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The continued effects from last fall’s economic meltdown remain a top concern for retailers -- and that’s no surprise. Consumer spending has significantly changed, leaving many storeowners struggling to compete with large-scale discounters. Understanding the hows and whys behind evolving spending habits has always been important for success, but now it’s become a matter of survival.
Recent research from Packaged Facts, a division of Market Research Group, aimed to get insight into developing spending trends by looking at the changes in the purchasing behaviors of premium consumers, described by the report as those single-individual households making at least $75,000 annually, and multiple-person households earning $100,000-plus annually.
Recently, The Gourmet Retailer caught up with David Sprinkle, research director for the Market Research Group and author of the study, to get his take on the data and to find out what’s in store for food retailers. The following are excerpts from the interview:
The Gourmet Retailer (TGR): Can you give a little background on the study? Is this a topic that Marketresearch.com typically covers on a regular basis, and what are the trends behind the data?
David Sprinkle (DS): This is definitely a distinctive product in response to the economic meltdown. Specifically, we had a new survey question about whether in the last year you had become financially better off, worse off or stayed the same. Of course, now a lot of people are worse off. In the report, only about 30 percent of consumers report that they have stayed the same as where they were last year. This is a huge amount of economic turmoil for the world’s largest economy.
We wanted to look at consumer behavior not just in terms of consumers’ own financial turmoil, but in terms of their financial trajectory. We looked at data from Q3 2008 to Q1 2009. We really wanted to capture not just the immediate reaction to the meltdown, which more or less came last fall, but the “new” normal -- what people are now calling the “reset economy.”
We looked at premium consumers because they have been very much affected by stock market drops, by housing market drops and by job losses, but they still have choices, relatively speaking, particularly for food products and packaged goods. They still have more access to resources and information.
My sense going in was that premium consumers, since they have been strongly affected but they’re still in a unique position, would be a good indication of what’s going to happen longer term. They are going to be making smarter choices (and I think consumers in general will be making smarter choices). They were a good starting point to figure out what’s going on.
TGR: The study found that the most change among premium consumers was with those who have had some sort of change in their finances, positive or negative. Can you describe that trend?
DS: If you look at the table in the report for shopping for organic foods, or if you look at the table for shopping for foreign foods, you see that there’s really a repeated pattern where the people who have taken a financial hit in the last year and those who have made financial progress in the last year behave similarly. They’re not identical, but more or less in alignment -- in contrast with those who have stayed the same.
The sense that emerges is that whether you have taken a hit or are moving up, you’re putting your best foot forward as a consumer. You’re rethinking what you buy. You’re rethinking what you should buy. You’re rethinking all of these consumer choices, whereas, if you have remained financially stable, you’re more likely to not be rethinking, not making new choices and not critiquing your own choices. That’s why there’s definitely a pattern, even though it is paradoxical. (Again, this is among premium consumers who still have choices.)
I think if you're rethinking your choices -- and are more conscious about making smarter choices, more up-to-date choices -- you often come to similar conclusions. Whether you’re coming at it from a direction of “I need to manage my money more effectively” because you’ve taken a financial hit, or even “I'm moving upward, I need to kick my game up a notch in terms of where I shop, how I shop, what I buy, why I buy it, and even what I do for leisure.” Either direction has the same sort of effect.
TGR: The data shows that premium consumers are buying healthier and smarter options more often when it comes to their food -- such as organics -- and that they’re willing to shell out extra money to pay for these “better” products. How does that tie into the trend of premium consumers rethinking their current situation?
DS: There’s definitely a connection in consumers’ minds between healthy eating and health that has been established. Say, for example, you have become worse off -- maybe you have lost a job, maybe your bonus disappeared or maybe your home lost value. You’re aware that what you eat affects your health, and thus your health care expenditures.
There’s a real connection between what you eat and whether you’re on your best game -- and if you’ve taken a financial hit, you need to be on your best game. It might mean looking good for the next interview. It might mean staying healthy to keep your job and to stay focused. I think consumers are lining up those dots.
For example, Whole Foods for a long time has had a more diverse demographic base than you might think, despite its “whole” nickname and aura. It really draws from all different sorts of economic classes and various types of people. I think part of the reason for that is that eating healthily is, in a way, a version of health insurance or a version of making sure that you stay healthy.
TGR: According to the data, grocery stores outpace supercenters in terms of where premium consumers choose to buy their food products. But the research also shows that the average number of premium consumers shopping at supercenters is increasing. What is the drive behind this? Does it deal with a change in finances (on the negative end), or are we also seeing premium consumers who have had positive financial change shifting their place of purchase as well?
DS: They -- those premium consumers who have had positive change -- are also shifting. What’s happened is that shopping at a supermarket is really no longer the norm against which there has to be some exceptional reason to vary. People are shopping more at supercenters -- not only at Wal-Mart, but also at Whole Foods, Trader Joe’s, and warehouse clubs. Food shopping has really dispersed, and it keeps dispersing across an ever wider range of channels.
Supercenters have become very good at attracting shoppers who are doing their “load-up” shopping trips -- where they really do a major shopping trip and are not just stopping in for a quick refill or to grab dinner. The cost savings associated with supercenters helps them do that. As a mainstream supermarket or grocery store, you’re also competing with the fact that supercenters will have a huge pet supply section, often at very good prices, or a huge household cleaners section.
People are taking fewer shopping trips. They are controlling their shopping more to try and cut out indulgences and stay focused. Those general trends tend to benefit supercenters as a one-stop, relatively lower-cost option, even for those who are just choosing to save money.
TGR: As supercenters gain more of an appeal with all consumers, how can grocers and other food retailers that don’t have these one-stop offerings compete?
DS: Look at who has been successful with competing against supercenters and against Wal-Mart: For example, Whole Foods -- which took a hit, especially immediately -- seems to be bouncing back. It has a solid tradition of prepared food. It has a foot in the health food sector that supercenters don’t traditionally have.
Trader Joe’s has completely redefined private label. Trader Joe’s offers innovative, trendy, uptrend products that are private label, but get completely lost in the kind of private-label stigma. Trader Joe’s also appeals to singles or to couples in that it often has smaller-size packaging or single-portion sizes. So, that’s another way. If you're going to be buying a huge tub of chicken legs, maybe go to Wal-Mart. But if what you’re really looking for is an entree to throw into your freezer for a single person, Trader Joe’s can make more sense. So, both from the private label and the sizing, I think, and from the innovation, Trader Joe’s has a real advantage.
Even where health clubs have a tradition of having a shopping adventure -- where you find new things, different things, seasonal options there -- people who enjoy shopping, and also enjoy a bargain, can go there to look for things that might surprise them in terms of consumer options.
There are a lot of different ways for a retailer to compete with supercenters like Wal-Mart, but I think it has to be legitimate. I mean, you really can’t compete with Wal-Mart on price, maybe unless you’re a dollar store. Lowering your prices to where they get pretty close to Wal-Mart isn’t going to do it. You have to have a legitimate advantage where someone who is looking to make smart choices will choose your store.
One thing even now is that it’s not just about cost, although cost is really important. Health food options can be really important, and health concerns and healthy eating concerns can trump cost savings. Sustainability is increasingly important across the board. There are ways other retailers can feature sustainable options, such as local produce, which might be harder for Wal-Mart with its scale to match. I live in Baltimore. One Whole Foods there has a farmers’ market attached to it. That’s the kind of thing that’s really hard to imagine Wal-Mart doing. They can certainly feature local produce -- they can do a lot of sustainability gestures -- but there’s some things just in the scale and the nature of the retailer are more suited, and so retailers can take advantage of that.
Convenience also has become less important, I think, now because people are putting so much emphasis on value and are reducing shopping trips. But convenience will never, I think, stay out of the picture for that long with the American consumer. We have a Wal-Mart -- it has a huge shopping footprint, a huge parking lot. It takes time to go there. Convenience takes on sort of a fresh importance with consumers and then other formats that can offer quicker in-and-out options might have an advantage there. Where I work, there’s a Harris Teeter that has a special prepared foods section; and you’ll have special parking for that and a special side door for that. It’s not exactly drive-through, but it clearly caters to people who want to go in, spend three minutes in the store and get out without long checkout lines.
There are ways to cater to specific types of priorities that other types of retailers can kick in and compete. But it has to be a legitimate advantage. You cannot compete by doing “almost as well” at something. Other retailers need to really lead in new directions -- the way Whole Foods did with natural food, the way Trader Joe’s did with private label. They really need to set a new standard in new directions, rather than simply trying to match Wal-Mart, which probably is a losing battle.
TGR: What’s coming up in the future? From the research you’ve conducted and just from your own experience, where do you see all of this leading within the next couple of months, or even couple of years?
DS: One thing that we looked for, and are looking for, are chain food services taking a hit. People are eating out less, they’re driving through less, they’re taking out less. That is probably a fairly temporary hit because, again, convenience will not long stay out of the picture for American consumers. I do wonder if there is still more room for grocery stores to have in-store prepared meals or prepared food options that will be competing with fast food and with quick restaurant options. And I think that’s particularly true with grocery stores -- such as Wegmans or Harris Teeter, [and] with locally popular grocery stores like Ukrop’s -- that really have a strong brand name. I’m looking to see what grocery stores are doing in terms of prepared food options that really are appealing to consumers, and even to premium consumers, including those who are cutting back on use of quick-service restaurants both maybe for cost savings a little bit, but also for concerns with the healthfulness of their food options.
Another thing is that sustainability is just a rising tide. One of the most interesting findings of the report is that people who have become worse off financially, premium consumers, consistently score higher in terms of concerns about the environment -- about recycling, about organic and natural, about pollution caused by cars, about corporate ethics. I really think what’s happening is that many people have been very strongly affected by economic circumstances and actions beyond their control: job loss that has nothing to do with their own personal performance or even really their company’s performance; whether it’s drops in housing value that have nothing to do with them, but they hear about foreclosures in the neighborhood; with stock market drops that, again, have nothing to do with them. People who have been strongly affected financially by outside forces really become attuned to the fact that what we do, and what we do economically, affects other people.
I think that really drives home that even our shopping choices -- whether we buy organic, whether we really look for green products, whether we really buy bulk products or local produce, or look for products that have less packaging or at least avoid products that have wasteful packaging. I think if you’ve been hit by outside economic forces in a very personal way, you’re much more attuned to the fact that your actions, including your economic actions, your shopping choices, are also having an effect on the rest of the world. Because so many people have been very strongly affected, the influence, the interest in sustainability, in the environment, in climate change is just really going to keep getting deeper and truer. Even though there’s always a gap between what people say and what they do in terms of this kind of consumer survey question, the fact that consumers who have become worse off financially consonantly score higher on these measures means something. And I think [that] points to what consumer concerns are evolving into for the future.