If there are "two Americas," there are exponentially more grocery shopping behaviors marked by several distinct trends -- buying natural and organic, gravitating toward private-labels, grabbing items on an as-needed-basis and seeking rock bottom prices.
So you're definitely not alone if you find yourself springing for organic strawberries, only buying soda on sale and walking into a dollar store to stock up on canned goods. This seems to be the new give and take formula, as Americans become more health and environmentally cautious while also fighting for their economic lives.
Here's how grocery-related businesses are responding and how it is influencing what we add to our grocery carts.
Excess Is Out
Renowned retail expert and CEO of Envirosell, Paco Underhill, has written and spoken about this trend. It seems conspicuous consumption has become bad manners. On the grocery side, the age-old "Finish your plate, there are people starving in the world" seems to now be accentuated by the economic undertone "Don't take what you're not going to finish, cause if we can hold off on grocery shopping for one more day that would be great." Moderation is simply smart. One exceptionally savvy shopper I know says he never uses a cart or basket claiming, "If I can't hold it in my arms, I'm not buying it." He happens to be well over six feet with long arms, but the point is well taken and the strategy is sound.
Private Labels Are In
There's no stigma to buying generic and -- in fact -- there seems to be growing cachet in purchasing private label merchandise. Costco (COST) has had particular success with their Kirkland brand and Trader Joe's has practically become a single, brand private label store. Bridget Brennan, CEO of The Female Factor Corporation and author of "Why She Buys," says Target (TGT) stands out as well with this strategy citing their their Archer Farms brand. Watch for potential acceleration of this trend in the U.S.
Organic Is Recession-Proof
Grocers like Whole Foods (WFM) and privately held Trader Joe's are faring well with more recession-proof customers in the higher economic demographic. Last year, overall grocery store sales were up a modest 1.8%, according to the Food Institute, but organics were a bright spot -- doubling that rate of growth at 4.4%. The trend seems to be accelerating with natural and organic items remaining on shoppers lists. A friend of mine in California says in his area, buying organic has become "a given."
The terms "organic" and "natural" can be tricky to decipher, but when the biggest manufacturers are looking to turn traditional "junk food" into something easier to rationalize, you know the trend has gone mainstream. Witness PepsiCo Inc. (PEP) Frito-Lay plans for chips, which can take as little as 24 hours to be made from a whole potato -- farm to bag.
I recently visited what has to be one of the highest-end grocery stores in America -- Whole Foods in Darien, CT. It was packed and while many of the customers appeared to be reading ingredient labels, there didn't seem to be a lot of price-checking. There were wall-to-wall organic offerings and let's just say if you ask for a bag at the checkout, it's an awkward moment.
It's not all about price. Dr. Herb Sorenson, Senior research fellow at TNS and author of "Inside the Mind of the Shopper" points out, "A shopper spends three currencies at retail: time, angst and money. Price is not always in the consumer's consideration set. Convenience and logistics are very real factors, especially when you consider the typical consumer buys only one or a few items per store per trip." He also raises the fact that half of all supermarket trips result in purchases of five items or less. Grabbing a few items on the fly is one of the reasons drugstores like CVS (CVS) and Walgreens (WAG) have groceries on shelves. In keeping with this trend, I find myself doing fewer big (and pricey) grocery store runs and instead opting to get things on an as-needed-basis when I run into them (often at drugstores or gas stations).
Trying Different Places
These days consumers are more open-minded about where they shop, even if that means "trading down." Including all the way down to a dollar store. Brian Todd, President of the Food Institute, confirms "Shoppers are dabbling more. They're fickle, price sensitive and shopping at more places. They have a lot of choices."
Dollar General (DG) is building their business on s simple premise: how low can you go? Prices at Dollar General's nearly 10,000 stores are 22% less than grocery stores, according to their proprietary data. Most things are really under $10, but they do maintain the $1 price point on 228 items despite inflation. And, that's the trick the entire industry is grappling with.
Todd added, "Over the past 20 months grocers are seeing 8-9% increases in wholesale costs and only passing along 1-2%." Needless to say, that can hurt margins. On the flip side, if you pull it off, you'll spark trial and have a shot at building customer trust and loyalty over time.
That's what Walmart (WMT) is banking on with a brand proposition aimed squarely at making things cheaper -- everyday.