Food and beverage volume sales are expected to improve in 2024 as several of the major headwinds facing the industry are on pace to ease in the coming months, according to a new report by market research firm Circana.
Sally Lyons Wyatt, EVP and practice leader at Circana, told BevNET that lower inflation, rising consumer sentiment, and social security and supplemental income benefits are all expected to give a slight, much-needed boost to volume sales, which have largely dropped across most CPG categories over the past year and a half.
In 2024, beverage volumes are expected to rise 2% to 3% (dollar sales +3% to 5%), putting it on pace to outperform volume gains of around 1% and +2.5% dollar sales in food, Wyatt said.
Economic Forces Shape Market Outlook
Wyatt cautioned that the firm’s predictions are based on the assumption that the labor market and unemployment rate will continue to remain around its current status, as many workers are still working to catch personal income and savings up to the impact of recent inflation – including an average 30% price increase throughout food and beverage.
There are further concerns on the horizon as well: as of July 2023, Federal Reserve data showed cumulative U.S. consumer savings were falling at an average of $55 billion per month. Consumers over 55 years old have around 78% of excess personal savings, up 20 points from 2021, while the top 20% richest Americans by income bracket hold 65% of all savings, down by 4 points from 2021.
As many Americans find their savings depleted, student loan repayments restarting and SNAP benefits reduced, discretionary spending on appliances, sports equipment, toys and consumer electronics have all been significantly impacted. However, amid this challenging environment, food and beverage, petcare, beauty and personal care products have all seen upticks in sales.
While that appears to paint a dire picture for the average consumer, the realities of the post-pandemic marketplace currently translate to higher spending on eating at home, Wyatt said.
“What’s interesting about the headwinds [in the economy] is that many of the headwinds … might not be great for consumers, but they’re going to benefit retail and benefit food and beverage in general,” she said.
The cost of a restaurant or takeout meal is now on average around four times the price of home meal prep, Wyatt said, benefiting retail sales. As well, increased mobility benefits beverage sales.
Consumers Adapt to New Spending Climate
Some of the headwinds are softening as well. Although the market is unlikely to see significant pricing declines, Circana predicts inflation to fall to around 1.5% to 2% in the next year – a significant improvement from its 8.5% peak in 2022.
With price increases in many categories now expected to become permanent, Wyatt suggested that consumer sentiment will also adapt and improve. Throughout 2022 and 2023, many price promotions haven’t been highly effective as the average price on products is still higher than in the past. However, as they become used to the new normal of food and beverage pricing, Circana anticipates promotional sales will begin to regain their velocity-driving strength.
“There are some sectors that are rolling back prices, but not everything,” Wyatt said. “So as consumers adjust to say ‘Alright, this is what it costs,’ then when they’re on promotion you’re probably going to start to see lifts be more in line with what we’ve seen in the past. But so far, we haven’t seen that yet. We think we’re gonna get there in ‘24 – where we start to see the resemblance of a lift – the question will be how high will it be?”
Capturing Sources of Growth
By category, Wyatt said protein and energy drinks are among the best positioned to grow in 2024. Both categories have seen significant innovation towards better-for-you, functional products in recent years that she said appeal more to Gen Z consumers.
While those consumers are seeking functionality from food as well, beverage benefits more from an on-the-go convenience factor, and typically provides a more accessible price point.
“In the last couple of months, we’ve seen great volume for beverages, and then when we think about just pricing, pricing is lower than it was early in the year,” Wyatt noted. “It’s hovering at [around] 5% price per volume growth. Versus when we started the year, it was in the double-digits. So it’s definitely softened over the course of the year.”
She also pointed to Gen Z consumer behavior that benefits early stage brands as these younger consumers are more keen to try new products and are more influenced by social media trends and testimonies. However, that can also make brand loyalty potentially harder to secure as that audience is more eager to jump around from product to product.
In food, the deli aisle is expected to outperform the rest of the sector in volume in 2024 as convenient grab-and-go options help drive sales. Bakery, refrigerated, general food and produce are looking to be “on par” with 1% food sector growth, Wyatt said, but frozen and meat are on pace to underperform.
In a press release, Circana suggested that “perimeter aisles will need to optimize turnkey options for on-the-go consumers,” while in the frozen department “assortments should be reevaluated both in-store and online to ensure a variety of products are available to meet consumers’ needs.” Most likely, consumers will be looking to the center store “for solutions that deliver convenience, quality, and value.”