In early 2009, a research project by the Perishables Group identified various value-seeking strategies by consumers. The study examined point-of-sale data from 13,000 U.S. supermarkets. The Perishables Group also partnered with two retailers, one on the West Coast and one on the East Coast, to gather consumer loyalty card data from 200,000 households and conduct 1,600 in-store shopper intercepts.
The Perishables Group then undertook a follow-up study—sponsored by Chiquita, Fresh Express, Crunch Pak, Dovex, Duda Farm Fresh Foods and Ready Pac—with information gathered in late 2009, to define “the new consumer reality” that emerged in the past year. The Perishables Group and Produce Merchandising have brought you the results of this follow-up study throughout the past three issues.
It is clear that consumers are now more focused on price than ever, and that they are again applying various strategies to shop more economically. But how have these specific strategies evolved compared with last year? Are consumers implementing the same strategies that were unveiled in our previous research project, or have they changed as unemployment has worsened but the stock market and consumer confidence have improved?
With nearly identical methodologies used in both research projects, we have the opportunity to see exactly how consumer behavior has evolved in the produce department by comparing results that were analyzed last year to those that were gathered and analyzed this year.
Below we outline seven value-seeking strategies that were revealed in our first research project. Read on to find out what information defined these strategies last year and what consumers are saying and doing in relation to those strategies now.
1. Consumers seek value by trading down to less expensive items within a category
More consumers this year than last year are saying they are purchasing lower priced items in place of higher priced items. However, an analysis of loyalty card data shows the behavior is actually moderating.
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Last year, a quarter of shoppers said they were purchasing less fresh produce, usually because of the cost. Some shoppers traded within a category to similar items that cost less. For example, in-store consumer intercepts indicated consumers had noticed higher prices in packaged salad. Of the survey respondents who said they purchased less packaged salad due to higher prices, 43% purchased more lettuce. However, loyalty card data showed consumers in the East Coast retailer were more likely than consumers in the West Coast retailer to switch from packaged salad to lettuce.
Apple category trading behavior also has changed since last year for the East Coast retailer. Last year, consumers were more loyal to prepared apples and less willing to trade to whole apples. Despite non-promoted price increases and less promotional activity, consumers bought prepared apples more frequently and at more volume per trip in Q2, Q3 and Q4 of 2008 (the study time period) when compared with the prior year.
However in 2009, while prepared apples’ volume purchased per trip increased 1.2% over 2008 levels, regular apple volume increased 3% per trip.
Shoppers whose income is now lower than it was a year ago are even more likely to now purchase lower-priced items in place of higher-priced items. Almost two-thirds of survey respondents whose income has decreased now purchase lower-priced items more often in place of higher-priced items.
In the trade survey conducted for this research project, many retailers confirmed the sales data trends, saying consumers are trading down to less expensive items both within and across categories. Several retailers noted a shift away from higher-end items and convenience items.
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Thirty percent of consumers said they are buying whole lettuce in place of bagged salad. —The Perishables Group survey
One retailer observed, “Consumers are trading from more expensive items to cheaper items.” Another added, “We see customers trading down in some categories, and trading out of some categories.”
2. Consumers seek value by trading out of a category or out of a fresh department if it is too expensive
In last year’s consumer survey, 89% said they had changed purchase behavior to cut costs.
This year, half of produce consumers said they now more often purchase lower priced items in place of higher priced items. We saw trading behaviors within specific categories as well, particularly with consumers trading out of convenience categories.
Freshcut produce appears to have taken the hardest hit from consumers trading out of categories considered to be more expensive, but the less expensive apple and banana categories continue to benefit from low-price-seeking consumers.
Last year, 19% of consumers said they had reduced purchases of freshcut produce. This year, the figure doubled. More than 40% of respondents reported buying whole fruit in place of cut fruit, and 30% said they are now buying whole lettuce in place of packaged salad. Additionally, more consumers are trading out of celery or snacking vegetables than are trading into these categories.
Also last year, 80% of respondents reported trading from higher-priced produce items to lower-priced alternatives. Of that 80%, more than one-quarter were purchasing more apples and bananas. We see the same trend this year, as one-quarter of both apple and banana consumers said they are buying these categories in place of other fruit items.
Organic produce typically is at risk of trading behavior because of its higher price point than conventional produce. The study last year showed loyal organic purchasers continuing to buy these items despite price. However, the occasional or light organic buyers indicated a high likelihood to shift to conventional items to save money. Of the consumers who said they always purchase organic fruits and vegetables, more than 80% of them said they planned to continue to purchase them even though they are often priced higher. Conversely, 68% of consumers who say they sometimes buy organic indicated they will reduce purchases, while only 9% of the light or “rarely purchase” buyers will continue to purchase organics.
This organic loyalty card trend did not hold true in 2009. In the West Coast retailer, consumers traded out of organic apples, as they hold a price premium to conventionally-grown apples in the marketplace. Purchase frequency as well as volume and dollars per trip all declined.
3. In efforts to reduce spending and waste, consumers were buying some items more often but in lesser amounts
Another way consumers seek value is by reducing spending and waste. Consumers are reducing waste by purchasing only what they feel they can eat before it spoils, but therefore need to purchase those items more often.
Loyalty card data from both retailers last year showed that consumers shifted to buying salad largely on a need basis (trip frequency up but volume per trip down). As packaged salad has a short shelf life and spoils quickly after opening the preconditioned bag, it appears that consumers were being more conservative in purchasing bags of salad.
Though trip frequency remained lower this year as well, consumers appear to have shifted their focus to purchasing more items when on sale, rather than reducing the number of items.
While the majority of consumers said in surveys that they have not changed the size of the produce packages they purchased during the past year, 17% did say they now buy smaller packages. Of those consumers, savings and value are motivators; half said there is less waste with the smaller pack sizes, and more than a third said the cost is lower.
This effort to reduce waste was evident this year in cooking vegetable and grape categories. Consumers purchased these on a need basis during the study (amount per purchase down, but purchase frequency up) in both retailers.
4. Consumers seek value by being more responsive to promotions and buying larger quantities of items when on deal
Purchasing larger quantities of items during promotions allows consumers to stockpile items for later use. Last year, more than 40% of respondents said they were now buying items on sale. This behavior was consistent within packaged salads and potatoes during Q4 2008. Potatoes are a produce item relatively conducive to pantry loading, as the product keeps for weeks if stored properly. In the West Coast retailer, decreased prices and increased promotional activity on yellow potatoes in Q4 drove consumer purchase trip frequency down but volume per trip up compared to the previous year. Packaged salad sales were also susceptible to this value-seeking strategy. Also in the fourth quarter of 2008, consumers purchased blends, garden and romaine in smaller volume per trip compared to same time period the year before. Consumers waited for deals on spinach, which saw increased volume sold on promotion in the retailer.
Consumers indicated this year that they are much more price-conscious than they were last year. More than half of produce consumers said they now purchase more fresh produce on sale than they did a year ago.
In both retailers, staple items such as potatoes, citrus and cooking vegetables were bought less frequently but in greater volume when purchased. This indicates consumers were spreading out their purchases, perhaps waiting for deals before stocking up. Aside from lettuce and salad, the items appearing under this behavior type are able to be stored for several weeks and are amenable to pantry loading.
Other category consumers agree, with about half of the apple, banana and packaged salad consumers saying they now purchase these categories on sale more often than they did a year ago. Nearly a third of cut fruit consumers said they now purchase cut fruit on sale more often, and about the same number said they also use coupons more often.
Shoppers in the East and Midwest seem to be more price-conscious than those in other areas, with more than 60% now purchasing produce on sale more often than they did a year ago.
5. Consumers change retail formats for their grocery purchases
With gas prices generally lower than last year, consumers are more willing to shop other retail formats besides supermarkets for their produce purchases, particularly when it comes to superstores and produce markets.
Among respondents last year who said they were purchasing less from fresh grocery departments, approximately one in seven respondents said they purchased some of their fresh items from other types of stores, which could include farmer’s markets, mom and pop stores, warehouse/clubs stores or mass discount stores.
The same held true this year. Consumers are trading higher priced stores for lower priced stores, with nearly 40% making more trips to retailers thought to be lower in price and more than one-third making fewer trips to retailers thought to be higher in price. Additionally, nearly a third of consumers surveyed said they now shop for fresh produce more often at stores other than the supermarket.
As one might expect, shoppers whose income is now lower than it was a year ago are even more likely to trade to stores thought to be lower in price. Nearly half of those whose income has decreased are making more trips to stores thought to be lower in price.
Superstores and produce markets increased their appeal to consumers this year. Nearly 30% of respondents said they now shop at supercenters more often, and 21% said they shop produce markets more often. While fewer than half of consumers shop at natural/organic stores, only 8% of those surveyed said they now shop those stores more often, compared with 11% who shop less often.
6. Retailers promote inexpensive items, thus encouraging consumers to trade down to the low end of the category
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In perhaps the most noticeable shift from last year to this year, consumers are actively seeking out sales and stocking up when prices are low. —The Perishables Group survey
Last year, this promotional strategy was evident in the value-driven packaged salad segment of garden salad, which kept the category afloat in the West Coast retailer. In Q4 of 2008, 36.7% of garden salad sold while on promotion, compared with only 3.7% the prior year. In the same time period, the West Coast retailer beat market competitors in dollar and volume growth versus the prior year for completes/kits and garden salad. This was likely related to the smaller price increases on completes/kits salads and more promotional activity on garden salad in the retailer than the market competitors in this time frame.
We were interested to find that loyalty card data shows the opposite strategy employed by retailers this year. Retailers appear to be promoting higher end items more often, to pull consumers back to the higher end of the category and encourage trial. An example of this strategy is the West Coast retailer’s packaged salad category. The two highest priced subcategories (completes/kits and salad blends) were promoted at strong levels in 2009, and consumers responded by purchasing more volume per transaction.
7. Retailers lower everyday prices on expensive items, encouraging consumers to seek value when they splurge and to retain high-end customers
In 2008, while many organic fruits and vegetables increased in every day prices and encouraged consumers to seek value by trading down to conventional items, both the East Coast retailer and the West Coast retailer actually lowered everyday prices on some organic apple varieties, particularly in Q4 2008. Consumers reacted positively to these decreases in everyday prices and purchased more volume as a result.
Similar results were exposed in 2009 for other higher-end categories. Items such as berries, prepared fruits, tomatoes and organic apples saw increased purchase volume with a fall in everyday retail price.
In the survey of retailers, they agreed that consumer behavior has changed during the past year. Half of the retailers interviewed in this year’s study said their consumers are seeking value, and in turn retailers are trying to provide value. As one retailer said, “Consumers are more focused on value. Seems that the customer is doing more analysis at retail to determine what fruit or vegetable is a better value.” Because of this, many retailers have adjusted their pricing strategies, often promoting more items or promoting more aggressively. One retailer stated, “There has been a dramatic change in the amount sold on promotion. Retailers have taught consumers to wait to buy on sale.”
When comparing overall purchasing behaviors from last year and this year, it is clear that most consumers still seek value. However, value has a different definition in some areas.
In perhaps the most noticeable shift from last year to this year, consumers are actively seeking out sales and stocking up when prices are low. This was evident both in consumer survey responses and in the examination of loyalty card data, especially for staple categories with relatively long shelf lives.
Equally notable is the retailer shift from focusing promotions on lower-end items to now focusing them on higher-end items. Last year, retailers chose to promote inexpensive items to tempt consumers looking for very low prices. This year, there has been an evident change to retailers promoting higher-priced items in an effort to bring consumers back to premium categories. Shoppers are now willing to pay a bit more to get a product they perceive to be worth the money - or a better value.
Not only are retailers promoting pricey items more often, they also are lowering everyday price points for these items. Retailers are trying to give consumers the value they are after, and consumers are responding by purchasing more high-end items when the everyday price is lower.
Today’s consumers are more focused on price but is also more willing to pay a higher price if they perceive the purchase to provide the most value or appeal. Retailers can capitalize on this mentality by continuing to bring consumers back to premium categories by implementing lower everyday retail prices or more aggressive promotions. Creative merchandising can also grab consumers’ attention and give them reason to believe the items are worth the extra pennies.
Suppliers also can be proactive in attracting consumers by allocating resources to new product development, eye-catching packaging or educational signage. It’s important to understand that consumers are looking for more than just small price tags, so find ways to draw attention to the unique value proposition your product offers.
Consumer Survey: The Perishable Group conducted Web surveys from a total of 6,000 produce consumers, divided among total produce consumers and 1,000 consumers each of apples, bananas, celery and snacking vegetables, cut fruit, and packaged salads.
Retailer Survey: Working with its Retail Advisory Board, the Perishables Group interviewed a total of 10 retail executives from a variety of retail chains across the U.S. regarding their insights about changes in consumers’ shopping behavior during the past year and retailers’ reactions to those changes
POS DATA: PG analyzed category sales performance by looking at the scan data for our two partner retailers, their two competitors, and the remaining five at-large retailers.
The analyzed scan data included:
· Volume and dollar sales
· Average retail price and non-promoted average retail price
· Promotional volume and dollar sales
Perishables Group data is for the traditional supermarket channel, representing 63% all commodity volume (ACV) and 13,000 stores. It does not include Walmart, club stores, franchise stores, small independent chains and alternative format retailers.
Loyalty Card Data: PG analyzed partner retailer loyalty card data from two retailers – one on the East Coast and one on the West Coast (200,000 households; 100,000 households per partner retailer) from the periods of Q1,Q2,Q3 and Q1Q2Q3 combined in 2009 and compared them to Q1,Q2,Q3 and Q1Q2Q3 combined in 2008.
The analyzed loyalty card data included:
• Number of households purchasing
• Shopping trip frequency
• Volume and dollars per shopping trip
About PG: The Perishables Group (PG) is a Chicago-based independent consulting firm focused on creating innovation and value for clients in the fresh food industry. We offer a full spectrum of products and services geared toward complete market and category understanding, including research, analytics, marketing communications, category development, supply chain management and activity-based costing. We have more than 15 years of experience refining tools and strategies for maximizing success in the perishables departments. Find out more at www.perishablesgroup.com
