (e.g., Fiesta, H-Mart) 13%

5% Specialty/gourmet food shop 8%

2% Milk delivery 3%

2% Specialty cheese shop 3%

Source: IDDBA Engaging the Evolving Shopper 2014. (n=484 Specialty cheese department monthly visitors)

7.2.3 PRIMARY STORE SOURCING Shoppers are looking for more from their primary stores when it comes to Specialty Cheese. If retailers can look at primary store utilization numbers for the fresh perimeter and be relatively satisﬁ ed with their performance in Dairy, when it comes to Specialty Cheese these ﬁ gures should be seen as a call to action. Only half of Specialty Cheese purchases occur at shoppers’ primary stores, by far the lowest rate of any of the fresh perimeter categories.

Table 7.3 % Purchasing Fresh-Perishable Category at Primary Store

Source: IDDBA Engaging the Evolving Shopper 2014. (Responded to category questions: n=484 Dairy; n=426 Bakery; n=414 Deli, n=389 Specialty Meats; n=408 Prepared; n=379 Specialty Cheese)

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 113 WHERE DO PREPARED SHOPPERS GO WHEN THEY DO NOT PURCHASE AT THEIR PRIMARY STORE? Where do Specialty Cheese shoppers go when they do not purchase at their primary store? As with other perimeter categories, Specialty Cheese shoppers more often turn to another conventional grocery store that better meets their needs. As alluded to earlier, shoppers are also more likely to turn to fresh/specialty retailers that are not their primary store to purchase Specialty Cheeses. Table 7.4 Non-Primary Store Specialty Cheese Purchase Location

Purchase Location Specialty Cheese Millennials Boomers+ Primary store 50% 50% 54% Non-Primary store: Conventional Grocery Retailer 22% 22% 18% Fresh/Specialty market Retailer 11% 8% 11% Not Primary, but No Preferred Store 15% 17% 13% No Primary store for Specialty Cheese 2% 2% 4%

Source: IDDBA Engaging the Evolving Shopper 2014. (Responded to category questions: n=379 Specialty Cheese; n=195 Millennials 18-35; n=124 Boomers+ 50-74)

7.3 IMPORTANT SPECIALTY CHEESE ATTRIBUTES 7.3.1 SPECIALTY CHEESE ATTRIBUTES SOUGHT WHEN SHOPPING AT PRIMARY STORE Shoppers in the Specialty Cheese department are most focused on the product being pure and clean with 100% natural being the top attribute sought by shoppers. Related to this attribute is also the importance of Specialty Cheese being free from artiﬁ cial ingredients and artiﬁ cial preservatives.

Chart 7.3 What Specialty Cheese Shoppers Look for When Shopping at Primary Store

25% 100% natural 21% 21% No artificial ingredients 20% 18% No artificial preservatives 18% 18% Minimally processed 15% 16% Premium 12% 16% Made in USA 17% 15% Low-fat 17% 15% Low sodium 15% 14% Organic 11% 13% No trans-fats 14% 12% Low calorie 13% 11% Heart healthy 14% 11% GMO-free 10% 11% Specialty Cheese No high-fructose corn syrup 13% Overall Fat-free 10% 12% Source: IDDBA Engaging the Evolving Shopper 2014. n=2500 Overall Fresh Perimeter visitors; n=379-Cheese department visitors.

114 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite While vitamin D is an important factor when shopping for Dairy, it is less of a factor for Specialty Cheese shoppers. Instead, shoppers are looking for products that contain animal products that are raised Hormone-free (23%). Another important factor for Specialty Cheese shoppers is for items to be Pasteurized (20%).

Chart 7.4 Additional Factors Sought when Shopping for Specialty Cheese

Hormone-free 23%

Pasteurized 20%

With vitamin D 14%

Grass-fed 14%

Free-range/humanely treated/raised 14%

Goat milk-based 10%

Probiotics 10%

Cultured 10%

Used in entrees or sides in store's fresh-prepared 10% foods

Kosher 6%

UHT (ultra-high temperature) pasteurization 5%

W/DHA 3%

Source: IDDBA Engaging the Evolving Shopper 2014. n=2500-Total; n=379-Cheese department visitors.

7.3.2 PERFORMANCE OF THE SPECIALTY CHEESE DEPARTMENT Looking at the store attributes that consumers believe their preferred stores are getting right for any given category illuminates the baseline level of service that a retailer must achieve to be seen as a viable option to shoppers. Across all perimeter categories, we ﬁ nd that shoppers say their primary stores are doing the best when it comes to providing food that they enjoy eating, ensuring that the items they have are fresh, and providing a pleasant environment to shop in. These are the ‘must haves’ for any store if they want any chance at earning shopper’s loyalty. In addition for Specialty Cheese more so than other categories, shoppers expect their primary stores to provide a selection of unique and interesting items that cater to their desire to explore within this category.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 115 Chart 7.5 “Excellent” Ratings of Preferred Store’s Specialty Cheese Department

37% Foods I enjoy eating 35% 38%

37% Environment 33% 41%

35% Freshness 33% 38%

32% Wide variety 35% 34%

31% Unique items 34% 27%

28% Value 30% 24%

25% Nutritional information 21% 27% Total Millennials 18-35 24% Healthy foods 27% Boomers+ 50-74 20%

Source: IDDBA Engaging the Evolving Shopper 2014. (n=318 Total Specialty Cheese; n=158 Millennials 18-35; n=108 Boomers+ 50-74; Specialty Cheese department visitors and mentioned a store where purchased Specialty Cheese)

7.3.3 WHAT PRIMARY STORE COULD DO TO IMPROVE THE SPECIALTY CHEESE DEPARTMENT Given the attributes it takes to earn a baseline level of shopper trust, what can primary stores do to attract a greater share of their shopper’s Specialty Cheese dollars? Here again, shoppers cite a store’s selection of unique and interesting items as an area to focus on if stores hope to earn more of their dollars. The good news is that retailers have responded to this sentiment and many of the largest chains have begun to overhaul their Specialty Cheese sections (often grouped with Specialty Meats) with the goal of improving both selection and shopping experience.

116 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite Chart 7.6 What Primary Store Could Do to Improve the Specialty Cheese Department Six Department Average Among the 48% of shoppers who buy Specialty Cheese in a store other than their Primary store 33% Variety/selection 37%

34% Value 31%

21% Unique/specialty items 28%

22% Freshness of items 16% Note: a higher % in the 18% Attractiveness of presentation (attractive,… 16% bar vs. the six department average 13% Culinary expertise 14% means the primary store

19% Health/nutrition 13% is not doing as well on this attribute as other

13% Tidiness or cleanliness of presentation… 9% departments

Source: IDDBA Engaging the Evolving Shopper 2014. ( n=190-Specialty Cheese department visitors who did NOT purchase from primary store)

7.4 SPECIALTY CHEESE OCCASIONS AND HEALTH + WELLNESS CONSIDERATIONS Specialty cheese is seen ﬁ rst and foremost as a unique snack or good for special occasions but isn’t completely deﬁ ned by these uses. Consumers of all ages see Specialty Cheese as a place to get unique items for snacks and meals that go beyond ordinary. However, Millennials and Boomers+ differ slightly when it comes to what exactly this means. For example, Boomers+ see Specialty Cheese as a healthy snack much more so than Millennials. Boomers+ also are more apt to turn to this category for lunch occasions. The lesson: Specialty Cheese isn’t just a once in a while treat.

Chart 7.7 Suitablity of Specialty Cheese Department at Preferred Store for Something Quick to Prepare or Eat for... 20% Breakfast 23% 18% 27% Lunch right away for myself 23% 36% 17% Lunch right away for my household 16% 18% 33% Lunch to eat later 29% 44% 26% Dinner right away for myself 29% 27% Total 22% Dinner right away for my household 27% Millennials 18-35 19% Boomers+ 50-74 36% Dinner to eat later 37% 33% 44% Healthy snacks 35% 51% 39% Indulgent or interesting snacks 40% 43% 38% A special occasion 35% 48% 9% None of these 6% 10%

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 117 7.5 INFORMATION SOURCE PREFERENCES FOR SPECIALTY CHEESE For retailers and manufacturers alike, understanding how consumers incorporate notions of health + wellness into their daily eating routine is an essential part of doing business in the context of modern eating culture.

When shoppers approach Specialty Cheese, in general, they are thinking beyond basic health + wellness notions like avoiding negatives (fat, calories, salt, etc.). As discussed earlier, shoppers are seeking much more nuance from Specialty Cheese and are more concerned about implicit attributes including artisanal production, ingredient quality, and the source of the product.

When it comes to communicating this type of information, more than half of Specialty Cheese shoppers feel that it is important to see health + wellness information when shopping these products.

As seen in other categories, in terms of what information to show and how to display it, on the whole, consumers prefer a full list of ingredients and nutrition facts listed on the product package. It should be noted that this preference for labeling on the product package is largely driven by older generations, especially Boomers+. This preference for labels on the product package also reﬂ ects the fact that shoppers are used to seeing labels on packaged foods like cheese. Millennials are generally more comfortable seeking out health + wellness information from a variety of sources, such as store created signage, and are not as reliant on labels.

Chart 7.8 Preference for Information in Specialty Cheese Department by Cohort

78%

Store created signage

60% 57% 51% Label on the product package 49%

28% Store staff 20% 15% 12%

Millennials 18-35 Gen-X 36-49 Boomers+ 50-74

Source: IDDBA Engaging the Evolving Shopper 2014. (n=296 Specialty Cheese department visitors and would like to see information; n=146 Millennials 18-35; n=47 Gen-X 36-49; n=103 Boomers+ 50-74)

118 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 7.6 KEY TAKE AWAYS FOR SPECIALTY CHEESE DEPARTMENT:

Positive attributes of protein, calcium and convenience are top of mind for consumers today; and they want ﬂ avor that excites their taste buds beyond Cheddar and Mozzarella.

Specialty Cheese is well aligned with today’s growth trends in snacking and enjoys a position as a unique snack – both healthy and indulgent. Although associated with special occasions as well, Specialty Cheese is not entirely deﬁ ned by these occasions. Boomers+ view Specialty Cheese as an ideal Healthy Snack, for Special Occasions and suitable for lunch. Millennials are more likely to view Specialty Cheese as ideal for Dinner. Marketing to different occasions will help the Specialty Cheese department meet the needs of both younger and older consumers.

Overall, Specialty Cheese is one of the less frequently visited areas of the fresh perimeter. But to dismiss this area as simply an intriguing aside would be to miss the more important story. While the ‘staple’ perimeter categories of Dairy and Bakery are generally utilized by shoppers of all ages and backgrounds at the same rate, in Specialty Cheese, Specialty Meats, and Prepared foods, we see distinct differences in shopping frequency between generations. Millennials are much more likely to visit the Specialty Cheese department compared to Boomers+. Hispanic shoppers are also more likely to frequent this area of the store compared to primary shoppers as a whole. As retailers look to grow by developing loyalty among new shopper bases, curating quality selections of Specialty Cheese can appeal to these new shopper bases.

Only half of Specialty Cheese purchases occur at shopper’s primary stores, by far the lowest rate of any of the fresh perimeter categories. With Specialty Cheese, more so than other categories, shoppers expect their primary stores to provide a selection of unique and interesting items that cater to their desire to explore within this category. Rotate features of new varieties to underscore wide selection and to keep shoppers intrigued and coming back.

Quality distinction and price can be drivers to and from the Specialty Cheese department. But price need not be a barrier. Educate shoppers and help them understand the quality distinctions, the narratives, the locales that help create value. Sampling programs can be an important way to attract new shoppers to the department, while educating them at the same time. Specialty Cheese provides excellent cross-promotion opportunities, especially when tied to high margin entertaining items.

Specialty cheese departments offer retailers a strong opportunity to capitalize on Millennials’ desire for high quality, protein-rich, single-serve and grab-n-go snacks. At the same time, Boomer and Hispanic shoppers can be drawn to the specialty cheese section for the Real, Fresh and Less Processed qualities they seek.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 119 ENGAGING THE EVOLVING SHOPPER: SERVING THE NEW AMERICAN APPETITE Conclusions and Implications

Changing American demographics and evolving food culture are affecting how we live, shop, and eat…and Millennials are at the forefront of the NEW AMERICAN APPETITE.

• Millennials are more likely than other cohorts to use the fresh perimeter categories for everyday needs (rather than just for special occasions). Develop their loyalty with specials and incentives that are geared to frequent, small-basket, and in-the-moment shopping rather than stock-up behaviors. Help them get inspired while helping them get in and out of the store quickly.

Modern eating means fresh perimeter categories are being used for a diversity of eating occasions, and retailers can leverage these new opportunities, especially with foods for snacking occasions.

• Bakery is most connected to indulgent snacks and special occasions, but with demand for whole- grain and artisanal breads and crackers growing, the Bakery department is increasingly able to fulﬁ ll dinner and breakfast occasion needs.

• Dairy is the go-to section for breakfast and healthy snacking occasions. Think beyond milk and cultured products to ensure plenty of single-serve and portable Dairy items to satisfy Millennial demands for high- protein, high-energy, healthy snacks.

• Deli, Prepared foods and Specialty Meats ﬁ ll both lunch and dinner occasion needs. Explore ways to offer more variety through global foods and a broader array of ﬂ avors in order to capture a greater share of occasions that might otherwise go to food service.

120 IDDBA Engaging the Evolving Shopper: Serving the New American Appetite • Specialty Cheeses are thought of most frequently for healthy snacks and indulgent or interesting snacks. Partner with Bakery and Specialty Meats to offer both entertaining and snacking solutions for shoppers.

Most foods in the fresh perimeter categories are thought of as antidotes to unhealthy, processed foods. Help shoppers continue to ﬁ ll their growing desire for fresh, real, and less processed foods with greater variety in your fresh perimeter categories. Highlight local sourcing, and natural and organic ingredients whenever possible.

• Shoppers will migrate to other stores to search for better variety and better value in fresh perimeter categories. Provide more unique items to enable discovery and to create an impression of curation and culinary expertise.

Shoppers look for different types of attributes to support their health + wellness needs when shopping in the fresh perimeter categories, but natural and no artiﬁ cial ingredients top the list across all specialty departments. Look for ways to cue these qualities in all fresh perimeter departments.

While value is currently top of mind for shoppers when thinking about what companies can provide to them on social media, there is a growing interest in obtaining both inspiration and user-generated information, especially among Millennials. Leverage ways to connect to shoppers through smart phones while in store with information, recipes, coupons, and apps.

IDDBA Engaging the Evolving Shopper: Serving the New American Appetite 121