Times & Trends

COMPETING IN A TRANSFORMING ECONOMY

EXECUTIVE OVERVIEW

MAY 2008

IRI's Times & Trends highlights new developments and critical events across all major CPG categories and channels, providing powerful benchmarking data to help guide your strategic decisions. This special edition of Times & Trends reveals significant changes in consumer shopping, purchase and eating behavior as a result of challenging economic conditions. A free summary is also accessible via the GMA website at www.gmaonline.org.

INTRODUCTION

As the U.S. economy undergoes a transformation, so, too, has the consumer.

While consumer behavior change is notoriously slow and gradual, changes in purchase and shopping behavior over the past year have occurred with remarkable speed and frequency – a testament to the severity of economic hardship many consumers are experiencing.

With budgets strained to the breaking point by rising prices for gas, energy, food and other necessities, consumers have had to continually re-evaluate what they buy and where they shop.

For retailers and manufacturers, go-to-market strategies have become infinitely more complicated. Competing in a transforming economy requires re-assessing nearly every consumer-facing business process, including product development, advertising, pricing, promotion, merchandising and assortment, to ensure alignment with shifting consumer and business priorities – and with far greater frequency than in the past, given the pace of market change.

KEY FINDINGS

»Challenging economic conditions are driving significant changes in consumers’ CPG shopping and purchase behavior. Over the past year, consumer change has been faster, more frequent and less predictable than at any other time in recent history. Escalating prices have bred exceptionally high price sensitivity, driving declining demand across multiple categories, growth in private label, trial of lower-priced brands and accelerated channel migration.

Source: IRI Economic Shopping Behavior Longitudinal Database, IRI

»Long-standing consumer purchase drivers, including convenience and health and wellness are losing some momentum. Faced with tough decisions regarding how to stretch tight budgets, consumers are making tradeoffs. For instance, many consumers are foregoing ultra-convenience products, such as multi-packs of single serve packages or frozen dinners, and many lower-income shoppers have reduced spending on healthier foods, as they can no longer afford them.

»High gas prices are benefiting some categories as consumers prepare more meals at home. Consumers are eating out less to save money in the face of dramatic gas price increases, driving up demand for meal ingredients and components, such as frozen vegetables and frozen poultry. Unlike prior gas price periods, however, convenience meals, both frozen and fresh, do not appear to be benefiting. Over half of consumers report cooking more from scratch and using fewer convenient meal options.

»Supercenters and drug stores are gaining as consumers implement new shopping strategies. Balancing the need to conserve gas with the need to save money, consumers are stepping up visits to supercenters at a time when overall trips are down. Supercenters are increasing share across all income segments. With convenient locations close to home, drug stores are also growing share as consumers conduct more fill-in shopping within the channel. By contrast, grocery stores, club stores and traditional mass merchandisers are losing ground.