By Al McClain
There were lots of speakers at the recent IRI Summit, with various thoughts on how to navigate the challenging economy,
connect better with consumers, etc. So, I thought I’d pick out some of the
more interesting ideas and see what you think.
- From Tim Hammonds (formerly of the
Food Marketing Institute): Many baby boomers won’t be able to retire
as soon as planned, so tap them as a resource. - From the “mom blogger” panel
discussion: More purchase decisions are being made from home (using the
internet), before the shopping trip – but shoppers are still
susceptible to impulse purchases. - From Jeff Martin (Stop & Shop):
Private label is here to stay and on the rise, so CPG manufacturers need
to provide retailers with a long-term vision as to how their brands fit
with the retailer’s private label strategy. - From Mike Salzberg (Campbell Soup):
Major consumer ritual changes are occurring, including 53 percent eating
at home more, 36 percent bringing snacks from home when they go out,
35 percent extending personal care portions, 33 percent bringing lunches
from home, 31 percent eating smaller portions, and 30 percent spending
more time at home. - From Tim Hammonds: For retailers,
quality and cleanliness are still important, but price and location are
dominant. - From Christa Farin (Mintel): There
is an opportunity to shift consumers’ frames of reference – for
example, celebrity chefs are lending their names to prepared foods lines.
The idea is to get consumers to compare the prices on these lines to
meals eaten out, instead of comparing prices to other lines of prepared
food. Other examples of “brand-stretching” include hair coloring
from spas, restaurant-branded meals, home laundry products that offer
savings vs. dry cleaning, Dunkin’ Donuts and Starbucks’ brands of ground
coffee, etc. - From Mike Salzberg: Five top aspects
of the shopping experience – this is an enjoyable place to shop;
I trust the store; they value my business; store offers good selection/value;
they make me feel welcome. - From “mom bloggers”: Pet
peeves: over packaging, lack of transparency (i.e. reducing product size
without making it clear), “deals” that aren’t really good deals,
internet coupons that aren’t accepted - From Mike Salzberg: Five major purchase
decision criteria – “Price,” 87 percent; “Like Product,” 84
percent; “Weekly
Flyer,” 75 percent;
“Coupons,” 68 percent; “Loyalty Discount,” 66 percent. - From Tim Hammonds: Increasing – store
brands, coupons, sticking to a list. Decreasing – stocking up, buying
larger sizes, buying unplanned specials. - From Christa Farin: Home becomes
more relevant in times of uncertainty – consumers focus on experiences
vs. materialism and indulge in less costly hobbies, and spend time reconnecting
with friends and family.
So, if you put all these comments together,
what do you have? Obviously, consumers are staying at home more, looking
for deals, stretching their dollars, etc. But, the recession is beginning
to show itty-bitty signs that it may be on the wane. And, whether it’s
in a few months, next year, or whenever, it is going to end. So, I would
think it’s in the best interest of retailers and manufacturers to convince
consumers that their offerings are a solid value, while marketing the low
price part of “value” now, and shifting more towards the
“quality” part of the meaning as the economy improves. It seems
to me that the worst thing a retailer or manufacturer can do now is discount
out of desperation and have no easy way to climb back up the price hill as
the economy improves.
Discussion questions: What changes
in consumer spending habits listed above do you see as providing retailers
and manufacturers with the most opportunity? Which habits do you think will
stick around once the economy improves, and which won’t?
BrainTrust
Discussion Questions
Poll
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The range of takeaways from the conference suggest, as always, that there is no silver bullet for retailers when it comes to winning business (and keeping it).
What has changed is that retailers can no longer rely on only being more than competent (i.e., excellent) at one or two things. The service experience, merchandise and value all have to be there. The fact that many more decisions are being made at home implies that retailers need to know their customers even better than they do today so they can deliver relevant and compelling messages to the home (e.g., via email).
Yes things may be on the upswing and a rising tide will lift all boats. However, those with the leaks will still ultimately capsize–it just might slow their sinkage.
Grocers should put their focus on the prepared and meals-to-go category. IRI is right. Consumers are staying at home so the money is shifting. We just need to build displays and layouts that cater to the customers new demands.
Publix curbside service pilot is a great example of ‘catering to the new wants of consumers’. I could see a chain like Blockbuster actually cleaning up during this economic environment (obviously the company has to be fixed first but their product and service is in demand now).
Instead of going to the IRI summit, a dollar store merchant I help advise just asks all the customers going through the till what they want, what changes they can suggest and how can the business be better (see previous discussion about The Power of Suggestion). Everyone is so enthusiastic about service that the associates have taken ownership and are doing ‘man in the street interviews’ in the aisles as they work.
The only constant in retail is change. Anyone who doesn’t subscribe to that should consider another form of business or employment.
Is this recession the same as others, or qualitatively different? And how will that affect consumers in the future?
It seems that in this downturn, the general public is showing evidence that what has happened in the economy is affecting people’s psyches. In other recessions, we have waited for things to turn around, but we have not as a country been thrown into such a deep mode of self-examination. This time, we are assessing all kinds of things, from extravagant spending habits to whether the fundamentals underlying our financial system need to be changed.
I think this will impact consumer behavior for many years to come. Things we associate with core values like saving money, eating at home and so forth, will not just pass with the recession.
It’s hard to know how much of the short-term contraction in consumer spending is going to affect long-term behavior. Truth is, none of us has experienced anything quite like today’s retail economy in many years, whether we are retailers or outside observers of the industry. I don’t pretend to have a crystal ball but would forecast some of the following:
1. At some point consumers are going to return to the mall and start spending again. (There is some statistical and anecdotal evidence that it’s already happening.) The endless series of months with sharply negative comp sales reports will come to an end, perhaps as early as the second half of this year.
2. Even though retail sales may rebound, consumers are still going through a process of “deleveraging,” which will affect their mindset on discretionary spending and credit card usage. So it may be awhile before we return to an era of conspicuous consumption and buying for status.
3. Goods and services with a utilitarian slant should continue to thrive, whether in consumer electronics, home goods or softlines. Especially as more baby boomers stay in the workforce longer than expected, they will be looking for items that help them manage their time and lives more efficiently. The smartphone is an example of the type of device that will continue to gain market share.
Are we in a state of permanent retail slump? No, not as long as the retail survivors tweak their strategies to address changes in long-term consumer behavior.
It is said that changing consumer behavior is easier than changing attitudes. And in this economy we are witness to how quickly our own behavior has changed, e.g., eating out less.
Private label brands have made inroads over the years. They took advantage of branded strategies by improving packaging and promoting more competitively.
It is my opinion that private label products will have the most profound long-term impact on shopping behavior and ultimately attitudes over the long term. Barriers which prevented consumers from embracing private label products are lowered when economic needs influence purchase decisions. If the experience with private label products proves positive, it will be difficult if not impossible for national brands to regain the loyalty they had. Consumers will be asking themselves “What was I thinking?”
And if national brands bring their prices more in line with private label to compete, the context for consumer choice becomes even more complicated. The path of least resistance will be the private labels.
In short, private label opportunities are there for the retailer and the consumer…for now and forever.
If I were a retailer I would focus on the five top aspects of the shopping experience mentioned by Mike Salzberg, i.e., this is an enjoyable place to shop; I trust the store; they value my business; store offers good selection/value; they make me feel welcome.
I would not change my stock assortment or pricing drastically because our consumers’ memory is short lived. Just look at automobile industry’s example. As soon as gasoline went under $2/gallon, small cars and hybrids such as Toyota Prius sales went down to a point where inventories of those cars would last over a year at current sales rate.
Similarly, as soon as the economy improves–and it will improve–I see consumers returning to old habits, i.e., eating out more often and buying more expensive products/groceries. Basically, we are a nation who loves to spend, regardless of our needs.
Once were out of this “muck” were in, I think we’ll see consumers return to the majority of their old shopping patterns (habits die hard). However, I think we’ll see consumers more focused than ever on shopping with retailers they can trust. “Trust” extends into a lot of areas. Will the retailer stay in business? Can I trust that the price I’m paying isn’t overinflated? Is the brand everything it promises to be? Will the shopping experience meet my expectations (and periodically WOW me)?
Mediocre retailers will ‘die’ a lingering death. And that’s a good thing for consumers as the total quality of retailers continues to evolve and improve.
The personal saving rate, measuring how much people save out of disposable income, has doubled in the last year (see USA Today and several other sources). And according to observers, much of this increase can be attributed to younger citizens – including a large percentage of one-person households. While not a spending habit, per the topic, this savings habit trend is projected to persist and increase.
I’m seeing signs that recreational spending is waning. This does not refer to spending on recreation, but to the practice of shopping as a recreational pursuit. With tighter credit, decreased home equity, and lost jobs, discretionary disposable income is rapidly drying up. As I see it, we’ll undergo another “nesting” trend, retreating to home, counting on exercise to release some of our shopping energy, turning more than ever to home entertainment, cooking more, and even reinforcing family values by spending more time together. I see us getting healthier, more connected to the present and to our friends and family, and more involved in “un-trivial” pursuits. I see an increase in church traffic and a decrease in movie theater traffic. I see a back-to-basics, fundamentalist approach to life such as repairing an ailing car instead of trading it in on the newest model. These trends, I believe, are where enterprising retailers should focus their marketing efforts.
At least from my neighborhood, it seems the biggest lesson that consumers have learned is that with an investment of only a relatively small amount of time, you can save a lot of money. It feels like a culture change, not a temporary shift: the people I talk to sound almost hungover and sheepish from what they view as a spending spree. Now they’re facing the consequences. They say they can’t believe they didn’t pay attention to these savings opportunities before, whether it’s Amazon’s gold box deals or online coupon sites.
For retailers, I think this means that if you can position yourself as a partner in helping consumers find value, however those consumers perceive it, then it doesn’t matter which trend shifts and which trend stays. If they trust you to help them find the best deals, then you’ll be first on their list when it comes to deciding where to buy.
I disagree with the assertion that consumer spending habits will return to where they were; they are forever changed and that’s why I like Ms. Farin’s insights. Shifting consumers’ frames of reference is the best shot that retailers and brands have at hitting the “reset” button, particularly with higher end products. In the process, they’ll be setting the direction for the post pull-out conversation at retail rather than waiting for things to return to “the way we were”(and being sorely disappointed when that day never dawns).
I think Pradip is onto something with his comparison of Mike Salzberg’s “Top 5’s.” The Top 5 elements of the shopping experience are all about where consumers want to shop and how. The Top 5 elements of the purchase decision are all about individual “mini-decisions” that are made inside that overall shopping experience.
A wise old Scotsman (well, he would be old now) I once worked for in Australia used to say “You must separate things urgent from things important and give them each their proper place. Otherwise you will never get to the things important and the things urgent will cease to matter.” Retailers planning to stick around should not forget to spend proper effort on the Top 5 of the overall shopping experience.
Old shopping patterns will not return anytime soon and may never return to the type of consumption experienced over the last decades.
Consider how much of consumption was supported by the increase in equity in homes. A pattern of charging purchase on credit cards then refinancing homes and paying off credit cards and doing it all over again is gone. Consumption was not driven by gains in income; it was driven by gains in debt. This pattern may never exist again.
Consider the consumption driven by the baby boomer generation, who in the past has been less than thrifty in planning for retirement. Now they are a generation with everything they were relying on for retirement from the value of their homes to their 401K to their pension plans, now seriously devalued. How much of the baby boomers income, that once went for consumption will now be diverted to retirement?
And, lastly, consider consumer’s experiences as they cut back. Do they find that they are just as happy with less? Do they lose that compulsion to buy? The pre-bust consumption trends did not always exist. They did not come upon us suddenly. They came upon us slowly through three generations. There were no shocks to stop it. Now, things are different.
It will be a long, long time before durable goods and soft goods again become highly consumable items. Autos will turn over in 5 years rather than 3 years. Clothing will wear out rather than trend out.
At the supermarket people will be choosier. They will be less frivolous and buy less. But, what they buy will be a thoughtful choice for them.
The shift to private label is permanent. At the moment it is accelerated because of ‘value’ but it will remain because of the strength of retail brands–in reality and in the minds of the shoppers. The recession is simply forcing the US to catch up in this respect. In that respect it is not entirely driven by ‘value’. Other trends–such as at home preparation of snacks are. As soon as value is not a concern these trends will reverse.
I think the most interesting comment is the very first. The economic crisis is adding years to the average person’s working life before they can reach the age of retirement. I was talking about this very fact with my accountant the other day. We both agreed that people will be adding 5 to 8 years to their career to make up for losses they have experienced in their retirement investment accounts. What will the government do about this; will legal retirement age legislation be the next step? And of course this will have a profound affect on new entries into the workforce.
“The only thing certain (and permanent) in life is death…”
Economic changes – including recessions – are not permanent (unless the society itself collapses), so the market mood will shift towards spending again.
Consumer sentiment may not lead the recovery but is likely to follow it. Given that, value-consciousness will stick, even after the market turns upwards. So my reading is that private label will continue to grow, people will continue to think harder about spending on big-ticket items, deals & coupons will continue to work.
To Carol Spieckerman’s comment about consumer spending not returning to where it was, I would add this thought and question: even in these recessionary days, the average American and European household consumes more (and is more wasteful) than even the wealthier households in the so-called developing or less developed economies. What if the average American consumer begins to find out that s/he can cut back even more than s/he already has? What would that do to the traditional business and economic model?
And once that consumer role model is demolished, what would that mean for the world at large and the developing economies that have been following the “consumption-led growth model”?
Obviously, this is not a foregone conclusion, but it’s a scenario worth pondering and preparing for. And some might say, perhaps a scenario even worth encouraging.