Is Premium CPG Growth Mostly Downmarket?

In 2020, I predicted in a public webinar that premium CPG growth would snap back to its pre-pandemic annual growth rate trend by 2021. 

What am I talking about? I’m talking about the change in the Year-over-Year growth rate. This may sound super academic to a founder reading this, but what this long-term signal tells us is one thing: how bloody competitive it will be going forward to get on shelves (and conversely, how powerful it might be to eat those Amazon costs to supplement/avoid your retail battle). 

In 2019, that trend was flat, with around 6% YoY $ growth. In a low inflationary environment, this was still quite good in the world of consumer packaged goods. 

Yet, it was unclear if the sector would simply snap back to 6% OR resume its deceleration from 2013 to 2017. 

The answer is that the premium CPG annual growth rate has resumed its flat baseline of 6% yearly growth (Source: Nutrition Business Journal, Chart 82; PGS analysis). 

What’s bizarre is that during the last five years, the primary variable correlated to intense usage of premium CPG– a college degree – has become more common. The absolute number of college grads is larger and larger each year. Yet, this is NOT driving a re-acceleration of the sector. 

What is going on?

For ten years, hard discounters have been quietly sucking the SRP of premium brands downmarket. ALDI, dollar stores, Winco, and even Grocery Outlet, are now well-known places to grab premium brands for up to 50% off in some cases per unit. I suspect the commoditization of more prominent brands in an omnichannel context continues to drag the sector down. 

Early signals from Sprouts’ Q1 earnings suggest that middle-class shoppers are reducing premium CPG purchases slightly already in 2022. On the other hand, Whole Foods’ foot traffic is stable so far this year (basket size dynamics are unknown). 

For more on the future of the Premium CPG sector and 2021 performance, register for today’s PGS webinar, right HERE

Dr. James Richardson

[email protected]