Dive Brief:

  • Despite the economic ramifications of COVID-19 on many American households, consumption in the grocery sector has shifted toward premium and super-premium brands, according to new data from market research firm IRI. Sales in these categories have increased 1.7% year over year at retailers for the 26 weeks ended Oct. 4.
  • Alcohol, specialty coffee, meal kits, frozen meals and spices are categories that have particularly benefited from this growth as millennials seek “experience” from the purchase of premium products and low-income households identify consuming them with special occasions.
  • Purchasing premium offerings during a recession is different than in the past when economic hardships sent consumers in search of value brands. However, the limitations today in spending in other categories such as clothing, travel and eating out have made indulging in premium food a more appealing proposition, according to IRI.

Dive Insight:

A January 2019 report from FONA International found the premiumization of foods and beverages stems in part from the influence of millennial consumers and their interest in new and interesting products, different experiences and the desire to be healthier. These values have gained ground this year as the pandemic has curtailed the variety of experiences people have access to.

This seemingly counterintuitive choice on the part of consumers that are weathering an economic downturn to purchase premium products prompted IRI to encourage manufacturers to promote relevant attributes that mark a product as premium. These include health and wellness, immunity, hygiene, indulgence and convenience. Doing so, the research firm noted, can help bolster sales.

Premiumization has contributed to price growth in a variety of categories, in part due to the reduction of in-store promotions and increased shelf prices. Luncheon meats, BBQ sauce and spaghetti sauce have seen 4.7%, 5.6% and 5.1% reductions in promotions respectively while prices for these items have all increased.

An uptick in demand for premium products has favored brands that consumers are already generally familiar with. In the frozen category, IRI highlighted Amy’s Kitchen and Smucker’s Uncrustables, owned by the JM Smucker, as beneficiaries of this trend. Products such as Brown-Forman’s Jack Daniel’s and Molson Coor’s Vizzy have seen sales boosted by premiumization.

Chocolate also was called out as a category that has reaped the rewards of shoppers looking to spend extra for a moment of indulgence. Lindt & Sprüngli, which owns Lindt and Ghirardelli, as well as Ferrero Rocher’s namesake chocolates, have all posted marginal growth. 

Although premium products are especially popular, it is not a change that lacks precedence. A 2019 report from the retail consulting firm Daymon noted 20% of sales growth in private label brands comes from products that are branded premium, trendy or organic. The report went back in time to show premium private label sales accounted for nearly one-third of dollar volume and drove 8% of growth in the segment in 2017.

Outside of private label, the story in recent years has been similar with premium products shifting into the mainstream environment. This has not only attracted new consumers, but individuals who are willing to pay more for them. 

Despite the growth in the category, some experts caution the increase in demand for premium products will be a short-lived trend as it is based on specific categories — indulgence, immunity and hygiene — that have seen surges in demand that are “pandemic sensitive.” 

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