Four Themes That Cross Categories

Since last Fall, the economic news has been uniformly grim. People losing their homes, deferring maintenance, unable to afford heat. Food banks and soup kitchens overflowing with “customers.” Donors to thrift stores in years past now shopping at them. As a November story on mightbargainhunter.com points out so clearly, “we may think that we need a lot of things. The stuff we really need — after breathing — are food (and clean water) in our stomachs, clothes on our backs, and a roof over our heads.”

This past year, we’ve talked to hundreds of consumers on behalf of clients. We’ve talked about food and eating at home vs. away from home. We’ve talked about shoes and clothing. And we’ve talked about home improvement and home maintenance. In these conversations, we heard several common themes:

• DIY is booming
  
  
• Pretense and conspicuous consumption are out
  
  
• Coupons are back
  
  
• At least in some categories, people believe they’re spending smarter, not necessarily spending less

So, I thought it would be interesting, and possibly instructive, to share what we heard. In this 3-part series, I'll start with the Food category, then Shelter, and in last installment, will talk about Clothing. Compare notes with your own experience, and let us know where we got it wrong…or right!

The problems at Whole Foods and other upscale grocery retailers started long before Q4. Food prices surged in the first half, and organic produce took a hit. Consumers shifted to private label and shopping the club stores for food and groceries in a big way early in the year. Big winners in the category were ALDI whose no frills, private label offering fits the current environment well, and the various 99-cent and dollar stores, for their low prices.

Coupon use is also factoring into food purchases. As market researcher ICOM found, “Households of two adults and two children who use coupons wisely can save 25% on their grocery bill annually, without cutting purchases.” And online coupons were the runaway hit of the year. Consumers of all ages told us they used them, and said would be more inclined to use them if they were electronic. The availability of electronic coupons would most influence the shopping behavior of 18-34 year olds, 77% of whom said they are much more likely or somewhat more likely to use coupons if given access to this paperless technology.

The other thing about food is that more people are eating at home. According to a story on NPR’s Sunday Weekend Edition, cooking skills may have atrophied during the eat-out/take-out days, so we’re seeing increased interest in cooking classes. Cook book sales are also surging. Whether thanks to the Food Network, the recession, both or something else, cookbooks were a bright spot in publishers' lineup.

In this recession, all four themes are at work in the food category.

Next up: Shelter.

When Good Enough Will Do

We’ve always told our kids to do their best, no matter what. When they were younger, they actually listened and tried. Now that they’re teenagers, they laugh at the suggestion. They know that they can do well by doing far less than their best much of the time.

Like parents everywhere, marketers are into superlatives. We typically use lots of them in positioning products and companies – “brand (name) is the best at (benefit) because it is the only brand with (3-5 proof points) to deliver on that promise.” Whether it’s the fastest, the best, the biggest, the safest, the easiest, or the most comprehensive – marketers are always trying to convince customers that the superlatives apply to their product uniquely.

But these times are not typical. And most of those superlatives do not fit customers' current reality. In a Nov. 6 article in Business Week, Ben Steverman reports that “as the U.S. faces a serious economic downturn, many Americans are seeking out the cheapest possible option when buying necessities.” The article features four stores that are thriving in this economy: ultra-discounters like Dollar Tree (DLTR), 99 Cents Only (NDN), and Family Dollar Stores (FDO), and Wal-Mart.

I wrote earlier this year about value becoming tablestakes as the economy softens. That got me to rethinking the conventional wisdom that customers actually would always prefer the best if they could afford it. I’m pretty sure that’s not uniformly true across all categories – now, or ever.

Private label goods are the classic example where good enough will do. Private labels succeed by sitting on the shelf beside the more expensive brand name products they copy. In countless categories including office supplies, breakfast cereal, over-the-counter cold and pain medicines, diapers and other paper products, private label has captured significant market share. Those share gains were made in better economic times than we’re currently experiencing. No wonder Ad Age recently proclaimed in an October 29 story that “it’s going to be a private label Christmas.”

In microeconomics, we learn that the marginal cost of going from 80% accuracy to 100% accuracy is often greater than the cost of getting to the 80% solution in the first place. Is the additional 20% accuracy worth the required expense? Often, customers are not willing to pay the price. Even when the economy is not in the dumps. Why?

Software and systems design have a concept called the Principle Of Good Enough (POGE). We lay people call it “quick and dirty” design. The basic idea is to put a partially complete solution or product in the market rapidly, gauge the response, and tweak it based on actual feedback from users. I guess it’s the “dirty” part that implies something less than perfect. POGE is the logical foundation on which most software and web development is based. The principle seems to apply to a temporary stage in product development whose end goal is the continuous improvement of the product.

Similarly, there are circumstances where good enough is all that’s required and no further quality improvement is expected or necessary. Non life-threatening conditions – the types that retail walk-in clinics are designed to treat – are a perfect example. These clinics typically provide a limited range of "get well" medical services, such as allergy or flu relief, and also treat uncomplicated minor conditions, such as bronchitis and ear, urinary tract, or sinus infections. The success of urgicenters and retail walk-in health clinics are proof positive that in some situations, some customers do not feel they need the Mayo Clinic – they simply require prompt treatment by a competent practitioner.

These examples show that in some contexts, customers appreciate good enough as an intermediate stage to progress through. In others, they value it as an end-state. The lesson here: efficient design is smart design – smart retailers start by getting to good enough, taking their customers’ temperature, and deciding whether and where to go from there.

Is Local Better?

We live in Mill Valley, CA, four miles north of San Francisco in Marin County. In our town, there’s a definite bias toward supporting local merchants and products. Smith & Hawken got its start here, and so did Banana Republic. At the holidays, even the parking meters take a vacation so shoppers can park free like they do at the mall up the highway. In terms of store names and ownership, Mill Valley commerce is diverse, and that adds to our town's character and personality.

But Ad Age got my attention when they reported yesterday that "it’s going to be a private label Christmas." Most private label merchandise is sold in chain stores – near us, that includes Safeway, Whole Foods, Molly Stone’s, Target, and Costco (no Wal-Mart nearby). In general, people buy private label goods because of the savings relative to branded goods. Consumers typically don’t know where private label products come from – part of their lower cost stems from avoiding the expense of telling the story of the individual products.

Based on its research, IRI predicts that big-box stores like Wal-Mart and Costco could be the big winners this holiday, possibly drawing shoppers from department and specialty stores by convincing consumers they can save enough on food to cross the aisle and shop for gifts, as well. Guess that makes the local specialty stores downtown more vulnerable than usual this holiday season, and the local grocery stores, too. Besides free parking, I’m guessing there will be more holiday festivities this year to draw people to the local shopping district.

But what does local really mean? Does it refer to the store’s ownership structure? Or its involvement in the community? Can a big box store be local? Is there a distance that defines what’s local? Is it the distance from the customer’s home to the store, or from the source of the products to the shelf, or both?

In the fresh food category, Wal-mart defines local as grown in the same state as it's sold. Whole Foods considers local to be anything produced within seven hours of one of its stores, and says that most of its local producers are within 200 miles of a store. For Seattle's PCC Natural Markets, local is anything from Washington, Oregon or southern British Columbia. Frankly, of the three, I think Whole Foods gets it closest to right.

According to a story this week by Julie Schmit for USA Today, “the ‘locally grown’ label is part of retailers' push to tap into consumer desires for fresh and safe products that support small, local farmers and help the environment because they're not trucked so far.” And for some consumers, being locally grown is now more important than being organic.

Farmers' markets are seen a source of local fresh produce, meats and cheeses, and they're on the increase. Last month UDSA reported that the number of farmers markets in the United States has nearly tripled over the past 15 years to 4,385. We have seven a week just in Southern Marin County.

USDA and others are careful to point out that locally grown food is not necessarily safer than food from farther away. But it seems consumers are not satisfied with government assurances about the safety of the food supply, and they like the greater ripeness that sourcing locally affords. In some respects, “Organic” and “Green” have become short-hand for “Safer” and "Better." Sounds like “Local” is the newest addition to that list of reassuring words.

Look for a push for standard definitions and certification of “locally grown,” and a move to track and report on the handling of fresh food from source to shelf as people increasingly think about what’s on their plate and how it got there.

And back in Mill Valley, I expect merchants large and small to continue trying to figure out how to capitalize on our passion for all things local.