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    UNITED FRESH: Declining Consumer Income an Urgent Threat, H-E-B Prez Says

    Craig Boyan also warned of struggling sales, changing consumers

    By Randy Hofbauer, Progressive Grocer

    Although several macro-economic factors affecting the grocery market should keep grocers up at night, the continuing decline of U.S. consumers’ median income certainly is the most urgent, said Craig Boyan, president and COO of San Antonio-based H-E-B, in his June 21 breakfast keynote presentation at United Fresh 2016 in Chicago.

    Since the end of World War II, consumer income has experienced two “fundamentally different” 30-year periods, Boyan noted. From 1945 to 1975, industry grew based on people’s wage growth. However, the following 30 years saw such developments as the rise of globalization, and technology replacing humans in the labor force, creating a slowdown in median household income growth.

    A third period, beginning in 2008, has begun with negative income growth and increasing consumer debt. And income is projected to continue declining over the period, which leads to continued slowing sales.

    “We think it is possible that we are in a flat-to-declining industry for the next 30 years,” Boyan asserted.

    As a result, consolidation occurs and the fight for share goes up exponentially. H-E-B has seen this fight: Its number of annual competitive store openings rose from eight in 2011 to 61 in 2016.

    Besides declining income, critical factors grocers must address include:

    • Sales. The grocery industry often is called “recession-proof,” though the past decade of inflation and deflation suggests otherwise. Industry as a whole is struggling with sales as the market reaches a deflationary state, and most retailers are worried about the future of sales growth.
    • Changing consumers. While Baby Boomers strongly contributed to sales for decades, their spending has been declining and will continue to do so, with 46 being the age where decline begins. Although Millennials, too, are spending less on groceries, the decline is not as severe as that of Boomers.
    • The shift from grocery to foodservice. For the first time ever, consumers’ share of wallet toward restaurants finally surpassed that toward groceries.
    • e-Commerce. Currently, only 3 percent of groceries sold are purchased online. While this might not be severely damaging at the moment, retailers “are at the dawn of that battle,” he warned. Obstacles grocers need to overcome include developing the right business model, and understanding and managing economics (especially with free delivery in demand).

    Boyan added that if grocery businesses wish to move forward, they must rally around:

    • Food safety. While many retailers could chalk safety issues up to sourcing from foreign countries, Chipotle’s recent woes serve as a reminder that snafus can happen at the local level, too. Boyan acknowledged that, while no one loves additional regulation, Chipotle’s safety issues prove that the industry has a good reason to fundamentally raise its game and make itself safer. “When one industry or company makes a mistake, we all pay for it,” he stressed.
    • Health and wellness. Growth in diabetes among U.S. consumers is expected to double over the next several years, and one-third of children risk contracting the disease. Retailers have changed from having consumers eat roughly 3,000 calories 30 years ago to 4,000 today, contributing to the obesity epidemic, which has been linked to an increase in cancer-related deaths. However, increased consumption of fruit and vegetables has been shown to decrease the risk of certain cancers. The challenge will lie in grocers being able to sell produce that's affordable for all Americans while not lacking nutrients that may be found in more expensive produce.
    • People. Boyan criticized the industry for “fundamentally” underinvesting in people, with hourly wages declining almost every year for 30 years. Few companies have found a way to lower cost while investing in their employees. However, taking good care of employees leads to severely reduced full-time turnover. With higher retention rates and the right people, employees are better able to sell products. As Boyan put it: “Good companies’ stock prices outperform.”
    By Randy Hofbauer, Progressive Grocer
    • About Randy Hofbauer Randy Hofbauer is senior editor of Progressive Grocer. He has more than a decade of experience as a journalist and researcher, almost all of it covering CPG retailing.

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