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Retailers need to refocus on innovative frozen food merchandising and promotions to reverse a worrisome decline in unit volume.

Along time ago, Pete Seeger wrote a fantastic song, “Where Have All the Flowers Gone.” But in our industry, the question on everyone’s lips is “Where have all the units gone?”

In grocery today — and certainly frozen and refrigerated — unit sales are falling while dollars continue to grow. A recent earnings report by a leading CPG manufacturer indicates that the impact of price increases is positive for dollars (+8% YOY) but negative for units (-2% YOY). Circana data for the 52 weeks ending Nov. 8 shows a similar trend in the frozen and refrigerated departments where dollars were up 4.9% and 5.8%, respectively, while units fell 4.4% and 2.5%. Understanding what’s behind this phenomenon can help ensure a revival of unit volume.

CPGs REACH A TIPPING POINT

Kellanova, which split from Kellogg’s earlier this year, raised prices 30% in the last 18 months. But the company recently announced that it would return to “a more balanced volume and profit mix” as it moves forward. Similarly, Coca-Cola told analysts that consumers were looking for ways to save money. As a result, the company has “seen some shifts to discount channels and switching to private label brands.” These comments highlight key factors contributing to the decline in units: aggressive price increases, channel shifting and the acceleration of private label.

COVID was certainly the catalyst behind aggressive pricing actions brought on by supply shortages and cost increases. Consumers were willing to pay far more for products that were simply available. However, the tipping point has now passed, and price increases are not fully offset by sales gains, resulting in unit declines, sometimes even for private label. Marketing departments often assess brands as being either price elastic or price inelastic. This means that if a 1% increase in price is taken and unit volume falls by greater than 1%, the brand is deemed price elastic. If unit volume falls by less than 1%, it is price inelastic. It appears retailers have reached the point where price elasticity and key threshold points ($1.99, $4.99, etc.) are causing units to fall precipitously.

This scenario has led to unit declines and multiple forms of trading down — to less expensive brands and private labels, to alternative small and large discount channels that are not always tracked in syndicated data, and to smaller package sizes with lower absolute prices.

CONSUMERS ARE TRADING DOWN

Should we believe that consumers are actually eating less? Since more than 70% of Americans have a body mass index (BMI) that places them in either the obese or overweight categories, there is no evidence of this. Are consumers eating more away from home? That shift has clearly stabilized, so the answer cannot be found there. Are consumers trading down and out of categories altogether? To some extent, yes. It comes as no surprise that more indulgent and expensive categories are feeling more of the pinch — as are lower-income households.

SNAP recipients have seen their purchasing power reduced on two fronts: reduced benefits received and inflation. Pandemic emergency allotments initially allowed SNAP households to receive approximately $95 more per month. Starting in March 2023, these benefits reverted to the previous allotment determined by income and household size. The average one-person household saw
a reduction in benefits of $82 per month, and more than 25% of SNAP recipients said they could not buy enough food to feed their family.

Following the reduction [in SNAP benefits], there was an uptick in private label growth and a decrease in less essential and expensive purchases.

Following the reduction, there was an uptick in private label growth and a decrease in less essential and expensive purchases, including snacks, candy, meat, beverages, and fresh bakery. This has affected unit sales across retailers, although Walmart, Aldi, and Costco private label are generally out-performing branded CPG for now.

‘WEIGHED DOWN’ BY POPULAR DRUGS

A new generation of weight loss drugs, including Wegovy and Zepbound, are being used by close to 2% of all Ameri- cans, with the anticipation that they could eventually expand to tens of millions of U.S. consumers. They are also costly, averaging about $1,000 monthly, with limited or no coverage by health insurance.

WHAT CAN RETAILERS DO TO HELP JUMPSTART UNIT GROWTH? HERE ARE A FEW IDEAS:

1. 1. Focus on key nutritious and healthy categories in the refrigerated and frozen departments.
   2. Balance the need for higher margins with unit growth.
   3. Grow private label. As noted in earlier articles, private label is enjoying the benefits of the Seven Sea Changers: high-quality products, omnichannel growth, millennials, perimeter power, deep discounters, increased support, and its emergence as a true brand.
   4. Promote more. There has been some pullback in promotion since COVID began. It is time to reignite promotional support.
   5. Wring costs out of the supply chain. Focus on automation to save money on distribution and labor.

These drugs are already affecting fast-food visits, overall retail basket ring, and more indulgent categories, according to industry surveys and Walmart. There are, however, some green shoots in the field with healthier categories (fruits, vegetables, poultry, and fish) seeing a boost in consumption among users of these medications.

Where have all the units gone? Many consumers have deemed them discretionary. It is critical to utilize innovative merchandising, promotion and new products to help drive the return of volume growth in stores. When will manufacturers and retailers ever learn?

Don Stuart is a managing partner at Cadent Consulting Group, with offices in Wilton, Conn., and Evanston, Ill. He can be reached at [email protected]).