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Consumer confidence may be at its highest level since November 2008, but consumers aren’t necessarily spending more. According to a recent Rabobank podcast, consumers, who once focused on premium items, are now more interested in value -- and will likely continue to be so even after the economy improves.
“An economic recovery would help loosen up consumer purse strings, and improve some of the consumer confidence levels,” noted Rabobank Food & Agribusiness Research and Advisory (FAR) executive director Stephen Rannekleiv. “But many of the pre-recession spending trends were somewhat unsustainable. I think consumers have changed.”
Rannekleiv discusses in the podcast how the economy has changed buying habits, resulting in more price-sensitive consumers, who are searching for less expensive alternatives, cutting back on spending, and using coupons more often. However, the key becomes whether these trends are permanent or cyclical (likely to revert to previous patterns once the recession ends).
“This increased price sensitivity of consumers comes on the heels of an unprecedented trend of trading up, where you saw consumers willing to spend more for small luxuries and premium products,” said Rannekleiv.
While consumers were trading up, companies could profit from investments in acquisitions, along with brand positioning and image. But since consumers are now buying less expensive options, returns on those investments are now failing to meet expectations. How companies react -- whether they choose to wait out the downturn or present more value-oriented products and brand positioning -- depends on whether they think the recession is cyclical or permanent.
“Food and beverage companies need to be prepared for more frugality from consumers,” observes Rannekleiv, who estimates that frugality could be an important consumer trend for the next five years.
In addition to higher unemployment rates, much of this change in consumer spending is attributable to the loss of wealth U.S. households have seen from plummeting stock market and housing values.
“Moving forward, consumers are starting to replace some of that lost wealth by increasing their savings, and some of this increase in savings is often cited in one of the causes in the dip in consumer spending,” said Rannekleiv.
The full podcast can be found online at rabobankamerica.com/rabocast.
Utrecht, Netherlands-based Rabobank provides institutional and retail banking and agricultural finance solutions in key markets of the world.