As the economy worsened in 2008, U.S. consumers cut discretionary spending -- and shifted basic purchases to value-oriented brands and retailers. Dollar stores and private label brands saw gains -- but many other retailers and manufacturers suffered through dramatic declines.
Is the outlook any brighter for the new year? Food marketing expert Phil Lempert, of SupermarketGuru.com, offers his take on what consumers and retailers can expect in 2009.
Nielsen Wire: How did consumer habits change in 2008 -- and how should retailers adjust?
In 2008 shoppers used more coupons, bought more store brands, and started using shopping lists again. I have little doubt that these "learnings" will stay with many of these shoppers through their lifetimes -- the same way our grandparents who lived through the depression held on to many of the values learned through that experience. At the same time, shoppers have become smarter – they are reading more labels and asking more questions. They are also demanding better service and the chance to be heard, which is a new challenge for retailers who are trying to hold down payroll costs.
In a recent consumer survey we conducted for Readers Digest Entertaining Group, 72% of shoppers said that they will continue to use the shopping strategies they’ve discovered over the past six months even when the economy recovers. The rules have changed, and more than ever the consumer is the commander of the shopping experience.
My recommendation to retailers and manufacturers is to strengthen your relationship with your current customers and to reach out to new ones. People are nervous and looking for stability and accountability -- those who offer both will win.
Nielsen Wire: How else are retail grocery stores adjusting to the struggling economy?
With higher costs and lower available capital, many retailers will be struggling to keep their operations at an acceptable level (acceptable to both their shoppers and themselves). At the same time, many stores are in need of new technology at the front end in order to comply with the new extended bar code, as well as preparing for RFID compatibility.
The move to build smaller stores (10,000 - 15,000 square feet) -- led by Walmart and Tesco -- may be one solution. Significantly reduced overhead and employee costs allow this format to be profitable with much smaller volume (and may well prove to be exactly the format aging baby boomers, in particular, are looking for). The concept of having one superstore in a community, with dozens of satellite stores dotting neighborhoods will be tested over the next year, and I suspect it will be the winning formula in many locales.
Nielsen Wire: Other than prices, what factors will affect consumer choices in grocery aisles in 2009?
In the same Reader’s Digest survey I mentioned earlier, 76% of people said they were bored with the foods they were eating and wanted more new products and recipes. Look for the winners in all categories to be those national brands that innovate (think Healthy Choice's steamer line of frozen foods) or bring in new flavors (Budweiser Chelada) to satisfy convenience and flavor, while staying within the constraints of our new value equation.
Clearly, there has been a shift towards "local." People want to know where their products come from -- especially imports. Now, consumers expect packaged goods to identify their source, much as bottled water has done for decades. Hunt's canned tomatoes, which are grown and packed in California, and ice creams that contain blueberries from Maine are just two examples of the transparency that will become increasingly common in grocery stores. Marketing the source, quality, and taste of ingredients will become the advertising sweet spot in 2009.
Nielsen Wire: How have advertising and marketing strategies changed for grocers in this economy?
The old ad model does not deliver the sales or influence that it once did, which is why brands and retailers have moved on to new media that are less costly, faster, more targeted to produce, and instantly measurable. The medium is certainly the message these days, and the old mode ad vehicle simply doesn’t appeal to future consumers. Advertisers must think more holistically about their advertising -- and forget the idea that buying time on the Super Bowl and producing a lavish commercial that is designed to appeal to all is little more than fodder for an episode of Mad Men.
I just had the opportunity to be a judge in the National Grocers Association Creative Choice Awards, and while I can’t reveal any of the winners until they are announced at their awards ceremony in February, I can tell you that independent grocers, with limited budgets in most cases, are doing some of the most creative and effective advertising during this economic downturn.
Nielsen Wire: But can’t chain stores just point to their prices, which are often better than smaller independent stores?
Ads that only promote price may give a short term bump in sales, but the truth is that advertising that builds a relationship based on what a product or brand stands for and the benefits it offers the customer is more effective in building life-long value.
My recommendation to chain retailers, in particular, is to examine what smaller grocers are doing with their ad budgets and websites. They may be shocked to find that these less glitzy and more personal ads are stealing their shoppers.
About Phil Lempert
Known as "The Supermarket Guru," Phil Lempert is one of America's leading consumer trend-watchers and analysts. Lempert is the food trends editor and correspondent for NBC News' Today show, where he reports on consumer trends, food safety, and money-saving tips. He is also a monthly columnist for Progressive Grocer magazine and Gourmet Retailer magazine, and is the host of the weekly new products webcast "5 New Food Products in 5 Minutes: The Hits & Misses."