Happy Holidays Without the Hype

There’s Chanukah and there's Santa at my house, so we have a lot of gifting going on – Santa usually ends up with one serious present to the girls (believers, still, so let’s hope they’re not among my loyal readers), while Chanukah is a lot of smaller things, alternating between fun and necessity. I’ve been out and about observing the shopping situation here in western Pennsylvania since prior to Thanksgiving and it’s been slow, no surprise. But just as a recent NRF survey indicated, there seemed to be a late surge with a lot of last minute purchasing going on, if my experiences were at all typical.

Many shoppers heading out the last weekend before Christmas indeed found the stores and malls fuller than they had all week prior. The deals certainly got sweeter too, with online coupons and direct mail flyers pushing more and more discounts as shoppers got down to the wire.Interestingly, my observations and personal experience follow right down the line with NRF’s survey information about what people are buying. Here are some notes to mull over while sipping on the last of your holiday eggnog or eating latkes or whatever edible pleasures your holidays bring:

1. Clothing seems to be doing okay (about 48% of shoppers told NRF they’d already bought some), especially as the big retailers like Macy’s, Kohl’s, Target, and Old Navy barrage households with even deeper discounts as we get down to the wire. Advertising pays off here, as do loyalty discounts. Most purchases seem to be happening in the discount aisles, away from the frivolous and the "five-minute fashionables."
2. Books, cds, dvds, and video games are second at around 40%. Again, preferred customer discounts and email offers seem to be luring people into the big chain bookstores, as both Barnes and Noble and Borders had customers lined up with printed out coupons all this week. People mentioned these items as reasonably priced, perhaps more thoughtful than clothing, and definitely something that didn’t fall into the “necessity,” category, but also didn’t feel frivolous.
   
3. Electronics: sales are down (24%) but there’s a lot of online research going on behind those purchases. Santa’s bringing some small electronic gadgets to our house, since the price of video and digital cameras have gone way down and there are good comparative deals to be had, even if you weren’t willing to risk it all at Circuit City. The electronics clerk at Target mentioned that his customers seemed to be doing less in-store decision-making, ponying up to the counter with the information in hand.
   
4. Gift card sales are way down. Not surprising, given the vast number of store closings that make people nervous about sticking their loved ones with a useless piece of plastic (example: Sharper Image). Even American Express seems shaky to some people nowadays. In our household, a few iTunes cards seemed a safe bet for music teachers and college-age cousins.
   
5. Online Shopping Rules! Everyone I know has bought something from Amazon or eBay this season because of the bargains, lack of crowds, better variety, and good ideas. That’s a first. It’s also more of a topic of discussion, with people trading tips in person and, of course, on social network sites. “When heading online to shop, consumers are increasingly web-savvy in the way they look for bargains: 85 percent of online shoppers use tools or websites to find good deals online… they use price-comparison websites, online-coupon websites, online advertisements, bargain-tracking websites and shopping-themed social networks,” according to the Marketing VOX Web site. Art Technology Group, Inc. claims that close to half of the people they surveyed would shop online for gifts this year, while 44 percent said they still expect to frequent stores.
   
6. Chocolate, chocolate, chocolate. Watching people's carts, even with all the careful shopping, it's clear that indulgences are still important. I venture to guess that they’ve gotten smaller and more meaningful. Everyone – and I mean everyone except my dad, who likes everything except chocolate – is getting some form of the good stuff this year. From wine-infused bars to hazelnut dark chocolate logs to simple bonbons to, my favorite, the Vosges Bacon Bar – there’s chocolate for everyone. That kind of gelt still, as they say, holds currency.
   

Happy Holidays, and Happy New Year!

Chocolate gelt: available everywhere. Chocolate Christmas Trees c/o The Chocolate Tailor.

Not All Shoppers are Equally Frugal, Not All Coupons are Equally Creative

For as long as I’ve known her, my one sister-in-law has been an amazing coupon user. I just never really noticed it. To me, coupons evoke images of my mother in the 1970s, with her little file box full of tabs for certain items (“household,” “dairy,” “paper products,” they read). She managed the shopping for a medium-sized family on a tight budget until the '80s, when coupon use was just her routine and not a necessity. But my mom’s bargain hunting was really focused on groceries and everyday items. My sister-in-law, on the other hand, had perfected the gift buying bargain well before the current economic climate put a damper on everyone’s holiday shopping.

Back before I knew it was possible, she was using online savings, bookstore coupons, and, most creatively, Amazon.com discounts. We once got a holiday package from Amazon with the sales slip accidentally left in: she had so many discounts and qualified for free shipping that the entire 3 foot box had cost her a total of $5.00. And the most interesting thing is that of all my relatives, she’s in the most comfortable financial situation, in the high upper income brackets. As another family member put it, “well, that’s probably why she’s got money and we don’t!”

Anecdotal evidence aside, it’s quite obvious that coupon use is going to go way up in the coming year. What’s less obvious are two things: one, who’s going to be the main users and two, what kinds of coupons and special offers will work to entice very reluctant consumers to spend. The answer to the latter is complex, since the markets are multi-faceted and the full extent of the economic downturn is still up in the air. It seems likely that people will be more drawn to bargains in stores where they already shop. It’s also likely that younger consumers, who have been a steady market but are now slowing down, will have to learn some thrifty shopping skills. Here’s some other useful information: Packaged Facts has a recent study that gives some depth to my sister-in-law story.

When it comes to money-saving coupons, the highest-earning segments are most active. Coupon penetration is at 69% of all households through the early part of this year, but 46% in households earning less than $25,000--and it jumps to 71% in families earning more than $75,000. Usage is highest among those working in such white-collar functions as management, finance and administration. Also intriguing: Smaller households use coupons more than larger ones.

On-shelf point-of-sale coupon dispensers in the supermarket have been one of the most successful programs, making my mother’s file box obsolete. Here’s a lesson to be learned from this, though: Rather than barrage consumers with endless paper deals for items they don’t need, retailer should use their data to target coupons to people based on their purchasing history and demonstrated needs.

Fear of Falling? Organics, Slow Growth, and Making Too Much of Market Data

This week Mintel’s research on organic foods is all over the press, especially with the catchy headline “organics are not recession proof.” This strikes me as another one of those no-thinking-involved stories: let’s start at the beginning. First, is ANYTHING recession proof? Because if it is, you should let us all in on the secret now.

Second, we run into the same problems with definitions that we had prior to the economic fear factor. “Organics” means a whole lot of things – and often, not enough to define entire segments of the consumer population. People may be hesitating about buying organic shampoo, but they’re not ready to give up on organic meat or eggs. Or, more likely, they’re cutting back on meat (organic or not!) until the prices are more in line with their current budgets. Still, it looks like they’re still buying their essential pantry items from the organic side of the fence (not much downturn in sales of Annie’s Mac and Cheese, for example…).

It’s absolutely true that, despite its current legal battle and identity switch from "Whole Paycheck" to "Whole Deal," Whole Foods is not going to show the same profits and growth it has in its pre-recession history. CEO Mackey claims it’s not as bad as we think:

“We have worked hard to increase the value choices within our grocery and Whole Body departments without sacrificing our standards," he said. "We believe our efforts have been successful since these departments are continuing to produce positive comps. While we saw a decline in average transactions in grocery, our average basket size was up, which we believe is a reflection that customers are making fewer trips but stocking up with more on each trip."

Here's three things to consider when evaluating the organic market:

• One, it’s still expensive, especially in the produce aisle (here’s a hint to all you green consumers: shop local produce markets and shop sustainable rather than organic).
  
• Second, a good chunk of WF’s big sales have been in regions that have experienced big population and economic growth, but are now at the forefront of the real estate crash (Arizona, Florida, and California, for example). These areas are hard hit by the recession and all businesses will be struggling a bit here.
• And third, it depends on what you look at that people are buying. What's green is more often mixed in at mainstream stores now (ironic that WF is being accused of having a monopoly when some of their biggest competitors are now supermarket organic brands and the real candidate for global market control, Wal-Mart).

Although the Organic Trade Association has charted a greater price convergence between organics and conventional food (especially with the development of in-house organic brands), it’s important to note that certain items are going to remain high. Organic produce that’s not in season and difficult to transport is still selling at premium prices in supermarkets. Comparatively, organic vegetables and fruits that are locally sourced and sold in local markets generally sell for the same if not less than their supermarket counterparts. Certainly, consumers have gotten used to buying strawberries even when there’s snow on the ground, so the shift away from those products may be a general trend, not limited to oganics. On the other hand, some of these items may return to their original status as luxury goods, which would mean producing less, but selling for more.

Non-perishable organics like cosmetics and household cleaners are a more complicated question. If the price differences remain high, expect sales of the organics to drop, except in the very high end. But OTA editor Barbara Haumann points out that big companies like P&G are striving to keep their green goods in the same ballpark as their regular line. To me, the Natural Specialty Foods Organization sums up the whole situation:

Organic category sales - not including store brands or bulk sales - were forecast to grow by 14 percent in 2008, compared with increases of 16 percent in 2007, 22 percent in 2006 and 21 percent in 2005, according to market research firm Mintel International. We think the 2008 forecast is probably off by about 4-5%, meaning overall organic category growth is more likely in the 10% range for 2008.

Mintel’s study is more subtle than the headlines would have you believe. Senior analyst Marcia Mogelonsky claims, "Economic struggles will undoubtedly change the way organic food and drink is sold. But we don't expect people to completely stop buying organics… We anticipate more subtle changes, such as the formerly all-organic shopper who returns to traditional cookie brands while sticking with organic produce. These small changes will slow market growth."

Pantry staples remain solid sellers. We still load up the cart with Annie’s Mac and Cheese, some Arrowhead Mills mixes (Hains Celestial is the parent company), and Stonyfield Yogurt, all of which are slightly more expensive but brands with loyal followings, as their steady sales indicate. Stonyfield’s CEO Gary Hirshberg says it all: things may be slowing down, but "Anybody else would be envying our growth" given current economic conditions.”

Maybe not recession-proof, but certainly still kicking.

In Defense of Good Data

Last week in Marketing Daily, Adrian Chedore, CEO of Synovate, made an argument for the more robust use of big data sets along with smaller, in-depth studies of consumer behavior. One of the challenges, he suggested, is being able to make use of the massive amounts of data that we are now able to collect. Putting aside my objection to reducing the full measurable reality of people’s lives via their consumption habits, it’s important to recognize that information is useless without two things: reliability and interpretation.

Reliability means we know the information is good. I know this is a standard social research rant, but every day there’s new reports touting data that proves what people want, who they are, what they buy, based on sample sizes and questionably designed survey techniques. In a frantic attempt to name and claim segmented markets, research firms will prematurely christen fragments of the population with ridiculous nomiclatures. I spend a fair amount of my research and reading time figuring out the design and sampling procedures of studies. Even the good ones tend to generalize too far out from their data. Intepretation means what ideas are being used to make sense of the data. I'm also constantly digging to make sure that the studies cited really do measure what they purport to measure. In the desire to say something new and useful, the data often gets left behind. For a good explanation of how to decide what statistics are good or bad, here's a recent broadcast from noted sociologist Joel Best on Kojo Nnamdi's radio show.

Given that, I’m in agreement with Mr Chedore, but I want to put a plug in for the most important source of data we have: one that is not generated by commercial entities, but by the government. It’s the Census. Recently the New York Times included an editorial supporting the new administration’s concerns about the 2010 census, specifically about finding a director with proven experience. The last eight years have seen reduced funding and administrative upheavals at what was once a very reliable agency.

Indeed, Chedore insists that market research's strength lies in its foundation in academic discipline and commitment to sound, reliable data. He pushes for more coordinated use of data and international comparisons – something that might be more effectively handled with government-generated data rather than across different companies. Case in point, Chedore laments the highly fragmented nature of current market research efforts. Using the Census might be an important corrective.

The census is extremely important to all of us who are interested in the demographic makeup of this country. It’s also necessary as an unbiased benchmark against which we can compare other kinds of data. In January, John Tizzi reminded the business world that the census is the best free market data around, another smart tip in lean times. The public accessibility of the data is one of the most remarkable things about it. (Tizzi’s other suggestions for “marketing on the cheap” are actually some very sound, basic research principles that companies seem to be forgetting in their constant search for something new).

So it may be smart for companies to put in a good word for the new administration's efforts to revitalize the US Census. After all, there's nothing like good data.

Map above is from Google Earth's census mapping program: it is a map of the counties in the United States colorized by median age. Lighter colors are older.

Nielsen's 2009 Outlook: When times get tough, the tough go back-to-basics

Nielsen's Consumer Insight Magazine put out a set of predictions for the retail and advertising landscape next year, and as one might expect they're not too optimistic about experiencing a quick economic turnaround. In summary, they expect:

"a no-frills philosophy to kick into high gear in 2009, reflecting not just a consumer mindset, but one that is paramount to retailers and manufacturers alike, who are looking for growth in a downturn economy. From sustainable manufacturing techniques to innovative national brand offerings, the products and services likely to succeed in 2009 will be those that appeal to the sensible consumer looking for a rational benefit."

They go on to highlight twenty trends across the consumer spending board, a few of which gave me pause. Consider:

Marketers will think "renovation" as much as "innovation"

Nielsen has seen steady growth in testing of established brand restages and re-launches over time, and we expect this trend to continue into commercialization as marketing budgets are tighter. Reinventing established brands can be managed as a lower risk innovation strategy.
However, making this strategy a success requires a delicate balance of providing continuity to current buyers while offering sufficient novelty to attract new triers.

Ad spending will be tight.

Nielsen reported significant ad spending declines in the first half of 2008 by eight of the top 10 advertisers—down roughly 6% during the same period in 2007. As companies continue to downsize and scrutinize spending, expect these declines to continue, especially within the automotive category and with Financial Services companies. However, product categories such Direct Response Product, which increased spending 20.48%, and Credit Card Services (+18.95%), should continue to spend on advertising.

Coupon redemptions will rise.

As consumers look for more deals, expect coupon redemptions to increase. While coupon activity is actually flat versus year ago, this is positive news as it is the first time in many years that redemptions didn’t fall. As more manufacturers and retailers make it easier for consumers to gain access to coupons via email, mobile phones and in-store methods, consumers will take advantage of this cost-cutting strategy.

and

Brand prestige will be driven less by premium price.

Expect to see fewer premium-priced new products introduced into the market in 2009. However, focusing on low price may under-deliver on expectations. Marketers should look to emphasize a brand’s value proposition in new and unique ways by linking the value message to the consumer benefit.

These three, if true, will present some unique challenges and opportunities for in-store marketing experts. Price differentiation, typically considered a form of trade promotion, will probably be king for the time being, especially if the shift from brand-name to lower-priced private label or off-brand continues. But the opportunity to deliver customized marketing and promotions via interactive loyalty terminals or digital signage systems that can beam offers to a shopper's mobile phone could make them more valuable during the recession than previously expected.

Text Me Those Bargains

Like some bad stereotype come to life, I find I have a teenage daughter who can text faster than lightening. She can hold three conversations at once: one with me about something she left at home on her way to school, another with her local friends about what everyone is doing today, and a third with her Massachusetts buddies about what movie they saw last week. She even has mittens with flip top thumbs, so she can text comfortably even when it’s cold outdoors.

While I’m not as fast as she is, I use texting a lot more frequently as a means of communication for shopping. We email grocery lists as text messages, send photo messages to friends to see if the color or style of an item is what they want (before they buy it), and most importantly, check in with other folks to see if a bargain item is still there, on sale, or at another store. Even without barcode scanning capacity (which some phones actually do have), the cell phone is an ideal way of instantly finding out if one store is less expensive than another.

Scarborough Research has done a recent survey of “Texters” and generalizes that most texters are young, active, spend a lot on their cell phone bills and technology in general, and do a fair amount of shopping on line.The study indicates that in cities like El Paso, Salt Lake City, Dallas, and Memphis young consumers use the greatest amount of text messaging. Further, the study suggests that there’s racial diversity among this demographic, which also shapes their consumer tastes. Market researchers are already salivating over the possibilities in “tween” and teen markets (a new study by the University of North Carolina even suggests that the cell phone text message can be used as a motivational device to help monitor teen behavior and increase weight loss!), so the minority-tech savvy market seems almost too good to be true. But Scarborough's findings about the group's interests lack depth. Michael Hastings Black makes a great point about this: if viewed properly, social media can actually illustrate a greater complexity to consumption and identity among people of color, particularly since the content is being created by the individuals rather than for them!

While there is definitely a segment of the consumer market that fits the profile, I’m not convinced market researchers should be encapsulating text message users as a consumer category “texters.” The research identifies a subgroup, one that may prove profitable to manufacturers of certain types of goods (sports events and gear, music and concerts, media-based and technology-driven items, for example). At the same time, my ethnographic observations and other cell phone use surveys suggest that texting is becoming a general part of consumer behavior, more broadly distributed across the population than this study suggests. The Nielson group reported in September that most mobile customers are receiving more text messages than actual phone calls. Indeed, they cite a 450% increase in text messaging since the same time period two years ago!) One group I almost never see texting is people 65 and older (the only exception I noted was in relation to President-Elect Obama’s campaign use of text messaging to let supporters know about such things as his choice of Vice President. One older woman said to me, “I’d never gotten one of those before!”) More than other new technologies, the current platforms for texting favor those with experience using small keys. It’s taken so long for computer screens and keyboards to be adapted for use by older readers who need bigger text, it’s not surprising that the current cell phone designs favor users with small fingers and good eyesight.

While technology marketing tends to fawn over the users described in Scarborough’s study, it would be a mistake to aim ad campaigns more pointedly towards this group rather than expanding the possibilities by paying closer attention to social media. And, lest there be a post without mentioning our current economic state, keep in mind that young consumers are not necessarily the ones who’ll be controlling the household spending as we ride through the recession.

Will convenience stores thrive or fail in the recession?

Recessions can be funny sometimes, rewarding companies that are usually associated with low-touch, high-margin products that are readily available from numerous competing outlets.  Case in point? Convenience stores. C-Store News noted that 2008 was not a particularly great year for c-stores, thanks in large part to very high gas prices that encouraged consumers to spend less time in their cars, and consequently, less time getting the gas that so often leads to a c-store visit. So, while the total number of stores decreased by about 700 this year, and people have been spending less on impulse items like candy and cigarettes, as Inside the Aisle notes, "two facts offer some
encouragement: consumers are driving fewer miles and stopping luxury
spending, focusing on necessary items, and c-stores sell necessities."

Because consumers are traveling less distance, going out fewer times for dedicated shopping trips, and generally finding ways to consolidate their spending, C-stores might actually see profits rise next year thanks to the lousy economic climate.  That, in spite of the fact that they often charge higher prices for staple items like bread and milk than dedicated supermarkets or megastores like Super Walmart or Super Target do.  Interestingly, Inside's blog post also suggests that this might be a time for C-stores to innovate, finding new ways to encourage shoppers to make unexpected, impulse purchases while filling up their tanks and grabbing a gallon of milk. Indeed, stores are experimenting with self-checkout systems (despite some research that these devices can actually decrease impulse purchases, ironically), and other time-saving conveniences to get customers to spend more.

I'm not convinced that the recession is going to be good for anybody just yet, but considering that people will always be willing to pay something for convenience, c-stores may well indeed be poised to profit from these hard times.

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.”

The economy's new threat: Pantry deloading?

I don't normally listen to earnings calls by public companies, but I found myself tuning in to Pepsi's call last night for some reason.  Their sales are tanking, and their stock was rewarded with a healthy beating this morning as a result. But for all the depressing news, I learned something interesting - it's a phenomenon called "pantry deloading," and Pepsi execs blamed it in part for their slowing sales.

Simply put, in good times, we tend to over-shop. If something's on sale, we buy lots of it and store what we can (assuming it's not perishable, of course). Fill-up trips are bigger than they need to be, as each of us basically builds up a small inventory of frequently-used or sale-priced items.

Fast forward to today, where more people are trying to stretch out every last dollar. Instead of filling up (or over-filling), we're emptying out those stores of sale-priced items.  So instead of sticking another 12-pack of Mt. Dew in our cabinets, we're dusting off the old 12-packs that we so cleverly purchased and stored some time last year.  And when it comes time to replenish the dwindling stocks, some consumers will go back to the name-brand stuff, but others might be tempted to try cheaper private-label variants from their local supermarket or discount stores.  Still others will simply decide to do without altogether.

So there you have it: pantry deloading.  Any interesting phenomenon with real-world economic effects and a funny-sounding name :)

Tags: pantry deloading, shopping, retail, business

America at Home

Ordinary People Provide the Best Glimpse into Everyday Life

If you’ve ever seen the book series, A Day in the Life or America 24/7 (photos from a single, day across America) you get an amazingly broad and deep sense of how people spend their days. Now, editor and photographer Rick Smolen has published a book of photographs of Americans in their homes – exploring everyday life, domesticity, and how people set up and enjoy their private spaces. Smolen believes readers get a glimpse into someone’s life or reminders of someone they know.

America at Home is a beautiful book, and, to my mind, the kind of social documentary that will eventually be a great historical record. At the same time, it’s an amazing document full of data about how people live, their relationship to the material world, the variety of ways in which we consume, construct domesticity, leisure, and community. Ikea, one of the book’s sponsors, is both sincere and savvy about what the book provides for the company and Americans in general. As they describe it,

IKEA is dedicated to HOME. We reached out and asked questions. And what we learned is 94% of polled Americans said that Home is the Most Important Place in the World. This finding is at the heart of the IKEA ‘HOME IS THE MOST IMPORTANT PLACE IN THE WORLD’ campaign that includes a compelling documentary film, a landmark study, and the America at Home photo-journalist book of everyday Americans taken by the world’s top photographers.

The interesting thing about this campaign is that everyone from market researchers to ordinary folks can get engaged in questions about how others live. Besides providing a glimpse beyond the living room window, the book situates the information in an easily accessible context about our world. Each set of images is tied to relevant statistics. The juxtaposition of fact and home image gives the exact type of context that marketers are always looking to find (did you know the average house costs ten times more than it did in 1970? Sure you did. But look what a variety of homes it buys!) This general information is then deepened with the inclusion of essays by Amy Tan and David Pope and an introduction by Matt Groening of The Simpson’s fame.

Finally, while I don’t want to reduce the book to fodder for the retail machine, it’s worth considering how Ikea and others might use it to see what people want and how they use products and spaces in ways other than they were intended for. It embodies the “active listening” that the Advertising Research Foundation has been pushing in its recent workshops, but does so in a way that is interesting, informing and entertaining all at once.

For more than you ever wanted to know about America At Home, there’s a terrific podcast interview with editor Rick Smolen on the IT conversations website.