Food is vital. It’s on the fundamental level of Abraham Maslow’s hierarchy of needs along with air, water, and other metabolic requirements. Without food, you can’t survive.
The way customers acquire food, an essential element of life, whether from a grocery store or restaurant, is conceivably an early indicator of how consumer will spend their money on other products and services. The current economic situation is forcing many consumers to “tighten their belts” and make food choices, which have repercussions in seemingly unrelated industries.
It’s not surprise, with less money to spend, consumers are less likely to eat out or will choose a fast food joint over a sit-down restaurant. According to The Supermarket Guru Consumer Panel, 19% of consumers said they buy prepared meals at supermarkets to cut restaurant spending. 1
When asked what they plan to do if food prices continue to rise, 68% of those surveyed said they would seek out less expensive retailers and restaurants. Sixty percent said they’d cut back further on other areas of household spending.
While restaurants may be feeling the pinch, manufacturers of prepared and frozen foods may start to see a rise in purchases. In the same vein, because consumers are cooking more at home or at least, heating food in the microwave, stovetop or oven, the sale of pots and pans have increased in recent months. Lifetime Brands, North America’s leading resource for nationally branded kitchenware, tabletop, home décor, and lifestyle products reported a 4% increase of net sales for the second quarter of 2011.2
Another data point is the US communications industry is expected to grow at 4.1% in 2011.3The end-user segment, consisting of TV programming, cable license fees, and TV station retransmission fees will grow at a compound annual growth rate (CAGR) of 7.5%. Advertising, mobile, and internet will respectively have CAGRs of 42.9% and 13.7%.
Consumers are not only eating more at home, they’re staying home to watch TV, cable programming, and surf the internet.
If food purchases echo how consumers respond to price fluctuations, companies need to understand how to coax purchases in a sluggish economy. Explains Sheila Lukaszewski, Senior Director Shopper Insights at Kraft Foods, “Shoppers have developed their own channel strategies, and are shopping around for the best deals…. More consumers are strategic about where they shop—planning routes that use less gas, limiting the number of trips and shopping for the best deals.”4
Her comments support what TIME magazine is calling the hourglass economy, whereby “trading down is the new trading up.” 5The middle-class have reduced their spending at traditionally middle-class shopping havens like Target, Kohl’s, and the Gap, instead choosing stores which allow them to purchase in bulk, utilize frequent shopper clubs, and bargain shop at stores like Costco, Dollar Tree, Dollar General, and The TJX companies (T.J. Maxx, Marshalls, Home Good).
Sure enough, according to the Supermarket Guru, when shoppers were asked how they plan on saving money in the supermarket, 84% said coupons, followed by 79% who said stock up at bargain prices.6 Other strategies included buying store brands (70%), participating in store frequent shopper clubs (57%), and buying larger package sizes (23%).
Can food purchases be used as an early indicator? They can. A more reliable, however, and perhaps unexpected indicator is lipstick!
During the 2001 recession, lipstick sales soared.7The lipstick index – a term coined by Estée Lauder chairman emeritus Leonard Lauder – has risen 14% in 2011, indicating tough times are ahead. As the economy worsens, consumers are more likely to purchase small luxuries like lipstick and nail polish.
Since the start of the year, nail polish sales have risen 54%. While consumers may be avoiding pricing restaurants, they’re investing in Cha-Ching Cherry, Gargantuan Green Grape, Dulce de Leche, I Eat Mainely Lobster, Color to Dinner For, Chocolate Moose, Mellon of Troy, and Get in the Espresso Lane nail polish.8
1 “Shoppers Notice Shelf-Price Increases,” The Supermarket Guru Consumer Panel, Supermarketnews.com, March 14, 2011
2 “Lifetime Brands Reports Record Second Quarter 2011 Results,” Business Wire, August 8, 2011
3 “Study Sees U.S. Communications Industry Growing 4.1% in 2011,” Georg Szalai, The Hollywood Reporter, September 28, 2011
4 “Interview with Sheila Lukaszewski, an executive in Shopper Insights at Kraft Foods,” How Must Supermarkets Adapt to a More Mindful, Careful Consumers, Q&A Catering To a Changing Food Shopper, Supermarketnews.com
5 “Shopping: The Rich and the Rest,” TIME, October 10, 2011
6 “Shoppers Notice Shelf-Price Increases,” The Supermarket Guru Consumer Panel, Supermarketnews.com, March 14, 2011
7 “The Lipstick Index,” TIME, October 10, 2011
8 O.P.I. nail colors… tasty colors, brilliant branding!