firmly rooted

1Firmly Rooted, the Local Food Market Expands

Firmly Rooted, the Local Food Market ExpandsAs consumers embrace local grocery options, how can food retailers tap into this trend to drive growth?


A Growing MarketLocal food has made the next great leap. From a buzzed-about consumer trend to a central growth prospect for grocery retailers and restaurants alike, local is now an established part of the U.S. food market—and it is still growing. Retailers and restaurants have bought into the local food movement, estimated at $12 billion in 2014 with 9 percent annual growth expected at least through 2018. Take a look, for example, at U.S. schools, where 4,322 districts across the country now have farm-to-school programs—a more than four-fold increase since 2006.

Two years ago when A.T. Kearney conducted its first study of local food-buying habits, merely offering local food was a differentiator. Today, participation is table stakes—and excelling at it is the way to stand out. According to the National Restaurant Association, the top food trend for 2015 is local meat and seafood, followed by local produce. Consumers expect more local food than ever before, and they are reaching out into new categories, including canned goods and prepared foods.

For this year’s third annual study, we surveyed more than 1,500 U.S. shoppers who indicate they are the primary shopper or share shopping responsibility in their households.1 This paper summarizes our findings and offers recommendations for how grocery and retail operators can trigger top- and bottom-line growth.

Insights from ConsumersThis new study points to substantial changes in consumers’ perceptions about local food and the factors that affect purchasing decisions.

Local has been redefined. The meaning of local food is shifting. Almost all consumers have coalesced around a stricter definition: Ninety-six percent now describe local food as products grown or produced within 100 miles from the point of sale—up from 64 percent in our 2013 study and 58 percent in 2014.

Marketing is crucial. Access is no longer the primary roadblock to increasing local food sales; only 27 percent of consumers say products are not available. However, about half say they aren’t buying local because of a lack of clear advertising.

Local is fresh. Almost all consumers (93 percent) associate local with “fresh,” which is the primary purchasing factor for grocery consumers.

Most shoppers will pay extra. Regardless of the category, 78 percent are willing to pay a premium of 10 percent or more for local food, up from 70 percent in 2014.

Demand is expanding. The spotlight is no longer only on local produce, meat, and seafood. More consumers say local is also an important attribute for prepared foods and dry groceries. For canned and jarred products, local increased in importance from 5 percent in 2014 to 13 percent in 2015; for prepared foods, the jump was from 10 percent to 23 percent; in bread, the increase was from 9 percent to 18 percent.

1 A.T. Kearney’s online survey was conducted in May 2015 and included 1,519 U.S. respondents. Sixty percent of the respondents were women, and all are older than 18. Household, income, age, and urbanization characteristics were representative of the U.S. population as a whole.


Recommendations for RetailersConsumers have a narrower definition of local and a focus on freshness and they are willing to pay more for local products beyond produce, meat, and seafood. So what can grocery retailers and restaurant operators do to tap into this hot market? Below are several recommendations.

Leading grocers are embracing consumers’ definition of local. With almost all shoppers defining local as within 100 miles, it is not surprising that—for the third year running—consumers perceive farmers’ markets and local supermarkets as offering the best combination of price and quality (see figure 1). Sixty-five percent consider products produced or grown within the same state as local—up from 37 and 38 percent in 2013 and 2014, respectively. The third most common definition (57 percent) is food grown locally on an artisanal farm (fewer than 100 acres) or produced nearby by a small business. By contrast, most retailers use looser definitions. Walmart, Whole Foods, and Sprouts Farmers Market define local as within the same state, while Kroger and the U.S. Department of Agriculture define it as within 400 miles.

A few retailers and restaurants, however, may have hit the consumer sweet spot. In the Northeast, grocer Wegman’s seeks to source most local products within 100 miles on farms of fewer than 100 acres. In California, restaurant Chez Panisse is known for using local foods. And in Wisconsin, L’Etoile Restaurant says its support for local farms and artisan producers has helped create

How do you define “local food”?(% of respondents)

100

80

60

20

40

0

6458

96

37 38

65

1923

44

Grown ormanufactured

within 100 miles


in the same state1

Grown on anartisanal farm

or produced bya small business2

Naturalor organic


within 400 miles

8 8

42

57

12013 and 2014 responses are for food grown in the same state.2This is a new question in the 2015 study. Artisanal farms are those with fewer than 100 acres.

Note: Numbers do not add up to 100 percent because participants could choose multiple responses.

Source: A.T. Kearney analysis

Figure 1 Most shoppers define local food as grown or made within 100 miles

2013

2014

2015


“the largest producer-only farmers’ market in the nation,” with its chefs buying ingredients and preserving them for year-round use.

Of course, modifying the definition of local for a tighter radius has associated supply chain implications. A narrower radius for “local” means that a particular division will have more local regions, making it harder to consolidate volume with fewer suppliers. Increased supply base fragmentation increases both transportation costs—due to less-than-full truckload shipments—and product costs, the result of smaller purchase volumes and limited negotiation leverage. Furthermore, a larger supply base requires more field representatives to scout new local products and manage vendor relationships.

With almost all shoppers defining local as within 100 miles, it is not surprising that consumers perceive farmers’ markets and local supermarkets as offering the best combination of price and quality.Close the purchasing gap with innovative merchandising. The availability of local food is simply not the obstacle it once was. Only 27 percent of shoppers say they are not buying local because of availability, down from 47 percent in 2014 and 57 percent in 2013 (see figure 2). Sixty-three percent say retailers are offering improved and wider local assortments, up from 47 percent in 2014.

What are the main reasons for not buying local groceries?

60

20

40

0

37%31% 32%

57%

47%

27%

Products aretoo expensive

Local productsare not clearly

advertised1

Products arenot available

at favoriteretailer

Products arenot as fresh

5% 5% 3%

51%

1New survey question for 2015


Figure 2Most buyers say that availability is no longer a hurdle, however they say local foodis often not clearly advertised

2013

2014

201531%

25%29%

Dissatisfiedwith available

products


So why aren’t more people buying local? Shoppers say it is because they don’t know where those products are in the store. Fifty-one percent say their retailer does not clearly advertise local products. By investing in the in-store experience with differentiated signage that identifies local food, retailers can point shoppers toward sections that contain local products.

Encourage shopping trips and boost basket size by marketing local food. Thirty-four percent of shoppers will make a special trip to purchase local food (see figure 3). In fact, about 20 percent of purchases are local across basket sizes, with the highest percentages (22 percent) for individuals and families buying $150 to $250 in groceries each week. If shoppers received a promotion about local food, 64 percent say they would make a trip to the store, and 63 percent would visit if they were notified about in-season or in-stock local food options (see figure 4). Most prefer email (54 percent), followed by direct mail (27 percent) and text (14 percent).

% of respondents willing to make a special trip to a retailer80

60

20

40

0

67%

Because they knowthe retailer has local

produce in season

Because they knowthe retailer o�ers

local products


Figure 3Many shoppers will make a special trip to a store to buy local food

34%

What promotional initiatives motivate you to buy local foods?(% of respondents)

80

60

20

40

0

64% 63%

30%37%

Notificationsabout

promotions

Notificationsabout in-season

and in-stockproducts

Vendormarketing

Retailermarketing

Onlineinformation

27%


Figure 4Advertising local food can draw in more shoppers


Win in local to win in fresh. Local and fresh are closely related in the minds of customers— 93 percent associate fresh with local (see figure 5). And with an overwhelming percentage of customers still saying fresh is the most important factor in their purchasing decisions across categories, a strong stand in local food can bring increased sales.

For example, 86 percent say freshness is an important attribute for fruits and vegetables, followed by taste at 54 percent. Stocking local items or placing local meals on the menu—particularly produce, meat, seafood, and prepared foods—almost guarantees consumers will perceive a retailer or restaurant operator as offering fresh options.

An overwhelming percentage of customers say fresh is the most important factor in their purchasing decisions; a strong stand in local food can bring increased sales.Given the importance of local and its connection to freshness, consumers are making conscious trips to the store to buy local across basket sizes and get the fresh food they crave. And they associate positive attributes with retailers offering local, with 71 percent saying retailers that offer local are supporting small businesses and helping the local economy.

Which attributes are most important in the type of food you purchase?(% of respondents)

100

80

60

20

40

0

93%

Fresh

Notes: Numbers do not add up to 100 percent as participants could choose multiple responses. GMO is genetically modified organism.


Figure 5Shoppers associate “local” with “fresh”—which they cite as the most important attributein the food they buy

58%

Quality

53%

Sustainable

52%

Healthy

37%

Organic

25%

Antibiotic-free

23%

GMO-free

21%

Artisanal


Improve margins with informed pricing. Consumers are increasingly willing to pay more for local food—78 percent across all categories this year, up from 70 percent in 2014. And those willing to pay 10 percent or more grew from 12 to 22 percent.

When asked for specific willingness to pay by category, consumers will pay between 8 and 21 percent more for local foods, depending on the category (see figure 6). Women and younger generations say they are more willing to pay a premium for local food.

Going LocalThe “locavore” movement has taken root. Consumers—especially women and young people—have come to expect not only high-quality local meat, seafood, and produce, but also jams, ice cream, bread, and even popcorn. Forward-thinking retailers and restaurants with a distinctive definition of local and a focus on marketing and merchandising fresh, high-quality products at the right price will see an immediate impact and capture a long-term advantage in this growing market.

If you are willing to pay more for local food, how much more would you payfor specific products? Average price (% di�erence between conventional and local)

$10

$8

$6

$2

$4

$0

$4.49

$3.99

$4.67

$2.99

$3.61

$2.49$2.92

$5.10

Strawberries


Figure 6Consumers will pay more for local food

Chickenbreast

Eggs Baguette

$8.99

$9.75

$4.99

$5.53

$3.49

$4.17

$3.49$3.86

Rotisseriechicken

Ice cream Jam Popcorn

Conventional

Local

+13%+17%

+21%

+8%

+11%

+19%+11%

+17%


Authors

Randy Burt, partner, Chicago [email protected]

Mike Goldblatt, consultant alum

Shayna Silverman, consultant, New York [email protected]

A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues. For more information, visit www.atkearney.com.

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