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This U.S. Economic Recovery Arrived Empty Handed

April 17, 2014

By Todd Hale, SVP, Consumer & Shopper Insights

The U.S. economy has been slowly improving since mid-2009, but many consumers aren't seeing—or feeling—much relief. There's no single cause of the malaise, but many place a good chunk of the blame on financial headwinds that continue to sap their ability to spend.

To gain insight into the impact of these headwinds, Nielsen surveyed nearly 28,000 households between March 14, 2013, and May 6, 2013, and another 41,000 households between Nov. 14, 2013, and Jan. 16, 2014. For the survey, we asked consumers to what extent rising food costs, gas prices, utility/energy bills, health care costs and payroll taxes inhibit how they're shopping for food, household, and health and beauty products. At the end of 2013, we broadened the initial list of headwinds to include reductions in government benefits (unemployment or SNAP {Supplemental Nutrition Assistance Program} payments), job losses and reductions in work hours.

Overall, rising food prices ranked No. 1 on our list of headwinds, as almost two-thirds of households (64%) said prices were a major factor limiting their spending in mid-2013, and more than half (52%) were still unhappy with prices in January 2014.

While gas prices were weighing on many in early and mid-2013, the drop in gas prices right before the holidays proved to be a relief for many. The 58 percent of respondents that blamed gas prices for lighter grocery bags in mid-2013 dropped to 40 percent by early 2014.

In the face of headwinds, consumers responded with pragmatism, saying they made trade-offs or bought less. When it came to coping with headwinds, consumers said they tightened their belts across the board except when asked about responding to rising gas and food prices. Notably, 75 percent of respondents said higher fuel prices caused them to make fewer trips, whereas more expensive food prompted 65 percent to seek out better deals.

While dollar sales growth among fast-moving consumer goods has tapered as inflation subsided, unit sales have remained soft and surprisingly resistant to good news. The categories in the center of the store appear to be hardest hit. Dry grocery, dairy, health and beauty aids, non-food grocery, packaged meat and frozen foods all posted zero growth for the 52 weeks ending Dec. 21, 2013.

Where Is the Opportunity?

Even with these headwinds still looming, however, the news isn't all bad.

Inflation is driving up prices for the perimeter and fresh departments, but demand for fresh and deli-prepared meat, seafood and bakery products continues to shine.

At a time when total store unit growth is a paltry +0.4 percent from a year ago, the pizza, sushi, salad, entree and sandwich categories all grew 2-4 percent; the dessert, appetizer, platter, sides, snack, soup and prepared chicken categories grew 6-8 percent; and dips/spreads/toppings lead all categories with a bawdy-by-comparison 15 percent growth rate. Quality remains paramount, but shoppers continue to choose convenience and meal components over "from-scratch" ingredients.

So how can food marketers help consumers cope? If consumers make fewer trips because of higher gas prices, marketers could win consumers by promoting convenient locations, offering gas rewards and touting at-home consumption products.

For the two-thirds of consumers seeking deals or cutting their budgets in the face of rising food prices, marketers might quickly jump to publicize "low-price" promotions, but stopping there would be short-sighted. Nielsen research shows that ads focused on price don't resonate as well as those with humor or family/sentimental messaging.

It's also important to mention that not everyone is under the same duress. From a demographic and marketing mix standpoint, seven out of 10 households making $200,000 or more said the headwinds in our survey are having no effect on how they shop. There are those, however, who are feeling the pinch more than others. Gen Y/Millennials (born 1977-1994), for example, are a major sub-group within the lower-income group ($25,000 and under and $25,000-$35,000) and reported acute awareness of the headwinds in the survey. These two groups of potential core customers couldn't be further apart in how they are "experiencing the recovery," which means that many marketers will need to devise strategies that address both ends of the spectrum.

What's the Endgame?

Bottom line, 2014 will not be easy—for consumers or marketers.

Food businesses that thrive will need to:

Key questions that marketers should ask include: which headwinds are affecting my core/best customers, and how are they reacting? Anticipating the answers to these questions will help companies deal with a recovery that arrived to great fanfare but bearing few, if any, gifts.

Source

"This U.S. Economic Recovery Arrived Empty Handed." Todd Hale, SVP, Consumer & Shopper Insights, Nielsen. Nielsen Newswire, 2014.

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