KANSAS CITY, MO. — Retailers and food manufacturers will need to identify opportunities created by the shifting demands of younger consumers to compete with recent growth in foodservice spending.

Data from a report by FMI – The Food Industry Association, market researcher Circana and consulting company Oliver Wyman found foodservice spending outgrew retail food and beverage spending for younger shopping cohorts and high-income households during the last year, even as the food and beverage retail share by eating occasion increased relative to pre-pandemic years.

Factors responsible for the shift range from the rise in popularity of online delivery apps to workers returning to the office and eating away from home. To recapture some of the spending loss, retailers can capitalize on the growing emphasis on food’s role in health and wellness and the increased importance of convenience.

“To win more customer purchases, food and beverage retailers and their suppliers need a better understanding of current consumer preferences,” FMI said. “Shifts toward spend for foodservice, the rise of digitalization and return-to-office all provide food and beverage retail with opportunities to improve how they deliver on what matters most to consumers.”

Shoppers have begun to see their food and beverage choices as playing a significant role in their physical wellbeing, with examples such as the “food as medicine” trend. Consumers also are paying attention to the relationship between diet and mental health, with nearly 75% of Americans reporting that the food and beverages they consume have a “significant or moderate impact on their mental and emotional wellness.”

As a result, consumers have turned their attention to fresh produce and products with functional benefits. Research from 84.51, the market research division of Kroger Co., found pre-cut and pre-washed vegetable dollar sales increased 569% versus one year ago for the 52-week period ending Feb. 17, 2024, and pre-cut and pre-washed fruit dollar sales rose 133% during the same time. Popular functional benefit categories included immune boosting and products with prebiotics.

“We certainly see more of an awareness of (food as medicine) among our younger shoppers and an understanding of functional benefits of different products,” said Alexandra Trott, director of insights at 84.51. “That's very different than the generation of my parents, which was purchasing diet colas and diet sodas, as their perception of health was ‘diet’ and those types of ingredients associated with diet beverages.

“Now it's these different functional benefits that people are gravitating toward, where they still get that good taste, good texture… in a similar experience, but it has better benefits as defined by this generation. They're seeing that as an investment in their health for the future.”

To capitalize on the trend, retailers and manufacturers can develop and emphasize food solutions that offer pre-cut produce items and in-store produced meal kits, according to FMI.

Convenience and time-saving benefits also remain at the forefront of consumers’ minds. The report identified nearly 60% of consumers’ midday meals and 65% of morning meals are prepared in less than five minutes, signaling a strong preference for food and beverage options requiring little preparation throughout most of the day. Products with ready-to-eat packaging, such as peel-off lids and included spoons, and those with all items required for one meal packaged together, such as salad kits, are solutions that may resonate with shoppers.

Retailers also may satisfy consumers’ desire for convenience with quicker and more streamlined shopping experiences. The FMI data showed 9% of dollar sales spent in 2023 and 20% of food and beverage growth originated from retail e-commerce, and 84.51 found delivery and pickup options outgrew the popularity of in-store shopping for trips with more than 12 items.

The Kroger researcher also revealed omnichannel shoppers continue to do most of their shopping in store but report online shopping as the preferred method. Reasons behind the preference include ease of adding items to cart, avoiding large crowds and long lines, and not having to load groceries into vehicles.

“Omnichannel shoppers say this is their preferred method of shopping, and we've seen a big jump in shoppers saying that they prefer to shop online,” Trott said. “Now ‘prefer’ is different than what actually happens. Most of those things still happen in the store, but they do prefer it.”