Just because you have a lot of money, doesn’t mean you are foolish with it…
Retailers Respond as Value Mania Hits Even the Well-to-Do
They make more than $100,000 a year. They’re recently back from a vacation to Aruba — via freebie air miles. And they go shopping together for their groceries every week –at Walmart.
The Whited family of Marietta, Ga., never expected that Walmart would become their shopping anchor. Or that value would become their shopping mantra. But they have little choice.
While their total income far exceeds what most American families make, in a post-recession nation still adapting to higher food and gasoline prices and a still-shaky employment picture, their ultra-value-conscious shopping habits square perfectly with millions of other American families who can’t let go of the tough lessons learned from the Great Recession. America’s largest and most familiar retailers — from Walmart to Target to 7-Eleven — have been forced to bend to this new reality.
“We used to shop wherever we wanted and throw whatever we wanted into the basket,” says Jamie Whited, who is a mother of two young boys and vice president of client services at a software marketing company. “Now we’re very conscious of where we shop and what we buy there.”
But like a growing number of Americans, the Whiteds don’t measure value only by price. They examine how much is actually in a container. They factor in family preferences. And they still demand the kind of quality they used to get in pricier products. This new American shopper is changing the way retailers market, merchandise and maneuver.
“It’s a new game, with America’s retailers and manufacturers trying to satisfy consumers on multiple levels,” says James Russo, vice president of global consumer insights at Nielsen. “There’s a fundamental shift in consumer behavior, and retailers have had to adapt.”
Nearly 45% of consumers say they have become “more practical and realistic in purchases,” according to a May consumer survey by BIGresearch. That’s up from 43% May 2010 and up from 37% five years ago.
Few things are more practical than the use of coupons. Before the recession, 22% of households reported using them. During the recession, the figure ballooned to 35%. But now, even with the recession supposedly in the rearview mirror, an even higher 37% of consumers say they use them, Nielsen reports.
Nor is it just lower- or middle-income consumers who clip coupons, but higher-income shoppers, too, Russo says. “The stigma is gone.”
Before Whited goes shopping, she and her 6-year-old son, Austin, clip coupons. When they snatch something from the shelf, Austin’s typically the first to ask if they have a coupon for it. Besides coupons, Whited recently started to take along a calculator that she uses to make sure they don’t go over budget.
About a year ago, they switched from grocery shopping at Publix to Walmart. More recently, they even switched which Walmart store they shop at because they discovered that one slightly farther away typically offers better deals.
It’s not as if they have to make these changes. Whited and her husband, Michael, both kept their jobs during the recession. But Michael, who is a call center manager, hasn’t had a raise in two years. And while Jamie recently got a small raise, it’s less than $50 per paycheck.
“We were sitting there at the end of the month with no money left over,” she says. “We couldn’t figure out why.”
Walmart brings back the basics
Duncan MacNaughton, chief merchandizing officer at Walmart, says the chain is totally plugged into the economic squeeze affecting the Whiteds and millions of other American families. “Our customer continues to be under significant pressure,” he says. “Our job as a merchant is to delay and mitigate that pressure as much as possible.”
That’s one reason the chain has refocused — like a laser — on value. Walmart recently pulled away from trying to be fashionable. It nixed eye-pleasing wider aisles while cramming bargains galore back into the store by adding 8,500 items — nearly 11% more merchandise, MacNaughton says.
Walmart brought back everything from cut fabrics to camping equipment to guns. “Our customers are telling us they want basics,” says MacNaughton.
But even with the basics, they demand value — and decent quality. In November, the Whiteds decided to start economizing by substituting store-brand and value products for name brands. Now, instead of paying up to $4.99 for a bottle of Pantene Pro V shampoo, they’re buying Suave Professional for $1.99. “That’s a significant difference for us,” Whited says.
And earlier this year, Michael Whited stopped buying the Kellogg’s Frosted Mini-Wheats that he loves and substituted a value brand sold at Walmart: Malt-O-Meal’s Frosted Mini Spooners, which provides nearly twice as much cereal for about the same price.
“We definitely prefer quality,” says Jamie Whited. “But if we can get quality at a cheaper price, we’ll go for that.”
Walmart has plenty of company among retailers hammering the value message. But one is a surprise: 7-Eleven.
Convenience chain gets value message
The chain most folks go to for convenience is starting to tout value.
In 1998, 7-Eleven created the 7-Select store brand. That line, which started with a handful of products, now tops 300 — with more coming, says Jesus Delgado, 7-Eleven’s senior vice president of merchandising.
“Since the recession, consumers have been asking us for more value, and we’ve had to respond,” he says.
For example, a 2½-ounce bag of Lay’s potato chips sells for 99 cents to $1.29 at 7-Eleven stores. But the chain’s 7-Select brand in a 2½-ounce bag consistently sells for 89 cents.
Nor is 7-Eleven limiting its value play to its own brands.
John Lindstrom knows firsthand. The 22-year-old senior at Purdue University is spending the summer in his hometown of Dallas. After shooting hoops in the heat with some buddies, he recently stopped by a 7-Eleven near Southern Methodist University.
He headed straight for the display that offered two 20-ounce Gatorades for $2. “It was a no-brainer,” he says. “One bottle usually goes for $1.79.”
These days, he says, he even searches out value at 7-Eleven.
“The hangover from the recession forces people like me to look for values in places they previously didn’t,” he says.
Value sits at the top of his shopping list. While at college, he buys groceries only at Walmart and mostly sticks to generic and store-brand products.
“I stay away from places that don’t have deals,” he says.
Retailers all recognize the new mindset. Here’s how four others are responding:
• Target. Although rival Walmart has long worn the value crown, Target is picking away at that by rolling out value brands for food and household products.
Its Market Pantry store-brand food line — with prices 10% to 30% off national brands — has ballooned to 1,800 items since it began in 2001. Over the past year alone, it’s added more than 100 products, says Annette Miller, vice president of grocery at Target. The Market Pantry line’s strongest growth has been since the recession, she says.
More recently, in 2009, Target created the Up & Up line of home products, such as paper products and health and beauty aids. That line, which offers savings up to 30% over national brands, already has more than 900 items, she says.
• Domino’s. Just how low can the price of a large pizza go?
Domino’s is pushing the envelope. It’s busting through the now-familiar $10 pizza deals with a Monday through Wednesday offering of $7.99 for carryout pizzas. It’s the first carryout promo the chain’s ever offered. And it includes up to three toppings — which adds serious luster to the value aura.
“People had enough of a shock in 2008 that they’re being smarter about how they spend money in 2011,” says J. Patrick Doyle, CEO at Domino’s.
Some families buy two and toss one in the fridge for the next day, he says. “Consumers are absolutely as focused on value today as they were during the depths of the recession,” he says.
• Jos. A. Bank Clothiers. Nothing brings customers into the men’s clothing chain faster than promotions on suits.
Last Thursday, Jos. A. Bank had a doozy. For the first time in its 106-year history, the 500-store chain not only put its entire stock of suits on sale at half price, but also threw in a free suit with each one purchased. In other words, for $275, folks walked off with two suits.
Psychologically, says Jerry DeBoer, senior vice president of marketing, the bragging rights have serious heft.
“You’re not just bragging about a cup of coffee that you got cheaper,” he says. “You’re bragging that you saved hundreds of dollars on a suit.”
• Seattle’s Best. Then, again, maybe there are bragging rights for a value-based cup of coffee.
That’s the guiding light at Seattle’s Best Coffee, the value brand owned by Starbucks that is growing at a double-digit pace. A bag of Seattle’s Best coffee at the grocery store typically costs as much as $2 less than its big sister Starbucks brand.
The brand’s entire strategy is quality for the masses. Eighteen months ago it was sold in just 3,000 locations, but the brand is now sold in upwards of 50,000 locations, including Burger King, Subway and AMC Theaters.
“People are not going to settle and choke down a bad cup of coffee because it’s cheaper,” says Michelle Gass, president at Seattle’s Best. “The value of coffee isn’t just in its price. A cup of coffee can be the best — or worst — part of your day.”
(Source: USA Today, 06/10/11)