New Habits of the Formerly Upper Middle Class

People are eager to report all the ways they’re saving money these days. Whether they’re well-off or not, everyone has a story about spending less. Some people are substituting private labels for brands. Others are simply buying less. Then there are those who are behaving differently and buying accordingly.

The Chicago Tribune ran a story recently about how home cooking, familiar brands are gaining in popularity during the recession. A recent Google search on “money-saving tips” returned 598 results spread across 60 pages! From articles, to focus groups, to informal polls of friends, to noticing what's going on in my own family, here are ten new food-related habits of the potentially formerly upper middle class:

10. Having friends over for dinner more often instead of going out

9. Buying fresh fruits and vegetables in bulk

8. Shopping at Walmart

7. Using coupons more and shopping the sales

6. Checking the “market” price on eBay before going shopping

5. Making more from scratch

4. Getting more of our protein from beans

3. Buying fewer prepared foods

2. Serving and eating less

1. Eating comfort foods that remind us of better times

Which brands stand to benefit most from these new habits? According to the Chicago Tribune’s Recession Survival Guide, “Walmart, Gold Medal Flour … Kraft's Velveeta cheese or Hormel's canned chili. Hormel's chili and its Dinty Moore brand stews posted double-digit sales growth during its most recent quarter. Ditto for Kraft's Velveeta, despite a run-up in cheese prices.”

As consumers have gotten choosier about what we put in our shopping carts (and our mouths), upscale grocer Whole Foods has taken a beating. The stock is down nearly 80% from its year-ago level, while Kroger and Safeway are down less than 20% and 40%, respectively. To be fair, this difference is not entirely due to Whole Foods’ higher prices. As the WSJ reported recently, the company’s acquisition of Wild Oats is compounding its problems. "Instead of concentrating on our business," Whole Foods Chairman John Mackey laments, "we are forced to focus on dealing with regulators in Washington at a time when (our) business is declining."

An unexpected beneficiary of these trends (except the comfort foods one)? Try Weight Watchers. Competitors like Jenny Craig and NutriSystem sell pre-made meals to participants as part of the program, which is more expensive than making it yourself. In contrast, many of the new habits are fully in sync with the Weight Watchers program – no pre-made meals, more from scratch, eating less meat, and making and eating less overall are all fundamental aspects of the Weight Watchers plan. So, with the program more simpatico with the times than ever, people should be seeing more success on the scale. And that means more good buzz, which should drive up membership. Note to Weight Watchers, Inc. – take advantage of the trends in your favor!

A silver lining to the recession? Maybe we’ll actually get healthier while we’re learning how to live on less.

Is Local the New Black?

In the wake of Enron and Worldcomm, I wrote an article on “Moving From Words to Deeds to Restore Public Trust“ that got picked up by Marketing Profs. It is as relevant to today’s outrages – just replace those guys with Madoff, the mess on Wall Street, and abuses of “rescue” funds by our biggest financial institutions. So, what have we learned since the last massive breach of public trust in Corporate America?

We expect greater accountability of the companies that enjoy our tax breaks, consume our resources, raise capital through our markets, and benefit in other ways by doing business in our neighborhoods. Most major companies launched social responsibility initiatives (or at least PR campaigns) before the September 2007 meltdown to demonstrate they understood this. But the bar is higher now that so many bedrock institutions have become beggars at the public trough. So, what are the implications for big companies? This time around, Corporate America may have died along with the idea that markets can be self-regulating.

If pendulum were to swing back toward decentralization, it would provide a way to for companies to get closer, and more accountable, to the customer and other constituents. Networking and technology provide the tools to enable many of the benefits and avoid at least some of the costs of taking a decentralized, locally focused approach to business. This is why I think local may be the new black.

There are real advantages to supporting local businesses – decisions are made locally and the people who work there are personally invested in the community since it’s where they live. In return, they support the schools, the local kids’ sports leagues, and more.

But what does local mean these days? Does it mean not-chain-store? Does it have to do with the type of real estate – not a mall? Is it about local ownership? Is it physical? I think it’s more a mindset… a commitment to serving the community, regardless of ownership, type of real estate, or number of locations. The challenge is to deliver that local, home-town feeling (regardless of where you’re doing business) consistently across locations.

Who’s doing this today?

• Real estate offices (including the regional chains) get it, and always have – they are all about the local economy they serve and are well-aware of the differences between neighborhoods.

• Local grocery stores – unlike Safeway and Whole Foods, Mill Valley Market and Molly Stones support most community events with cash and in-kind donations and they stock unique merchandise at customer request.

• Community banks & credit unions – their point of differentiation often is their support of the local economy or workers. Given their greater insight into the local market, they are more likely to make loans in today’s anti-lending environment than the big banks. And they’re getting no bail out money!

• Privately run enrichment programs for kids – preschools, arts & crafts programs and others like them cater to local families. There are good reasons why Steve & Kate’s Camp, West America Tae Kwon Do, and others like them are long-lived institutions in our town. They fill a need and make our lives richer.

With retail vacancies hitting small towns like ours hard, City Councils should be thinking about what types of retail they want to see move in. I’d suggest they consider the benefits of businesses with a local mindset, and go after these four types of good corporate citizens.

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.

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.

“Value” Has Become Table Stakes

I was in NY in April on business and was stunned by the economic pessimism that pervaded every meeting. From retailers to private equity folks to investment bankers, the talk was of a retail recession and the economy being in free-fall. I was so concerned I called our financial advisor to have a serious talk about how our IRAs were allocated to withstand the impending stock-market swings. And since peaking in early May, the Dow has lost nearly 20% of its value.

As the shocks to our economic system continue and consumers feel the pressure increasing, retailers have turned bearish. According to a new study released earlier this week by BDO Seidman and reported by Retailer Daily, nearly half of all retail CFOs believe we will not see a meaningful improvement in the economy until July 2009. Nearly two-thirds of the Top 100 largest U.S. retailers reported decreased comp store sales in the first half of 2008 vs. the first half of 2007, and over half of their CFOs expect revenues this year to be below last year's.

In today’s economic climate, delivering “Value” is no longer an option. It is a requirement. Some brands staked out “Value” as their promise and point of differentiation from the get-go. Wal-Mart’s Every Day Low Pricing guarantee was a dramatic break from the pricing strategy of most of its competitors who marked goods up only to mark them down. Food 4 Less, The 99 Cent Store, and Ross Dress For Less were all launched as “Value” brands.

High-end brands are playing catch up, and talking “Value.” The NY Times recently reported that Whole Foods is offering deeper discounts, adding lower-priced store brands and emphasizing value in its advertising. It's even inviting customers to budget-focused store tours.

Expect the shouting about “Value” to continue. Meanwhile, differentiation increasingly hinges on other brand dimensions. Product intimacy, design and assortment, site selection, store design and format, and customer service all offer short and longer-term ways of standing out with customers. In the background, smart retailers like Urban Outfitter and J. Crew will keep working as described in earlier blogposts to deliver on these differentiating aspects of the customer experience to be ready for better days ahead.

Does Green Mean It's Safe?

Today's Brandweek features a story about Safeway bringing organic food to the masses. The Q&A with Safeway top marketer, James White, discusses the retailer's latest moves in organic and green products, and tries to clarify the difference its O and Eating Right brands.

It seems to me that the article misses the main point: As a society, we have lost faith in our institutions to keep us safe. From the FTC to the FDA to OSHA to EPA, the regulators are asleep at the wheel. People are looking for someone to fill the void and reassure us that the products we buy and the food we eat are not going to hurt us. Frankly, this is a big part of Whole Foods' historical appeal.

But Whole Foods is embattled on multiple fronts right now: from the acquisition of Wild Oats to the latest e.coli-related recall to becoming more value-oriented. As a result, the "seal of approval" aspect of its brand is in the background.

Safeway has a huge opportunity to become the new seal of approval signaling what's safe to buy, use and eat. Maybe that was the thinking behind the company's name in the first place! Can it afford to invest in both O and Eating Right to deliver the message? Should there be an umbrella brand that carries the overall message, and to which both O and Eating Right are linked? That can all be figured out.

The key is for Safeway to be honest in its claims, speak to consumers in plain English, and put the seal of approval brand(s) only on products that really are good for us and not just less bad versions of what's already available. Are they up to the task?

Flip Flops at the Grocery Store

Wnbc.com reported today on a company that wants to “be able to tell its customers the stories behind the products, of how they came to be and how sustainable they are.” Another story about Whole Foods? Nope - try Wal-Mart!

Whole Foods is busy trying to overcome its “Whole Paycheck” image. People used to use the nickname after shopping at Whole Foods, as if it were a badge of their own economic status. Now that whole paychecks are going to pay for the mortgage and gas, and with food prices sky high, people are shopping at Whole Foods less often and spending less when they do shop there. Whole Foods’ response? Introduce more lower-priced, store-branded merchandise and do more in-store promotions.

Meanwhile, Wal-Mart is moving to a more aspirational messaging platform. For years, Wal-Mart has focused on fuel savings, less waste, more efficient packaging and reduced electricity, all in pursuit of cost savings. Turns out that all that resource efficiency is also very green. The article points out that the company is now striving to extend its success with resource efficiency to the products on its shelves. The good folks in Bentonville know that the cost savings across the value chain from greater resource efficiency are substantial. In today’s tough economic environment, the master of EDLP is embracing green-ness as goodness.

However, finding the great deals is what people brag about now. Whole Foods may intentionally or unwittingly be reintroducing Hi-Low pricing and convincing consumers that there are still bargains to be had. What's old is new again, in green cred and in retail strategy!