DECEMBER 2005 Times & Trends Executive Summary
MACROECONOMIC TRENDS: UNDERSTANDING AND PREDICTING CONSUMER SPENDING PATTERNS
 

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 issue provides an in-depth analysis of the link between macroeconomic trends and CPG/healthcare spending.

This free summary is also accessible via the GMA Web site  at http://www.gmabrands.com/publications/gmairi.cfm

Introduction

In the quest to understand and predict consumer spending patterns, many CPG marketers may be missing a powerful influencing factor – the economy.

Consumer purchase decisions are clearly impacted by a broad range of factors – many within marketers’ control, but the economy provides an underlying current that wields strong directional influence.

The ability to account for the influence of macroeconomic trends will enable manufacturers and retailers to more accurately assess the success of a specific marketing or promotional initiative, identify the optimal timing of a new product introduction or advertising campaign and enhance the accuracy of sales forecasts. The effects are far-reaching.

This report summarizes results from an extensive analysis of the link between U.S. economic health and CPG/healthcare industry sales and highlights implications for CPG marketers.
As some consumers are more heavily influenced by economic conditions than others (largely driven by income), and some products are more discretionary in nature than others, the degree of economic influence will vary by category, brand and store. It is worth the investment to understand the specific relationship between macroeconomic conditions and sales trends within your products or stores.


 Key Findings

  • Consumer spending on CPG/healthcare products tracks closely with macroeconomic trends. A fifteen-year analysis reveals that while absolute growth rates differ, CPG/healthcare growth trends are directionally aligned with real Gross Domestic Product (GDP) trends. Real GDP is a critical consideration in deciphering factors influencing category, brand and store growth and in establishing effective sales forecasts and marketing plans.

    

  • Non-food spending patterns are more sensitive to economic changes than food spending. Over the past decade, while food spending has been negatively impacted by major economic downturns and has taken longer than non-food to rebound, non-food spending (excluding healthcare) has been more likely than food to react to minor economic adjustments. Non-food manufacturers, in particular, must be attuned to even modest changes in the GDP to identify and address growth opportunities and risks.

  • Healthcare product sales are less tied to economic growth than other CPG categories. While combined Rx and over-the-counter drug growth rates were affected during the last two recessions, growth trends have deviated from real GDP trends during more stable periods. Industry events, including regulation, OTC switches and major insurance changes are more likely to impact sales.

  • Private label benefits from recession. Private label share follows an interesting pattern with respect to economic growth. After the past two economic peaks, private label share declined in the following year as economic growth just began to wane. As we moved into the last recession, however, share rose significantly. Both manufacturers and retailers have unique windows of opportunity for share growth throughout economic cycles.

  • The CPG industry has sustained modest sales growth despite gas prices crossing the $3 per gallon threshold. As reported in the September Times & Trends, Gas Price Impact, the CPG industry appears to have benefited from gas price escalation, with sales markedly increasing after prices reached $2 per gallon. The rate of growth subsided somewhat after prices hit $2.25, but this more modest growth rate of 1 percent has been sustained, even with prices exceeding $3.

  • Forecasters expect a continuation of current economic growth rates into 2006. Most major entities forecasting GDP are anticipating roughly 3.3 percent - 3.5 percent growth in 2006, down a fraction from this year – suggesting an underlying directional framework for stable, albeit very modest CPG growth.

  • Declines in real average hourly earnings – an “early warning indicator” – signal the possibility of a downturn. In Ahead of the Curve, Joseph Ellis builds a compelling case for the power of real average hourly earnings as an early (6 to 12 months in advance) indicator of economic change. Negative trends in this measure suggest that at least a mild downturn is possible in spring 2006.
     

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Source: IRI's Times & Trends Reports
Information Resources, Inc. (IRI) is the world’s leading provider of enterprise market information solutions and services to the consumer packaged goods (CPG), retail, and healthcare industries.