The death of conspicuous consumption. Simpler pleasures. Homier values. These are some of the proclamations media outlets made during the recession … back in 1991. “Consumer-behavior experts predicted that people would be more frugal in the 1990s, and consumers themselves said they planned to cut back on spending,” wrote James Surowiecki in an October 2009 article in The New Yorker. “It didn’t happen.”
Another 10 years after that recession, “the bursting of the Internet bubble and the impact of 9/11 led many to predict that Americans would consume less— and we all know how that panned out.”
And now, in 2010, research firms and publications are preparing commercial industries for a “new normal.” An April 2009 cover of Timemagazine called for a “New Frugality” (which was also the magazine’s 1991 “Attitude of the Year”), and the major networks continue ongoing reports on this new normal “with more belt-tightening, less income and, in many cases, a newfound gratitude for the most basic human comforts: family, home and health,” reads a recent ABC News report.
Of course, this recession hit consumers harder than those preceding downturns, and with hope we’ll learn from our economic shortsightedness. But not everyone believes that out of the ashes will rise a new movement of frugalistas and bottom feeders, nor does history support such an outcome.
Some, such as consumer research specialists The Hartman Group, suggest that as the recession subsides, we’ll surely slip back into our previous spending habits. What’s more, the dayto- day penny pinching we’ve adopted does little to help household savings. The effect, according to the group, is more emotional than economical.
EMOTIONAL ECONOMY
It was late 2008, and media outlets were beginning to proclaim this new frugality. So The Hartman Group did what it is best known for: questioning the obvious. The Seattle-based research firm, whose methodology is based on ethnography (data collection through observation), approaches consumer habits with the assumption that nothing is as it seems. When it came to the recession, the firm’s team of ethnographers questioned the way the media and many surveys were talking to consumers. “It really depends on how you phrase the question,” says vice president of strategy & innovation Jarrett Paschel, referring to the media and surveys prefacing questions with phrases such as “due to the recession, do you believe …” Paschel’s team wanted to remove the recession from the question and then find out what consumers expected from the year or two to come.
The Hartman research found that Americans were engaging in what they called the “theatrics of thrift.”
It seems Americans are rather schizophrenic when it comes to shopping: We consume at a higher rate than any other country, yet it’s seen as a sign of high moral character to be frugal. When the recession began, that coupon-clipping frugality kicked into high gear, along with cross-channel bargain hunting and other penny-pinching tactics.
But a paradox surfaced as the research went on: This penny-pinching at the store level resulted in zero net gain.
According to The Hartman Group’s consequential report, “The New Value Paradigm: Theatrics of Thrift,” approximately 7% of annual household expenditures goes toward groceries, and 5% toward dining out—really, a drop in the bucket compared to mortgage or rent, car payments and other big-ticket items. Further, the research found that one instance of thriftiness is often negated by another instance of splurging—for instance, a wife clipping coupons and her spouse buying an iPhone.
But socially, it’s the grocery-store savings that we remember, that we commiserate about with friends and neighbors, and that journalists then report us as doing, even though there is really no economic gain.
We do it because it makes us feel in control in an otherwise helpless economy. “We engage in the theatrics of thrift by increasing our traditional thrift-oriented shopping behaviors in certain patterned ways that serve as an antidote to the current collective anxiety,” concluded the study. “Simply engaging in these behaviors helps to alleviate stress in day-to-day lives—it makes people feel better and engenders a sense of control.”
SHOPPER SEGMENTATION
The Hartman Group also wanted to test the hypothesis that consumers are trading off, trading down and “otherwise demonstrating a newfound price-consciousness.” So it isolated the segment of the population that described themselves as “significantly challenged” by the recession: 24% of the sample.
What the company found was that price ranked sixth in importance among all respondents and third among those most severely affected by the recession. (It followed quality and consumption.) So it then isolated the subgroup that said price was “extremely important” and ranked price higher than all the other value attributes, and found that this “pricedominated value shopper” represents just 5% of the population. Further, there were no significant demographic differences (age, income, race and education), nor any relationship between price-oriented shoppers and the degree to which they were affected by the recession. Those shoppers may have been just as price-dominated before the recession as they are today.
“In short,” the study concludes, “we find no convincing evidence of a true price-dominated value shopper/ consumer.” More so, both the affected and unaffected agreed that “the thrill of finding a great deal” still dominates their shopping behavior, over pure price.
“What we are witnessing are some incremental short-term behavioral changes necessitated by economic conditions, but not a fundamental shift in orientations toward one’s value paradigm,” the study concluded.
So what happens in more bountiful times, when housing values and access to credit improve? “The vast majority of consumers we spoke with didn’t really need to be engaging in this behavior; they like to,” says Paschel. Nonetheless, he expects that coupon clipping will subside as the recession softens, “not because they are more flush, but because there is less anxiety.”
A HISTORICAL PERSPECTIVE
Paschel and the rest of the Hartman team aren’t alone in questioning the new frugality. Others, such as The New Yorker’s Surowiecki, look to past proclamations as a reality check. Yes, he points out in his October 2009 article, we’ve lost nearly 7 million jobs, wage growth has been anemic, and the housing crash and stock-market meltdown “erased, conservatively speaking, about $13 trillion in household wealth.”
But he reminds us of the incredibly simple “wealth effect”: People tend to spend more money when they get richer, and less when they get poorer.
It’s as simple as that. So, while this recession is the worst since the Great Depression, “the notion that the Depression turned Americans into tightwads is largely a myth.” According to Surowiecki, in the five years after World War II, purchases of household furnishings and appliances rose 240%, and the rate of homeownership rose nearly 50% between 1940 and 1960. More so, he says, today’s recession, painful as it is, is nothing like the Great Depression, which lasted 10 years with 25% unemployment.
With hope, Surowiecki continues, we will learn from our past and keep saving, “but the evidence for a radical shift in the way we consume seems more like the product of wishful thinking. ... Even after the worst recession of the past 70 years, retail sales this year will be about where they were in 2005. Does anyone really think that four years ago Americans were misers?”
Even the people at The Hartman Group trust history more than current consumers. “You’re only going to get so much from consumers—especially when you start talking about anything around money,” says Michelle Barry, Hartman’s senior vice president. “And to start to talk about what you think you’re going to do, or to try reflecting back on changes in really subtle ways ... it’s relying on sketchy memory and recall, or aspirations for the future. There’s only so much reading between the lines you can do.”
THE OTHER SIDE
Of course research is based greatly on each firm’s unique lens. The questions asked and methods used will generate different results, particularly when you’re using human beings as your source of information. And when it comes to the new normal, The Hartman Group appears to be in the minority.
SymphonyIRI Group, formerly Information Resources Inc., Chicago, came out with its own shopper-behavior study in October 2009, and it had a much harsher conclusion than The Hartman Group. Based on its findings, we can expect to be faced with a “new shopper mindset” in the months to come.
“We have taught the shopper how to shop on a deal and this will be extremely difficult to change moving forward,” said Thom Blischok, SymphonyIRI’s president of consulting and innovation, in the most recent “How’s Business” CSP CyberConference. Blischok predicted that consumption will be down 3% to 6% for the foreseeable future, and in some categories as much as 10%.
“If you think 2009 was tough, 2010 is going to be even tougher,” he said. “We’re going to see deal mania occurring. We’re going to see a tremendous amount of channel shifting as consumers look for the deal.”
Looking at the rest of the year, SymphonyIRI sees Americans today in a “trade-off period,” in which unemployment is still frightening and downtrading or full-fledged abstinence is still a reality. We’ll move into the “beginnings of shopper recovery,” and then “a new stability” as quarter four nears; from this stability, the “new conservative shopper” will be born.
“Be very clear: This new conservative shopper will in fact eat tremendously and consume tremendously less than they do today,” Blischok said.
SymphonyIRI’s findings define this new consumer as someone who will shop multiple stores to find the lowest prices, who “will think much more about what they’re going to buy before they buy it,” he said.
VALUE AND THRILL
The one word that trumps all catchphrases is value. How you define it at your operation will determine what type of shopper comes to your store.
According to The Hartman Group, today’s value equation still includes the traditional variables of price, quantity, convenience and quality, but consumers are now transitioning to a more purposeful and emotional perspective on value to include notions of utility and consumption: Is this item really necessary? Will I actually eat this? Will it last a long time? Will I get a lot of use out of it?
But the company realized something else about these value shoppers: fun trumps thrift. In a survey fielded in October 2009, 1,000 consumers responded the strongest to behaviors that connoted adventure and thrill seeking. The purely thrift behaviors ranked below thrill:
- Eighty-one percent somewhat or strongly agree that a good deal or coupon will lead them to stock up.
- Eighty percent somewhat or strongly agree that “the thrill of finding a great deal” drove their thrift behaviors.
- Seventy percent somewhat or strongly agree that they are avoiding recreational or unnecessary shopping trips.
- Sixty-seven percent somewhat or strongly agree that they have reduced overall spending. In the same study, The Hartman Group asked consumers what promotions gave them the “best feeling” (see sidebar, p. 80). A free product scored higher than manufacturers lowering prices and advertised sales prices combined. “It’s the shopper’s job to find good prices; it’s the retailer’s job to make them feel better,” the report concluded, reiterating the role emotions play in the pocketbook.
BUSINESS IMPLICATIONS
Businesses may beg to differ with the assertion that there is no new normal, particularly those in the foodservice industry. And it doesn’t really matter if the thriftiness is emotional or not; no sale is no sale.
But it’s all about perspective, says Paschel: “Five Guys Burgers and Fries just opened up here, and there are lines out the door. There’s something to be said that organizations that are doing good things are not suffering. … Part of me wonders if those companies that are having problems that the economy simply exacerbated underlying problems that were already there.” Barry adds, “We made that argument across all experiences, brands, products—whatever’s out there that’s really failing right now.
“The economy has impacted virtually every business to some degree,” she continues, “but the ones that are really, really hurting, there’s probably something not quite right about their offering, their brand, their staffing—there’s something not right about the model. When people have to start thinking harder about how they spend their money, they start making choices a little bit differently.”
MARCHING ORDERS
Emotional or economical, there is no magic cure for the collective consumer anxiety. But whichever way the verdict falls, both SymphonyIRI and The Hartman Group’s research reveals useful tactics for foodservice retailers to best reach today’s shopper.
SymphonyIRI foresees the regularity of shopping trips continuing to change. In 2009, the amount of “quick trips” increased by 5%, while “pantry stocking” declined by 2%. Blischok points to the number of big-box retailers moving into small-box formats as a reaction to this need for convenience, such as grocer Giant Eagle’s GetGo c-store. Creating a unique environment is vital, and that can manifest in the leather chairs and free Wi-Fi at Open Pantry Food Marts of Wisconsin, or in customizable food and beverages such as Rutter’s Farm Stores’ touch-screen menu system. The ability to customize a cup of coffee is a big point of differentiation for retail stores, and Blischok says the ability to make a sandwich or even soda “my way” is ideal for capturing millennials. The Hartman Group gives marching orders through a list of dos and don’ts:
Do: Become more than a commoditized source for products by engaging and connecting with the shopper. This occurs through your team. They should be passionate and “empowered with autonomy to express said passion.”
Don’t: Pursue an unusually aggressive pricing strategy. “Lacking any valueadd, such as engaging team members or promoting emotional connections, you will simply be encouraging a cohort of multichannel consumers [‘bottom feeders’] who will cherry-pick your lowest margin offerings before leaving for greener pastures.”
Do:Consider creative, not discountbased, promotional strategies. “The act of unilaterally giving away a featured product activates cultural norms of reciprocity, which literally compel the shopper to return the favor [by returning].”
Don’t: Remind shoppers of the recession. It only adds to their anxiety. Instead of “recession-buster specials,” reference nostalgia and promote comfort foods.
Do: Engage with consumers in a way that subtly communicates opportunities for value and thrill. California Pizza Kitchen created a scratch-off program in which customers can win anything from an appetizer to cash prizes; the catch is, you have to bring the coupon in on your next visit to be scratched by the waitperson.
Don’t: Institute across-the-board price cuts. These often go unnoticed and fail to generate buzz.
Do: Maintain an unwavering focus on product quality, and investigate how your customer understands your brand from a consumption perspective. This includes menu and product mix. Whether the sky is falling or not— and it’s not, says Paschel—“there is always room for innovation and success by those who can do things really well.”
Unusual Findings
Price ranks sixth in importance to a shopper’s value equation among all respondents, and third among those most severely affected by the recession, following quality and consumption.*
Eighty percent of American shoppers say “the thrill of finding a great deal” drives their thrift behaviors, more than purely price-based reasons.*
Approximately 7% of annual household expenditures goes toward groceries, and 5% toward dining out. Reducing grocery expenses by 30% would reduce household expenses by a mere 2%.*
The majority of respondents (30%) say a free product gives them the best feeling, followed by using a coupon, lowered prices or loyalty- card savings.*
The “price-dominated value shopper” represents just 5% of the population. There are no significant demographic differences between this segment and the rest of the population, nor any relationship between price-oriented shoppers and the degree to which they were affected by the recession. Those shoppers may have been just as price-dominated before the recession as they are today.*
In the five years after World War II, purchases of household furnishings and appliances rose 240%, and the rate of home ownership rose nearly 50% between 1940 and 1960.**
*Source: The Hartman Group
** Source: The New Yorker, October 2009
From the Front Lines
As research firms, analysts and media outlets continue their prognostications, operators are experiencing today’s shopper before their eyes. For them—theatrics or not—thrift still reigns.
Sam Odeh, president of Power Market, a three-store c-store chain with a strong foodservice program in the Chicago area, expects at least a decade before consumer spending returns to what it once was. Even his newest location in a wealthy suburb is experiencing the thrifty shopper. “The percentage in the past was 80% loyal shoppers and spenders, and I believe the tables will turn. It will be 80% thriftiness and 20% spenders and, yes, they will leave for that penny,” he says.
He is reacting by making all of his stores as flexible as possible so he can make a change to his product mix quickly. And in tune with The Hartman Group’s advice not to belabor the recession message, Odeh markets his value-driven deals as “smart choices.”
“None of us want to admit to this thriftiness,” he says. Kevin Miquelon, president of Pfoodman Group, a contract foodservice company that also runs the Lone Wolf Coffee shop outside of St. Louis, expects a combination of the new normal and a return to old ways. “When times are good, we get lazy. I think the recovery will be slow, so the habits will be slow to change,” he says. “Our business had record growth, but we worked hard and laid the plans prior to the downturn.”
During the last holiday season, Dan Leto, manager of catering and corporate executive chef of Kings Super Markets, Parsippany, N.J., watched his customers get creative with strapped time and strapped pocketbooks.
“Our catering department and prepared-foods categories have seen the average retail per basket go up while the item count is lower than months prior, which means that customers are buying upscale items, but less of them for the holidays,” Leto says. The supermarket chain’s Thanksgiving meal sold 100% more over last year.
The definition of value is prominent on the minds of all three operators. Leto is watching pricing trends from sandwich chains such as Subway and Quiznos and testing out more bundled meal options. “The average consumer doesn’t want to spend more than $10 on a purchased lunch that includes a drink, sandwich and side dish,” he says.
“What we aren’t doing is reducing ingredients or choosing lesserpriced items that would place our upscale image in jeopardy or reduce our value proposition to the customer,” Leto continues. “We want to give the customer more than they expect for a fair price.”
Odeh struggles with the strong consumer disloyalty that comes with this recession. “ ‘What have you done for me lately?’ will be the theme we will have to react to,” he says.
Miquelon concurs: “It really is the ultimate free market. You can’t hide from the customer; they make the final decisions in retail.”
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