Rise of the 'Hybrid Consumer'

Trend to trade down everyday, trade up to indulge polarizing food sector

UTRECHT, The Netherlands -- The rise of the "hybrid consumer" in the United States and Western Europe is an emerging trend with significant implications for food companies, food retailers and foodservice companies, according to a new report from Rabobank. Consumers are becoming less interested in mid-market products and are instead trading down when it comes to everyday value-for-money items, such as basic groceries. Using money saved by trading down on staples, hybrid consumers are trading up to premium, high-end products that matter most from an emotional and social perspective, such as premium brands in supermarkets and fine dining. As a result of this trend, the food retail sector will become increasingly polarized into value and premium, with middle-ground players struggling to retain market share.

Marc Kennis, senior analyst for Utrecht, the Netherlands-based Rabobank Food & Agribusiness Research & Advisory, said, "The implications of this market trend are profound and touch on areas such as product offerings, distribution channels, marketing and brand management. Given the driving forces of hybrid consumption--women's increasing role in household spending and the growing importance of Millennials (generations Y and Z)--we believe that hybrid consumption is a long-lasting phenomenon; therefore, food processors, food retailers and foodservice companies alike will need to adapt or risk fading away."

Rabobank has identified the three main forces driving the hybrid consumer trend:

  • Socio-demographic developments. The growth of women's purchasing power and increasing influence over household spending is a major factor; research indicates women are more objective than men when it comes to food purchasing decisions. Additionally, younger generations who grow up using social media are more likely to make food choices based on merits rather than on the specific brand loyalty.
  • Food retailer strategies. The advent of discounters has added to consumers' options to trade down, and in recent years private label products have increased trading up options. Increased use of the internet as a tool to compare products and prices has also led to greater consumer awareness regarding food product purchasing.
  • Macro-economic developments. The recent global recession has accelerated the existing market duality. Constraints on disposable income and falling confidence have encouraged trading down on basic items. At the same time, consumers still want to occasionally indulgences themselves, even in times of economic hardship and are willing to pay a bit extra for premium quality.

Hybrid consumer patterns are reflected in the growth rates of retailers. Those geared towards the mid-market are showing lower growth rates over a longer period than their peers at the extreme ends of the spectrum.

Between 2007 and 2012, above-average performers in the United States were either hard discounters, such as Aldi, or premium formats, such as Whole Foods and HE Butt Grocery. Similar trends exist in Western Europe.

Rabobank identified a range of strategies and tactics that will allow nimble food processors, food retailers and foodservice companies to benefit from the rise of the hybrid consumer. These include:

  • Move up to the premium segment of a specific product category. For example, by offering healthier alternatives, using more natural ingredients and incorporating corporate social responsibility as well as sustainable business practices. The French spirits company, Pernod Ricard, is an example of a company that has been successful in "premiumizing" its product offering.
  • Offer "value" products within the premium segment and "premium" products within the value segment. By doing so, retailers can cater to consumers that have become more cost-conscious due to waning consumer confidence and purchasing power. U.K. retailer Waitrose offers bakery products under a premium private label, thus enabling increasingly cost-conscious, customers to continue shopping at their favorite high-end supermarket but at a lower cost.
  • Use value products to sell premium products. Supermarkets and foodservice outlets can use this strategy to attract customers with value-for-money propositions, while simultaneously aiming to sell premium, more expensive products to these same customers. A U.K.-based coffee chain, for instance, offers coffee to-go at relatively low price points to generate traffic and simultaneously aims to sell higher priced food products, such as premium sandwiches.