Dive Brief:

• With consumers demanding more prepared foods and other fresh products, retailers say they're reducing space in the center of their stores, according to The Wall Street Journal.
• According to Nielsen data, sales volume for packaged food and beverages dropped by 0.4% in the last year. In the same time period, fresh meat and produce grew by around 2%, and deli-prepared foods increased by 4%.
• To spur sales, manufacturers are cutting costs, consolidating and, in some cases, trying to make their way into supermarket fresh departments. Wal-Mart, meanwhile, is putting pressure on brands to cut costs and lure consumers with low prices.

Dive Insight:

The simultaneous growth of grocery fresh departments and decline of center store space has been fueled by a number of factors — from health concerns to private label growth to consumers simply growing tired of established brands. It appears deflation has also had an impact. With input costs down, shoppers are finding good deals on meat, eggs and dairy products around the store perimeter.

To combat this downturn, manufacturers are pushing innovation and developing new products made with on-trend ingredients, as well as rebranding and reformulating to make existing products healthier. They’re also consolidating to save money and increase their production capabilities, as Kraft and Heinz did two years ago.

Some CPG companies are even trying to work their products into grocers' fresh departments — a tactic that’s had limited success given retailers’ reluctance to overload the store perimeter with packaged goods.

“If we overrun perishables with all the big packaged brands, we lose our competitive edge,” Don Fitzgerald, vice president of merchandising for Mariano’s, told the Journal.

Effective marketing can certainly go a long way for CPG companies looking to make inroads. The success of Knorr’s recent “Love At First Taste” campaign, which gained significant brand awareness among millennial viewers who increasingly reject established brands, is one example of a savvy marketing investment.

Beyond internal changes and marketing moves, manufacturers are finding some success through direct-to-consumer channels. Companies like Mondelez have generated valuable buzz with limited-time offers and special product releases, and overall there seems to be building interest within the industry to further explore direct delivery. Amazon, for one, is eager to enlist CPG companies disillusioned with retail sales.

Retailers, meanwhile, should do their part and not simply let grocery aisles languish while they build out their store perimeters. Center store tends to be pretty predictable — one aisle for breakfast foods, another for snacks, another for cooking supplies — so why not mix things up? Cross merchandising and special displays could make the section interesting, while frequently rotating in specialty and local products could bring a treasure hunt feel that keeps shoppers coming back.