The food and beverage market has shown remarkable resilience amidst ongoing inflation and economic uncertainty. A recent report from Circana, an insights and technology firm based in Chicago, highlights not only the challenges faced by consumers but also the prospects for growth in this sector.
In 2024, overall food and beverage dollar sales rose by 2.5%, with a price/mix increase of 1.6% and a volume sales increase of 1.1%. Looking ahead, Circana projects that the food and beverage industry will experience a 2% to 4% lift in dollar sales and a 1.5% to 3.5% boost in price/mix for 2025, even as volume sales growth is anticipated to remain flat at 0% to 1%.
Consumer Confidence: A Double-Edged Sword
As consumer confidence begins to rise, albeit modestly, many shoppers continue to feel the pressure of the macroeconomic landscape. Sally Lyons Wyatt, global EVP and chief advisor at Circana, emphasizes that even with the slight uptick in confidence, consumer behavior has drastically evolved. “Consumers are concerned about pricing, but lifestyle is also playing a key role,” she explains. The definition of value has shifted, which has led to the emergence of what Circana labels “unscripted consumers.”
These unscripted consumers do not adhere to traditional spending patterns. Instead, they tend to allocate more of their budget toward home-cooked meals while cutting back on dining out, demonstrating a preference for just-in-time consumption. Consumers are making more frequent trips to the store while buying fewer items per trip. This new shopping behavior signals a distinct transition in how consumers approach their food and beverage choices.
Bifurcation of Spending Habits
The evolving consumer landscape reveals a phenomenon known as bifurcation—where shoppers split their spending in a way that balances value with occasional splurges. Lyons Wyatt notes that while private brands have seen a 3% uptick in sales, there is also a rise in spending on premium (2% increase) and super-premium (4% increase) national brands.
Consider the example of a consumer who opts for a premium pasta sauce while simultaneously selecting private-brand items from the baking aisle. This practice of trading down or across in different categories allows consumers to justify spending more on select premium items while remaining budget-conscious elsewhere.
E-Commerce: A Growing Force
E-commerce is a driving force in the food and beverage industry, currently powering 35% of dollar sales growth despite only holding a 10% market share. As shoppers increasingly seek value offerings online, retailers must optimize their digital marketing strategies to capture a share of this growing segment. This trend emphasizes the need for clear, engaging messaging and robust online product visibility.
Economic Outlook and Opportunities
Circana’s outlook for 2025 aligns with broader economic forecasts, which predict somewhat subdued growth for gross domestic product and disposable income, alongside a potential weakening job market. If conditions outperform expectations, there might be a slight decrease in volume growth as consumers favor dining out. However, if the economy faces stronger headwinds, a shift back to in-home meals could solidify, although it may reduce the willingness to pay for premium products.
Retailers and food manufacturers have an opportunity to capitalize on these shifts by tailoring their offerings to meet the needs of consumers who are increasingly discerning about their spending. By developing flexible pricing strategies, promoting private label products, and enhancing the online shopping experience, businesses can better navigate the complexities of this market.
Conclusion
The food and beverage industry is navigating through choppy waters, yet growth is feasible. By understanding new consumer behaviors, focusing on what drives value, and optimizing offerings across both physical and digital retail spaces, companies can position themselves for success in 2025 and beyond. Retailers that adapt quickly to these trends can not only survive but thrive in this challenging landscape.
