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CHICAGO -- Lower-income households actually outpace their higher-income counterparts in consumer packaged goods (CPG) spending, and will spend $85.3 billion on CPG in 2007 while generating an additional $84 billion in incremental CPG growth during the next decade, according to a new study by market research firm Information Resources, Inc.
To capitalize on this opportunity, retailers and manufacturers need to deeply understand and anticipate the needs of this highly-fragmented segment of households and categories and not consolidate them into one homogeneous group, IRI said.
"Lower-income households are one of the hottest opportunities in the marketplace and are already providing real growth for progressive retailers, such as Save-A lot, Aldi, and Dollar General," said IRI Retail Solutions and Strategic Consulting president Thom Blischok. "This will also be the sweet spot for Tesco's new retail format that is entering North America this fall."
IRI's new study, "The Lower-Income Shopper Report: Learning to Better Serve Lower-Income Shoppers," identifies five lower-income micro segments that will be responsible for many of the growth opportunities. It uncovers huge variations in shopping frequency and spending levels as well as channel and category-level dynamics, and outlines some of the key differences among lower-income households.
According to IRI, the five lower-income "micro segments" are:
- Singles and married couples aged 25-34
- Seniors older than 65
- Households with children
- African Americans
For each micro segment, the report delivers four-year trends of key performance indicators (KPIs), including category development, sales growth, and household penetration across 60 food, beverage, and nonfood categories. It analyzes which categories are best positioned for growth and which are most vulnerable, and how retailers and manufacturers should respond.
According to IRI, both retailers and manufactures have been treating the lower-income segment as a "one size fits all" group by focusing exclusively on price as the only factor for differentiation and investing little in product and packaging innovation based on lower-income consumer needs. The IRI analysis, based on a 2007 shopper survey, finds that they have needs in common with and different from other households, including:
- Need for smaller packaging for shorter buying cycles
- Improving variety and selection amounts value offering, especially private label
- Convenient store locations, store formats, and products that address time-pressed lifestyles
- Innovative, better-for-you products that support healthy lifestyles and address obesity
- Strong variety of ethnic products that serve an increasingly diverse population
"The upside is huge for retailers that make smart investments in private label assortment, innovation, packaging, and value merchandising focused on these shoppers' unique needs and preferences," said Sean Seitzinger, leader of the IRI Center for Retail Innovation.. "This is a weak spot for retailers, because store brands are clearly not meeting their needs across all categories. Progressive retailers can drive private label growth if they focus on building stronger relationships with lower-income shoppers by improving variety and packaging."