CHICAGO -- Due to sheer size and projected growth, three consumer groups are emerging as critical segments for consumer packaged goods (CPG) manufacturers and retailers: families with young children, Hispanics and lower-income consumers.
The latest Times & Trends report, Emerging Consumer Segments: Capturing Potential in High-Growth & Under-Served Markets from Information Resources Inc. (IRI) provides extensive analysis of the purchase behavior among these key consumer segments, outlines category growth opportunities and predicts the impact these [image-nocss] consumers will have on the CPG industry.
On the surface, it may seem relatively easy to target these three emerging consumer segments, said IRI Global Chief Marketing Officer Andrew A. Salzman. However, each segment is complex in its own way and faces a distinct set of challenges. For example, families with children under the age of 12 are struggling with an obesity epidemic that will largely rule their shopping behavior for the foreseeable future. The ethnic diversity of the Hispanic population brings an entirely new level of complexity to any attempt in serving this market. And, we need to find new ways to bring value to lower-income households, which are the most under-served segment in retail today. This IRI report is intended to help CPG manufacturers and retailers take a closer look at these important consumers, so that they can see new opportunities and risks associated with serving these high-potential segments.
Households with children under the age of 12 will be one of the fastest growing U.S. population segments over the next decade as consumers within the enormous Echo Boomer generation grow their families. These households have demonstrated a preference for the broad product assortment and value that supercenters offer. Drug stores actually garner a lower share among these consumers versus the general population, signaling a channel growth potential for this segment.
Households with young children generally make fewer but larger shopping trips than the average household. In fact, these households spend 24% more per trip versus the average household. Any uptick in trips will result in a healthy jump in share of CPG spending.
The country's struggle with childhood obesity is impacting packaged goods like no trend has before, said IRI. Shoppers with young children are turning to better-for-you products within kid-driven categories, which are growing at more than 10 times the rate of mainstream products; however, some healthy snacks, such as nuts, seeds and corn nuts, are often overlooked by these households. Targeted marketing efforts touting the convenience and heart-healthy attributes of these snacks would likely drive purchases within this segment.
The Hispanic population currently represents 14% of the total U.S. population and is expected to increase 29% by 2015. While population growth is strong, growth in Hispanic wealth is even more phenomenal, IRI said. In terms of spending power, 2007 will mark the first year that Hispanics control more disposable income than any other U.S. minority group, according to the Selig Center for Economic Growth.
There is not one single Hispanic consumer segment. In general terms, though, Hispanic consumers prefer to shop at mass, dollar and club outlets, largely at the expense of grocery. These tendencies are probably driven in part by the group's higher sensitivity to price and value. But, value is not the only consideration. Store proximity is rated the No. 1 factor in store selection by a four-to-one margin over the No. 2 reason of price, since one in four Hispanics walks or takes public transportation for their shopping trips.
Since the Hispanic market has a high and growing representation among young families, it is a huge market for baby-related categories, such as baby formula and baby accessories. In addition, this important market has a strong affinity for beauty and personal care products. Hispanics index higher than average for such products as hair shampoo and conditioner, hair coloring and skin care items. For food categories, Hispanics have a strong preference for distinct product attributes, such as crunchy, spicy, cheesy and savory. These preferences show through in actual category selection behaviors. Several recent product introductions have answered the call for Hispanic-specific innovation, such as Gerber's Recetas Latinas line, Sunshine Cheez-It Fiesta and Oreo Dulce de Leche.
Finally, 53% of U.S. households earn $50,000 or less, and one-third of U.S. households earn less than $35,000 annually. Many U.S. households struggle to make ends meet, but to a large degree, the needs of these households are the same as those of wealthier households. They just have to meet those needs more frugally than the rest of the population.
Lower-income households spend less than their wealthier counterparts on packaged goods largely due to necessity. To date, the discounted value segment is recognized as under-penetrated and under-served. Retailers and manufacturers that fill this need stand to gain a competitive advantage in the battle for low-income household's CPG dollar. Value channelsparticularly supercenters and dollar storesplay a critical role in meeting the needs of lower-income consumers.
Even though lower-income consumers may spend less, they do make more frequent shopping trips. These frequent trips are mostly to value channels, not grocery and traditional mass stores. During the past several years, the dollar channel has stepped up food and beverage offerings in an attempt to build traffic and drive share of CPG spending. Grocers are also beginning to answer the call for increased value with the introduction of new, no-frills formats, such as SUPERVALU'S Sav-A-Lot and Food Lion's Bottom Dollar.
There are certain categories in which lower-income households actually outspend their wealthier counterparts. In addition to private-label products, adult incontinence and home health care kits are chief among these categories, which are consistent with lower-income households being more likely to be uninsured, and thus more likely to self-treat for common ailments. As both CPG manufacturers and retailers increasingly recognize the market potential and current market gaps within this segment, there will be an increase in new value product introductions and positioning in the marketplace.
For an in-depth view of the full Times & Trends report, click here.
Chicago-based IRI is a leading provider of enterprise market information solutions and services for the consumer packaged goods (CPG), retail and healthcare industries.
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