Nice-to-have gives way to need-to-have

Nielsen’s top executives reveal how shopping patterns across the world have been affected by the economic downturn.

Retailers around the globe are experiencing the full pressure of the credit crunch as consumers flock to value but they are adopting strategies to cope, planning for recovery and seizing new opportunities.

Those are the key messages from four of Nielsen’s top executives: Jonathan Banks and Jean-Jacques Vandenheede, directors of retail insights, Nielsen Europe; James Russo, vice president of marketing, Nielsen US; and Todd Hale, senior vice president, consumer & shopper insights, Nielsen US.

Reduction in shopping trips

Jonathan Banks: discounter growth is moving ahead

According to Banks, Nielsen has recorded a big reduction in shopping trips in European countries since the first quarter of 2008.

Australia, in particular, has also been hit. “In Australia, the convenience channel depends heavily on travel to gas stations and there has been a strong correlation between gas prices and their store performance,” he said.

The Australian market also witnessed a faster than expected growth in the discounter channel due to the expansion of Aldi, Banks said.

“It succeeded in marketing an offering that consumers perceive to be competitive with supermarkets on both quality and price.”

Discounter growth has been highly correlated with growth in store numbers, said Banks. However, their like-for-like growth is now moving ahead in markets including the UK, Germany and the Netherlands, said Banks.

Vandenheede also found shoppers are increasingly thrifty. “Consumers are flocking to good deals and they are taking advantage of the aggressive sales being offered,” he said.

However, food is proving to be relatively recession resistant and consumers are mainly saving money by cutting back on non-essentials such as holidays.

Hale said there was a similar trend in the US: “In the US market, the big surprise has been the severity of shifts from nice-to-have to need-have assortment and retailing,” he said.

“In 2008, sales results for discretionary retailers saw their shopping trips and dollar sales plummet, and sales results for many food categories and food retailers were obviously much better. As a colleague succinctly put, “if you can’t eat it, you don’t need it”.

Recession has hit all income groups in the US, said Russo, with lower income households feeling the pressure of the labour market, housing and credit restraints, and upper-income households watching their net worth decline in pensions and housing.

Retailer tactics

According to the Nielsen executives, retail tactics to cope with recession include resisting price increases, focusing on promotion and investing in private label.

“There is an opportunity to increase savings in times like this, and getting more from what you have is a good investment,” said Banks. “Expect to see private label’s share advance more quickly in some categories, in some countries.”

Hale reported US retailers are placing a strong emphasis on private label. In the past year, Kroger has gone head-to-head with Wal-Mart on matching prices on food basics.

Similarly, grocers have implemented ‘feed a family of four for $8/$10 per meal programmes. Others have advertised prices cuts across stores.

Despite tough market conditions, business leaders from the consumer packaged goods sector are looking for opportunities.

“Executives are planning for the worst and hoping for the best,” said Vandenheede.

Banks warned against pulling back from brand development in difficult times.

“From a new product development point of view, marketers should have reduced their efforts two years ago if they wanted to be less dynamic through the downturn,” he said. “History tells us that really great brands have been launched in the middle of recessions where advertising can cost less.”

Hale reported manufacturers were holding firm on marketing spending as big retailers including Target, Walgreens and Wal-Mart are still expanding and investing in new formats.

“The same is true for a number of other national and regional grocers as they look for opportunities to test or open new formats and find new locations to expand their footprint,” he said.

Growth opportunities

Nielsen’s executives pointed to a number of big opportunities for retailers and manufacturers in 2009.

Sustainability is key for Banks. “Sustainability remains an extremely important long-term trend as opposed to a fad,” he said.

Today, ethical companies can use this platform as a differentiator, he said, but Banks warned that opportunities to promote it will diminish within three years as ‘doing the right thing’ becomes the norm.

Vandenheede advised companies to develop exit strategies for potential crises and to examine all likely pitfalls.

Russo said the biggest opportunities will be found by aligning with deepening consumer behaviours such as greater at-home related opportunities, fulfilment of basic over discretionary needs, trading down and value.

Hale agreed: “Consumers have told us they are staying home more often and consuming more meals at home or at work. This speaks to meal solution opportunities for food manufacturers and retailers.”

Hale tipped value messaging as another winning strategy and said there were opportunities in some general merchandise and health and beauty categories as consumers may be spending more time at home.

“Procter & Gamble is a good example of a company successfully positioning some of its health and beauty brands against higher-priced department store or beauty salon offerings.”