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Aldi or Whole Foods: Could ‘hybrid consumers’ be polarizing the food industry?

By Stephen DANIELLS , 29-May-2013
Last updated on 29-May-2013 at 15:06 GMT

Aldi or Whole Foods: Could ‘hybrid consumers’ be polarizing the food industry?

Consumers are becoming less interested in mid-market products, and are trading down for basic groceries and trading up for premium brands that matter most from an emotional and social perspective, says a new report from Rabobank.

Strategies to cope with these changes in consumer habits include moving up to the premium sector, offering ‘value’ products within the premium segment, and using value products to sell premium products, says the report, The rise of the hybrid consumer.

“The implications of the hybrid consumer market trend are profound and touch on areas such as product offerings, distribution channels, marketing, and brand management,” said Marc Kennis, Senior Analyst with Rabobank.

“Given the driving forces of hybrid consumption, i.e., women’s increasing role in household spending and the growing importance of ‘millennials’ (i.e., generations Y and Z), we believe that hybrid consumption is a long-lasting phenomenon.

“Therefore food processors, food retailers and food service companies alike will need to adapt or risk fading in relevance.”

Driving forces

According to the report, there are three main forces driving the rise of this hybrid consumer:

Socio-demographic developments
A narrowing of the gap between the sexes in terms of paychecks, and a woman’s influence over household spending is a major factor.

“Where does this leave men in the hybrid consumer discussion?” asks the report. “While men will naturally remain an important consumer group in general, Rabobank believes women specifically are an important driver of hybrid consumption patterns because of the typical differences in shopping behavior between men and women and the increasing influence of women over household spending.”

Millenials will also take the hybrid consumer trend to the next level, says the report, who grow up using social media are more likely to make food choices based on merits rather than on specific brand loyalties.

“In terms of product attributes, these generations look for convenience, health and sustainability, which translate into premium, and thus higher priced, products.”

Food retailer strategies
The second of the three main forces is the evolution of retailers to stimulate hybrid spending habits. Hard discounters, like Aldi and Lidl, have become socially acceptable. At the same time, private label products have increased trading up options.

The report notes that, between 2007 and 2012, above average performers in the U.S. were either hard discounters, such as Aldi, or premium formats, such as Whole Foods and HE Butt Grocery.

Similar trends have been observed in Western Europe, with growth rates at mid-market operators, such as Morrison’s, Tesco, Sainsbury and Asda, clearly lower than at discounters such as Aldi and Lidl, as well as upmarket retailers, such as Waitrose.

Macro-economic developments
Unsurprisingly, the report cites the recent global recession as an accelerator to the existing market dualization, which has put constraints on disposable income and falling consumer confidence. At the same time, consumers still want to occasionally indulge themselves, and are willing to pay a bit extra for premium quality.

“Hybrid behavior on the part of consumers poses serious challenges to marketing, product development and strategy departments at retailers, food service companies and food processors alike,” says the report.

“The existing trend of market dualization is forcing companies to rethink their strategic positioning in their respective markets.”

‘The hybrid consumer is here to stay’ - Strategies to succeed

One thing is clear from this market hybridization, says the report, and that is that standard mid-market products will lose out.

Rabobank calculations for a range of different food categories in the US and Western Europe, including ice cream, sweet biscuits, beer, spirits, and chocolate confectionery, indicate that mid-market standard products current account for about 60% of the packaged food market. Premium makes up about 15% and value makes up the remaining 25%, says the report.

By 2017, the premium and value segments are predicted to increase to 20% and 25-30%, respectively.

Strategies to benefit from this shift in market dynamics include:
Move up to the premium segment of a specific product category, for example, by offering healthier alternatives, using more natural ingredients, and incorporating corporate social responsibility as well as sustainable business practices;
Offer ‘value’ products within the premium segment and ‘premium’ products within the value segment.  The report cites UK retailer Waitrose, which offers bakery products under a premium private label, thus enabling increasingly cost-conscious  customers to continue shopping at their favorite high-end supermarket but at a lower cost;
Use value products to sell premium products. Supermarkets and food service outlets can use this strategy to attract customers with value-for-money propositions, while simultaneously aiming to sell premium, more expensive products to these same customers.

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