Meet the Wary Savvy Shopper

"It's a little depressing, but if you're smart now, you'll be better off in the long run."

That’s a comment from Leonard Stiff, a chef-caterer quoted in Business Week in yet another article trying to gauge how consumers are reacting to the ongoing recession. Mr. Stiff sums up what, to me, seems like the best philosophy for both the average citizen and the average retail company. The question, of course, is how to be smart -- and indeed, the best way to do so: let customers know you think they're savvy.

Business Week’s summary points to the obvious: people are still buying enough items to keep Wal-Mart and the various incarnations of the Dollar Store afloat. At the same time, they are certainly searching for bargains and coupons, passing information along to their friends via email. And finally, the news that retailers keep staring at, like the deer in the proverbial headlights: people are making immediate cutbacks and trade offs, while postponing certain kinds of purchases indefinitely. As we've already pointed out, generics and in-house premium lines are also making a dent in brand loyalty.

Speaking with Kai Ryssdal on Marketplace, Buyology author Martin Lindstrom summed up the crisis:

“We will see that this Christmas is probably going to be the worst in 24 years. And I think the main reason why is because the first time ever we are realizing this is serious stuff. This time it's almost like we got a slap on the chin. And with that slap on the chin….. people wake up and they start to say, "Hey, I have to buy stuff differently." And what happens is people literally change stores, people literally change the path down the supermarket aisle. And they have never done that before, but that is the change we are facing right now, and retailers are realizing that."

The Center for Media Research offers some nice recent data about what people are doing these days when they go to the mall: they’re still going, as I’ve pointed out, but they’re not frequenting department stores as much and they’re not venturing too far off the beaten path. The most common comment I’ve heard, both in person and in the news, has been “no more retail therapy for me.”

So how can retailers react to the slap on the chin? From watching shoppers since mid-September, I have some tentative but I think fairly obvious conclusions:

• One, people will limit their purchases to items that "matter more," both for everyday needs and for long term use.
  
• Two, people will be deciding more carefully exactly what "matters more" and using new criteria to decide what’s worth the money. (My prediction: "green" and "healthy" will hold steady).
  
• Three, there will be even more market segmentation: some people will be frugal because they have to be and it will be a new experience and a struggle; some people will be frugal because it’s tacky to spend when others are suffering and, well, let’s be clear: no one knows how long this will last. Others will continue to spend, but in patterns that will, at first, be unrecognizable according to current market logic.
  
• Four, while consumers may be enticed by bargains, expect them to bring a whole new wealth of knowledge (from word-of-mouth, social media, and general on-line sources) to their in-store decision making.

Spurious Spam Savings

Coming soon to a lunchbox or pantry near you... SPAM!

I mean the original Spam, of course: the canned, spiced ham produced by Hormel that was the origin of the name for unwanted email. Sure enough, stories about how frugal people want economical products, ones that smack of comfort, home, and tradition, are starting to pop up. While I expected a whole new emphasis on “comfort foods,” I have to admit, Spam was not what I was imagining.

Andrew Martin of the New York Times reports that Spam sales are up because, as he suggests, it is “the emblematic hard times food in the American pantry.” Indeed, the cultural resonance is probably strong for a whole swath of consumers, regardless of whether or not they have ever been through an economic downturn. Spam is the ultimate brand, one with history, kitsch, family lore, and practical use. Martin suggests:

Even as consumers are cutting back on all sorts of goods, Spam is among a select group of thrifty grocery items that are selling steadily.

Pancake mixes and instant potatoes are booming. So are vitamins, fruit and vegetable preservatives and beer, according to data from October compiled by Information Resources, a market research firm.

“We’ve seen a double-digit increase in the sale of rice and beans,” said Teena Massingill, spokeswoman for the Safeway grocery chain, in an e-mail message. “They’re real belly fillers.”

Kraft Foods said recently that some of its value-oriented products like macaroni and cheese, Jell-O and Kool-Aid were experiencing robust growth. And sales are still growing, if not booming, for Velveeta, a Kraft product that bears the same passing resemblance to cheese as Spam bears to ham.

There’s a bit of mixed logic going on here, though. Despite their appearance as discount foods, products like instant potatoes and Spam are not cheaper than the “real thing.” Food researchers doing recent price comparisons note that Spam averaged $3.20 a pound, whereas boneless chuck roast and spiral cut ham were selling at $1.99 in the average Texas grocery store (as of last week). As dieticians routinely like to point out, a bag of potatoes lasts longer and is cheaper than the kind in the box. On the other hand, rice and beans make the most economical, nutritious, and inexpensive meal around (and they're tasty, too).

Spam in particular is not a simple "hard times" food. In Hawaii, it is a staple item, cooked in a variety of ways (including something that looks like sushi).  Based on her research there, culinary historian Rachel Lauden provides a great Defense of Spam. For the truly upscale, there's even this great example of spam sushi in a bento box (the japanese version of lunchbox that is catching on in American upper middle class households) Jell-O is also an iconic American food, morphing from molded salads into a jiggly kids' dessert. Spam, Jell-O, Kool-Aid, and Velveeta all have a kitsch factor, a reference to the 1950s, when processed foods (and the marketing behind them) reigned. As historian Laura Shapiro has pointed out, some of these foods become iconic to America (like the frozen green bean casserole topped with canned mushroom soup and french fried onions that will appear on many Thanksgiving tables this year, regardless of people's everyday commitment to the new, the regional, and the fresh). While other "food logics" may have taken hold in households across the US, these "cultural needs" will emerge more when the populace feels unsettled.

The retail marketing and sales lesson here is that people may be aiming for the economical, but they’re reaching it through a set of cultural beliefs that might not be the most direct route to savings. Certain brands that have a cultural history, associations of comfort and familiarity, and the sense that they are economical (regardless of reality) – still have a toehold in the current marketplace.

Fully Functional and Loaded... With Goodness?

"functional foods” poised to expand, despite general economic food trends.

A few years ago, I had the opportunity to attend the Arnold Classic in Columbus Ohio. No, not a golf tournament, but an annual event in honor of the now-Govenator of California, featuring an entire convention center’s worth of sporting events (from the obvious body building to cheerleading, gymnastics, sumo wrestling, fencing, and my favorite, table tennis) over the course of a weekend. The weight lifting and body building contests take place in a big expo center and on break from the gymnastics competition (the reason I was there….), we wandered around, half watching the oiled and bulging men and women on stage, but more focused on the less-oiled but still bulging men and women on the floor hawking supplements, energy drinks, protein bars, candies spiked with hormones, you name it. So when someone says “functional foods” to me, this is the image that comes to mind.

In the last few years, though, functional foods have burst out of the body building arenas and GNC storefronts and plopped themselves down full force in the supermarket. Vitamin enhanced water, probiotic yogurts, and breakfast cereals with Omega-3 content take up a good percentage of the aisles next to organic and natural foods. After all, if you're already hawking one (typically premium-priced) product with a vague-but-promising-health-claim, why not put it next to all the others?

Seriously, though "functional foods" suffer from some of the same definitional problems as "organic" and "natural," it does appear from recent survey data that consumers have a growing interest and awareness of foods and beverages that provide benefits beyond basic nutrition. Whether those foods are enhanced by science or come by their "functionality" through nature is an entirely different can of worms, but for marketers, the important issue is that people’s interest in healthy products remain strong enough to vie with cost concerns. This week Marketing Daily reports on a recent study by F&G, highlighting some of the more promising trends for marketers. (probiotic yogurts and dairy drinks, enhanced bottled waters, and satiety-producing bakery products, which, so far, sound awful even when spun with weight loss marketing magic):

According to the report, consumers are shifting their attitudes towards healthier food options and are increasingly looking for products with “positive nutrition," meaning those with added ingredients perceived to offer health benefits versus the usual low fat, low sugar, low sodium options. “Functional properties, which enhance the benefits of a product, are proving to be the key to growth. This is especially true in emerging markets where consumers justify paying more money for products with added ingredients, rather than products that have had them removed,” says Euromonitor Industry Manager, John Madden.

Indeed, when I go back to the Arnold Classic this year, industry observers suggest that we'll be seeing a lot more functional foods and a lot less of the usual bad-tasting supplements. More importantly – and perhaps more deeply to the issue of a well-defined concept -- in January, science and technology publisher Elsevier is launching a new Journal of Functional Foods that will highlight recent scientific research and some retail trends. While most consumers – and many marketers – will not be slogging through the technical jargon to decide if antioxidants really do matter, the important point is for there to be a continued and respected outlet for research to support these claims. As functional foods move out of body building magazines, vitamin catalogs and infomercials, it becomes more and more important for consumers to know they have some verification of claims to health.

Sustainable Advice For Retailers and Consumers:

Despite the Downturn, Green is Still Gold

As the retail markets constrict and people consider their wallets above all other factors, the question for marketers is: what do people value?

“Green,” sustainable, and organic products saw a big upswing in sales prior to the economic meltdown that started in September. But given the fact that many of these items – especially organic goods – are often more expensive than their ordinary counterparts, can we expect that the demand for organic, green and other eco-conscious labels to remain strong? After all, even retail giant Whole Foods has, pardon the pun, beefed up its economizing marketing campaigns, with a new “Whole Deal” website that provides corporate and customer tips on how to eat well on a budget (“More of the Good Stuff for Less,” is the byline).

Industry watchers like the Organic Consumers Association claim that organics have not yet felt much of a decrease in demand. In fact, many argue that green is a great way to ride out the recession: greater concerns about the dollar mean that people are more likely to spend carefully, with every eye on making things matter. In June, Environmental News Network suggested that organics remained a strong concern, particularly among buyers who had deeply integrated green or sustainable products into their lifestyles. This isn’t the largest share of the market (they estimated 20%), but it might be enough to keep it afloat. Also look for luxury green items to stay in demand, particularly in Europe, where the taste for organic and local is more deeply integrated into everyday life and even government policy. Guides for the wealthy environmentalist (like the Green Connoisseur) are banking on the continued power of both kinds of green.

Another big tie-in for the sustainable market is cause-related marketing, which remains a very strong consumer concern. Companies like Annie's Mac and Cheese, Stoneyfield Yogurt, and Vita Soy promote causes on their boxes and container lids to raise funds for school gardens and breast cancer research. Stoneyfield even allows the buyer to shape donations by choosing the environmental charity they like best. The bottom line is that consumers have high standards for the philanthropic activities of their favorite companies and are well aware of the need for collaboration between business, governments, and non-profits in an effort to solve pressing social and environmental issues. Interestingly more than 90% of the Americans surveyed believe companies should tell them how they are supporting causes, but do not feel they are getting sufficient information.

Finally, some analysts are arguing that green is economical: Marketing Daily reports on banks and financial service companies that switch to environmentally friendly practices save themselves money, while also earning some much-needed good will from appreciative consumers. Deutsche Bank goes so far as to argue that banks should invest in sustainability practices because “increased spending on green infrastructure can provide enough economic stimulus to avoid a severe recession.” Another reason for companies to invest in green now? The sector continues to grow despite the slowing global economy. According to new figures from bank HSBC, companies in the climate-mitigation business now generate $300 billion in revenues each year. But while you’re at it, do your part to save paper and read the report online!

Luxury Blues: Singing "Stormy Weather"

Sometimes luxury markets have the easiest time weathering the ups and downs of the economy. After all, the people who can afford these items are often a bit more insulated from all the turbulence. This time around, however, the recession seems to be coming down hard on the whole retail parade, from the discount marts to the upscale boutiques. Even more distressing, of course, is the fact that the financial storm isn’t concentrated in one geographic area, but has hit international markets hard, too. According to the Financial Post,

Almost every stop on the retail spectrum is beginning to get hit, with reports of luxury spas starting to offer deep discounts and retailers such as Bergdorf Goodman offering free shipping as the holiday sales season ramps up early.

A quick survey of the luxury landscape suggests that people with a big stash of cash under their mattress are hording their pennies a bit, partly as a way of keeping above the potential flood waters and partly to keep a low profile. Surprisingly, in a culture that has encouraged a lot of profligate spending and visual "bling," many wealthy buyers are suggesting that it’s gauche to indulge while others struggle to keep their homes and pay the bills.

For example, a few weeks ago, Polo Ralph Lauren opened an enormous new store in Paris. At the same time, Executive Vice President Charles Fagan was quoted in the Wall Street Journal with this caution: "We're being prudent. We're very aware of our inventory and expenses."

Note though, that most of the luxury expansion is occurring in so-called “new markets,” like China, Russia, and India, where the base of wealthy customers has been rapidly expanding. Not so in the so-called "mature markets" like Japan and the US. Here in the States, things have changed since a May survey suggested that Middle Class Millionaires would continue to spend despite feeling an imminent recession. About half of those surveyed by The Affluentialist said that in 2008, they were planning on taking a vacation whose cost exceeded $10,000; More than half expected to be spending on home improvements, luxury cars, and second homes.

But here we are in November, and the news from a survey by consulting company Bain & Co. was not good. They predicted that the worldwide luxury goods market will likely enter a recession in 2009. According to the recent report,

"The impact of the financial crisis will bring some sectors into a recession," said Claudia D'Arpizio, a Bain partner based in Milan and lead author of the study. "How much and how long depends on part on how companies react. The most resilient will be those with strong international and diversified brands."

The two key points for retailers are in the last statement. First, it's still possible to reach key global markets – sectors where spending is still happening and luxury goods are still freshly affordable in developing economies. Second, it's really important to have a diverse but relevant set of products that resonate with wealthy consumers. Despite difficulties with brand loyalty in the regular retail market, the luxury sector relies heavily on the continued presence of aspirational brands and the power of the name. Expect to see more ad campaigns and design elements focused on tradition and longstanding value. After all, is it any surprise that Ralph Lauren, whose original inspiration was a reassertion of preppy WASP cache, is most likely able to weather the storm?

Monogrammed Wellies and a bejeweled trenchcoat anyone? If that's too much, maybe just some bright yellow to ward off the rainy day blues.

So What's Left in the Supermarket Basket?

In my usual market-defying fashion, I have spent the last few weeks shopping – yes, that’s right, shopping. In these economic times and everything. After all, what better way is there to avoid the mordant news, panicky marketing reports, and palpable fear of falling that emanates from every newspaper and web screen I open?

I admit I had an excuse: a big upcoming event involving visitors from out of town, relatives staying over, and me cooking for the likes of 100 people. Nothing too out of the ordinary, but it is a bit odd to be celebrating in the midst of economic chaos. At the same time, it’s helpful for those in the business of watching the market to remember that weddings, bat mitzvahs, and births all keep happening and people keep eating.

Over the next few weeks I’m going to comment a bit about the kind of spending I observed in my own less-than-systematic retail excursions and compare that to the news that coming out of business and marketing research and media outlets.

One of my main forays in the last few weeks has been to grocery stores. I did the usual cart watching as I debated the kind of food I intended to cook for the horde of guests. In general, I still see the same amount of people in the supermarket aisles on the same days as I did prior to the big Wall Street meltdown. Eating well is still important, even if it's being re-defined.

Indeed, there are a lot less carts packed to the brim. Are people buying less? I think so. In my retail excursions I made some of my first-ever buying trips to one of those big discount clubs (you know the like: Sam’s Club and Costco being the most familiar) – and yes, the section of computer printers, pots and pans, dishwares, and other gadgetry were empty enough to drive a truck down the aisles. A few yards over in the laundry detergent and soda sections, though, and people were stocking up as usual. I asked one woman about her choice of a six jar package of tomato sauce and she said, “Well, I don’t use this kind normally, but it’s here, it’s cheap, it tastes pretty good, and there’s a lot of it.”

Ketchum’s Global Food and Nutrition Practice did a recent study of food attitudes across the globe (see this link for more information about the study’s methodology), which demonstrated that price was way up there as a concern for US consumers when it came to food choices. That’s no surprise, as it’s common knowledge that people in the US are accustomed to paying less for groceries than their European counterparts. Cheap food is one of those unstated American values. To be fair, Ketchum’s study did show that Americans put taste and quality right up there as key factors in their food choices. But my informant at Costco captured one other trend that has marketers – and especially those brand spanking gurus – worried about how things will shake down in the ongoing crunch for consumer dollars: “brand names are increasingly considered inadequate as a ‘proxy or shorthand’ for this growing list of factors that matter to consumers.” Linda Eatherton, Ketchum’s director of Global Food and Nutrition argues that marketers will have to rely a lot more on social media and an appeal to successful consumer research in order to sell their products.

Indeed, high-quality private label brands from Safeway, Kroger and Publix to name a few have seen very strong growth during the first few months of this recession, clearly indicating that when taste and quality are about even, the cost difference between private- and brand-labels has tended to shift consumers towards the lower-priced goods. Expect to see more private label brands boost their presence in the coming months. As the line in Field of Dreams suggests, “if you build it, they will come.”