Weathering an economic storm: successful retail marketing in interesting times

By Norelle Goldring, Director, Shopportunity, Marketing Magazine Retail Marketing Feature August 2008

Macro consumer & economic trends impacting shopper behaviour and how to leverage them

We are living in interesting times for retail. On the one hand we have a growing pool of high income earners and the ubiquitisation of luxury brands, and on the other a set of economic factors that are beginning to curb retail spend.

In this article we will cover the major consumer and economic trends impacting retail, likely changes in shopper behaviour, and implications for marketers.

The headline trends we will discuss are:

• Changes in household makeup
• Market polarisation and trade up/trade down, growth of the discounters
• Affordable luxury and masstige
• Health, wellbeing and obesity
• Sustainability and organics – the rise of the ethical shopper
• Economic slowdown, rising fuel and food prices.

Trend #1: Changes in household makeup - the role of segmented marketing

The facts:

According to Australia Scan, Roy Morgan and other sources, single person households are now nearly a quarter of Australian households, and 1-2 person households are nearly half of all households. The white picket fence, 2 adults and 2.6 kids (well, 1.8 kid) family still exists, but it represents under half of households, and only in certain geographic areas.

Men are increasingly shopping for themselves, with up to half of all grocery shoppers now male. Whilst the traditional ‘MGB’ (main grocery buyer) might be Mum shopping for the family in the mortgage belt, in inner-city areas shoppers are more likely to be singles of both genders shopping for themselves, or share households shopping together.

Implications for shopping behaviour:

Different household makeups have different product and pack requirements. Bulk packs are bordering on meaningless for DINKs living in small apartments with little cupboard space. Increasing average weight of purchase (AWOP) for small households living in small spaces might look like getting them to buy more units of a small item, rather than uptrade to a larger pack size.  The reverse is true for larger households with kids in the mortgage belt.

What marketers need to think about:

• Consider your portfolio strategy. Do you have brand and product offers catering to all relevant household types? Review your pack strategy and pack sizes by lifestage and household type.
• Explore segmentation with retailers. Understand how your category is segmented by shopper type and what products should be ranged where.

Trend #2: Market Polarisation - Trading up where I care, and down where I don’t

Facts and Behaviours:

Private label is reaching 20% of grocery sales, and Aldi is gaining momentum with approx 5% share of total grocery.

Shoppers are increasingly trading down on products and categories they don’t care about, and trading up in the ones where they do.

Trading up can be seen across a number of categories that are gourmet or involve entertaining, including coffee, cheese, dips, chocolate, pet food, and beer.

Categories with the highest involvement and degree of personal risk are the ones most resistant to private label.  Health and beauty (haircare, skincare etc) and pet food have so far proved reasonably resistant to private label despite the retailers’ best efforts as shoppers ultimately place more importance on the product’s efficacy (is it good quality/effective for my hair, skin, pet …) via strong brand associations, than the price.

Trading down occurs in low involvement, low perceived risk categories where the product is a (potentially invisible) component of a larger whole (think baking ingredients such as flour) or products in the category are perceived to all do roughly the same job. Papers, foils and wraps is such a category.

In addition, shoppers are more likely to trade down when products are for their own usage, and trade up when the product is for use by others, entertaining, gifting or special occasions.  I.e they trade up when image, indulgence, and efficacy are important.

What marketers need to think about:

• Marketers need to understand where on the trade up/trade down scale their products fit, and which types of retail channels they are therefore best suited to.  What kind of category are you in? What channels are your product categories bought in? You don’t have to be everywhere, just in the right places with the right product.
• Understand the usage of your product. Is it primarily for use by self, alone or by and with others? Is it predominantly for everyday occasions or special events and entertaining? What are the implications of this on likely trade up or trade down scenarios?
• Determine your private label participation or defence strategy. Is your category a candidate for private label (if it’s not already present)? Will you provide both branded and private label products? If you stay with branded products only, how will you position yourselves against private label – where do you stand on the ‘good, better, best’ scale?  How will you shore up your positioning with above and below the line communications to ensure shoppers select your brand over private label or other brands?

Trend #3: Affordable luxury and masstige = importance of getting into the consideration set

Facts and Behaviours:

Once-exclusive brands are becoming not only aspirational but affordable due to broadening retail distribution networks, lower prices based on economies of scale, and the advent of shopping tourism.  And it’s compounded by the celebrity culture and endorsements, and the access to ‘sneak peaks’ inside celebrities’ lives.

Once considered bastions of visible achievement reserved for the select few, it’s now not unusual to see 23-year-old team assistants sporting an $800 Louis Vuitton handbag or a $500 pair of Manolos. There is an increasing expectation that luxury brands be available to the mainstream, hastened by the advent of outlet malls and more recently premium outlet malls (such as those in Las Vegas), which sell luxury brands at heavily reduced prices.

This is placing downward price, positioning and profit pressure on other brands in specific categories.

What marketers need to think about:

• Determine the role of your category. Are you in an expressive category, which shoppers and consumers believe says something about them?
• Where do you sit versus other brands in the category? Which are the aspirational brands? How will you reinforce your brand positioning?
• What does this mean for your price positioning? How will you balance the aspirationality of your brand with the expectation that it be available, in at least some channels, at a reduced price? How will you balance price promotions so brand equity is not eroded?

Trend #4: Health, wellbeing and obesity – making it easy to be healthy

Facts and behaviours:

Australia recently overtook the USA for the world’s top spot in the obesity stakes, driven not just by poor diets but also lack of exercise.  School canteens in most states now operate on a traffic light system, ranking food and beverages and limiting their sale according to their likely obesity contribution levels.

Our work hard-play hard culture has created spin off indulgent ‘take time out for me’ behaviours ranging from couch potato-dom to the growth of indulgent products such as imported chocolates to eating on the run.  Consumers are rewarding their hard work with consumable indulgences. L’Oreal’s ‘because I’m worth it’ tagline perfectly captures this mindset.

The counter trend is age denial - ‘looking after me so I look good for longer’. This is evidenced not only in the growth of day spas and massage services, but also the mainstreaming of chemical and cosmetic appearance enhancements via Botox and elective surgery.

The proverbial sweet spot is in products and categories that deliver both indulgence and functional benefit without compromising their proposition (who wants a diet chocolate?!)  Not ‘Product X is now minus the calories’, but rather ‘Product X now has added goodness stuff to make you look/feel younger, your liver perform 10% better’ etc. Functional waters are a good example of this trend. Breads are now being produced with added vitamins and minerals. And functional products command a price premium at the shelf, providing you with a measure of protection against excessive price promotion.

What marketers need to think about:

• ‘Naughty’ categories don’t have to be black-and-white, opt in/opt out propositions. Indulgent products can be made ‘permissible’ with smaller pack sizes and portion control packs, and labelling that clearly indicates their functional and daily intake benefits as well as contribution to intake limits.  Such initiatives should be supported with both instore and above the line communications to create airspace between yours and competitors’ products.
• Consider the positioning of your product and category. Is it an out-and-out indulgence category whose proposition is clear and shouldn’t be sullied, or could it can have ‘functionality’ added to it?

Trend #5: Sustainability and the rise of the ethical shopper

Facts and Behaviours:

According to studies by the Natural Marketing Institute (NMI) in the USA, LOHAS consumers (lifestyles of health and sustainability) now number approximately 30% of all consumers. LOHAS shoppers are those for whom sustainability, environment and ethics are of primary importance when making product and brand selections instore.  There is another substantially sized shopper group for whom sustainability and ethics are of at least secondary importance.  Taken together we have a sizeable portion of the population for whom sustainability is now a major means of instore decision making – ‘ethical shoppers’.

This is playing out in the retail environment in the growth of traditional fruit and vegetable shops, and butchers, at the expense of grocery. The perception is that the produce in non-grocery stores is fresher, less chemically altered, has fewer ‘food miles’ from farm gate to store, and is more likely to be organic.  Further evidence of the growth of perceived ‘fresh’ is in the shift to markets and organic stores such as Macro, Harris Farm, and various farmers’ markets.

Whilst LOHAS consumers have higher disposable incomes, downward economic pressure means that suppliers and retailers won’t be able to charge a price premium for sustainable/organic products for very long – there will soon be a consumer expectation that sustainable and organic products are priced the same as ‘regular’ ones.  Organics are quickly becoming the cost of entry for a sizeable proportion of shoppers.

What marketers need to think about:

• How to make products and packaging sustainable – both environmentally and economically.  Impacts of this and other organisational sustainability initiatives on product labelling.
• Communication of your sustainability propositions at shelf and above the line – and quickly, for first mover advantage.  We anticipate there is only a 6-12 month window where sustainability will be a point of difference, and that from late 2009 it will simply become a way of doing business.
• Over time, ensure labelling, sustainability practice and messaging and organics are communicated across every point of engagement as a lack of sustainability initiatives and messaging will become barrier rather than source of competitive advantage.
• Reconsider channels to market for fresh and food based products. Think about where ethical shoppers are shopping – it’s not just traditional grocery.

And the big one that’s beginning to bite now …

Trend #6: Economic slowdown - making every shopping trip count

The Facts:

Economic events outside the control of the everyday household such as interest rates, the highest inflation levels in 20 years, the housing bubble, rents, personal debt levels, stock market volatility, the cost of energy, petrol and food price climbs of 5% p.a. all combine to mean that shopping behaviours are modifying to meet the new economic climate.

Cost of food is increasing due to drought, climate change and dwindling supply, and it’s not temporary. Some categories, such as rice, have stock limits and allocations.

Recent findings from Nielsen in the US show that:

• More than 50% are eating at home more and eating out less.
• More are entertaining at home
• More are taking lunch with them
• 63% of American consumers are reducing their spending to compensate for rising gas prices
• More than 7 households in 10 (72%) are ready to reduce spending on household necessities if economic conditions worsen
• 78% combine shopping trips and errands
• 39% stay home more.

Changing what they buy:

Shoppers are becoming focused on buying what they have to have, as opposed to buying what they want to have. People won’t stop using toilet paper, but they will stop using other discretionary products and brands.
Responses from a recent Unilever US survey indicated some interesting behaviours and attitudes towards the future purchase patterns in certain categories during economic slowdown.

The top 5 categories shoppers would stop buying were largely discretionary and included air fresheners, cookies, beer and wine, frozen dinners, and soft drinks.

The top dozen categories shoppers would not abandon were those covering food, household cleaning and personal hygiene necessities. These categories included deodorant, batteries, canned veges, fresh meat and seafood, hair care, household cleaners, laundry detergent, margarine, pain relievers/cold medicines, soap and personal washes, pet food, and toilet paper/tissues.

Changing How They Buy:

There are three major consumers trends occurring that vary by income:

1. Those making under $40,000 a year are redefining what goes into their shopping baskets and where they shop. They’re finding ways to stretch the household dollar by going back to just the essentials, effectively trading down to different cuts and different qualities of product. Also promiscuity is growing as they hunting out bargains and low prices to stretch even further.
2. The mid-tier consumer in the $40- $100,000 income range is “selectively deselecting”. They’re choosing to buy cheaper products in low emotion categories but are willing to keep the little indulgences that make life that little bit easier.
3. Those earning $100,000 and above are changing their priorities about which products they buy as well as the brand and unit price. Do I really need to spend $50 on a bottle of wine for dinner or can I get away with a $25 bottle?

Price has become more important to a broader range of shoppers. Being a “smart shopper” is becoming a necessity for more and more American families. So, how are they reacting to this changing environment?
In an economic slowdown there are a number of predicted shopper behaviours:

• Trading down – searching for lower priced sub-brands and house brands to stretch the household budget even further
• Specials – buying products on special, or deferring purchases until the products come on special, cherry picking from catalogues as well as pantry stocking when products are on sale.
• Value mining – hunting around the whole store for other value based options in other categories. Buying pasta instead of rice, beef instead of chicken for example
• Attracted to outlets with a fuel docket offer
• Reduce overall spend on everything, some categories to a great degree others to a small degree
• Fewer small basket quick trips as people conserve fuel. Consolidated shopping trips – swing back to stock up missions to conserve fuel. Quick trips are 70% of all baskets and the fastest growing profile so the effect will be strong
• Move to the internet to make purchases (>$100k p.a. profile) with non-food and general merchandise lines making up most of the basket
• Cherry pick for specials across the retailers
• Pantry fill specials, particularly high SKU value non-food items such as laundry
• Just stop buying that specific brand
• Moving consumption behaviour back to the home, forsaking restaurant and take away meals for meals prepared and eaten at home

Changing Where They Buy:

Shopping trips are less secure in today’s environment. One consumer in four (24%) would shop for groceries in a less expensive store if food prices continue to rise.  Store repertoires are therefore widening, with increasing disloyalty and promiscuity.  If shoppers are increasingly looking for the best deal, how will retailers create store loyalty?

As the economy and retail spending tightens, trading down will also occur at a channel and store level, not just within/across categories or among brands.  Shoppers will shop locally to conserve fuel and ‘food miles’ (this ties back into the sustainability/fresh fruit and veg trend). Aldi will get a huge kick along as will Costco when they open. The dollar discount stores such as Reject, Crazy Clarke’s and Go Lo will do really well. The Victorian based NQR stores will thrive in this trading environment.  Some of the small privately held clearance shops and chains such as Cunninghams are trading very briskly.

The Petroleum & Convenience channel will struggle as the queues get longer and people want to get out of the store that is associated with extra $ spend. Impulse milk, bread and snack sales have already started to slow.

There is a definite trend to eat at home as well, which will assist Woolworths and Coles. The smaller local retailers could possibly get a double benefit, firstly from the eat at home trend but also to local/ short trips to save fuel – and add the healthy aspect of home cooking and they may just be on a winner!

What marketers need to think about:

• Review your channel strategy with regard to holistic vs promiscuous shoppers. The game is not just about grocery in the future. Could some of your products and brands be ranged in discount stores and warehouse clubs? How important is the Petroleum Convenience channel for your products? Which baskets do your eggs need to be in?
• Reconsider your category’s role. Is it a discretionary or necessity category?. If discretionary, how will you maintain relevance? If a necessity category – see the trade up/trade down questions around the role of brand vs private label.
• Consider the role of trade spend, and managing a positive return for the investment without eroding brand equity. If shoppers continue to trade down, two levers may well be applied: 1. Applying the spend across a wider range of products with a smaller price drop – again to leverage shopper in-store perceptions and to maximize the spread of products on special, or 2. Focussing the discount to create stunt price points. This has already been happening for some time, but the temptation to do it may prove irresistible.
• Ensure you have a rock solid new product launch sell story and rationale for retailers. In this environment, the role of Brand development for suppliers becomes crucial as range extensions, or repackaging and new product development will have higher and higher performance criteria to achieve as retailers want more from less. The usual balance will be disrupted possibly permanently as retailers become more critical about the returns they are getting (or not) from untested products.
• Consider how you can assist retailers to help their shoppers stretch their grocery dollars. Examples include Whole “The Real Deal ” catalogues, and a friends and family discount card program for repeat purchases to encourage store loyalty.

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But do you? And which ones? And what for?

Shopper insights are the current buzzwords. Large companies with consumer insights departments are bringing on shopper researchers, or re-hatting their consumer researchers as shopper experts.

So how do you optimise shopper research for maximum application, rather than just keep up with the Joneses?

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Yet good capability roadmaps deliver value for organisations as well as individuals. A highly skilled, versatile team that takes ownership of its contribution towards the profitability of the business is an asset that pays dividends to the bottom line every day.

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Category plans provide a common platform and overarching framework for all marketing, channel and customer activity. A good category plan helps you: Read more

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Put your best foot forward

By Norrelle Goldring, Director, Shopportunity, for Marketing Magazine August 2008

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Economic events outside the control of the everyday family such as interest rates, the housing bubble, rents, personal debt levels, stock market volatility, the cost of energy, petrol and food all combine to mean that our “average shopper” is now starting to do some distinctly “unaverage” things to make ends meet.

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