Shoppers have increasingly turned away from premium-priced items toward cheaper alternatives in a search for value as they have begun to feel the economic squeeze. But food companies could be caught out if they are holding on for a return to pre-recession spending patterns, said Stephen Rannekleiv, Rabobank’s Food & Agribusiness Research and Advisory executive director, in a podcast.
“An economic recovery would help loosen up consumer purse strings, and improve some of the consumer confidence levels. But many of the pre-recession spending trends were somewhat unsustainable. I think consumers have changed,” he said.
‘More rational’ future
Rannekliev said that the ‘premiumization trend’ of 2002 to 2007, which saw consumers splashing out on low-end luxury goods like wines and spirits, “may never return”.
“We may see growth return, but a more rational level of growth.”
He added that manufacturers’ strategies in the recession are largely based on whether they see the new consumer trends as part of a short-lived cycle, or likely to remain in place in the long-term, and he predicts that consumers will stick to their new value-seeking ways, including purchasing private label products, using coupons and shopping at discount-oriented retailers.
“I think food and beverage companies should be prepared for at least several years more frugality from consumers,” he said.
A problem of timing
One of the problems for manufacturers is that “this increased price sensitivity of consumers comes on the heels of an unprecedented trend of trading up… The problem comes in the investments that were made to take advantage of these trading up trends.
“…Many companies went into debt in order to expand their premium brands and now it’s difficult to pay off that debt,” he said.
However, although Rannekliev recommends that manufacturers consider adopting an “aggressive pricing strategy” to help deal with the changed economic environment, it seems that the current surge of interest in private label products has been driven by quality, rather than price alone, according to a recent study by The Nielsen Company.
Quality and value
It found that that 63 percent of consumers consider the quality of private label brands to be as high as name brand products, and 33 percent said they were better quality.
Private label products account for more than $81bn in the US, up 10.2 percent over the past year, with health and wellness claims including no trans fats, no saturated fats, multi-grains and antioxidants among the strongest-growing categories.
In the 2001-2003 recession, private label’s unit market share climbed from 20 percent to 21.8 percent, according to the Private Label Manufacturers Association. And in the 1990-1991 recession, unit share for retailer brands moved up from 17.6 percent to 20 percent.