Food retailers have an opportunity to trade up consumers to slightly higher-priced premium merchandise, a new SN survey indicates.
The Fairchild Branding Survey, conducted by the NPD Group, Port Washington,
N.Y., exclusively for Fairchild Publications, SN's parent company and a division of CondT Nast Publications, showed a willingness across a broad spectrum of food shoppers regardless of gender, age and income to spend "a little more" for premium brands.
Consumers were asked if they were willing to pay "a lot more," "a little more" or "no more" for premium brands. Of the 1,600 consumers who responded to the survey, 55% said they would "pay a little more" for premium food brands. While consumers aspired toward those items, only 6% of respondents said they would pay "a lot extra" for premium brands. On the opposite end of the spectrum, nearly 38% of shoppers said they would "not pay more" for premium items.
Harry Balzer, vice president, NPD Group, pointed out that consumers' willingness to be upsold on better goods speaks to the success of Whole Foods Market, and also to where Wal-Mart Stores is headed with its upscale assortment in its new Plano, Texas, test store that debuted last month.
"I don't think Wal-Mart plans on bringing in upscale consumers. I think they plan on taking their
consumers and making them upscale," Balzer said. It's about affordable luxuries, he said. "This is where everybody wants to be, and it doesn't matter what income level you are. You always want to say price is not the issue but quality is."
Target's success in selling cheap chic is the best example of this strategy. It remains to be seen if Wal-Mart can follow suit with its new emphasis on better-quality merchandise.
The same strategy is being implemented by fast-food chain McDonald's with its premium salads sold with Newman's Own salad dressings, which Balzer said were the most expensive items on the menu. However, they are $3-$4 cheaper than what one might pay at Applebee's, he noted.
McDonald's has also taken a cue from Starbucks, known for seducing consumers with its small-indulgent, premium-priced brews, by introducing premium roast coffee - Newman's Own Organics Blend, supplied by Green Mountain Coffee Roasters. Not only is McDonald's trying to appeal to the premium-coffee drinker, but as a certified Fair Trade product,
consumers can feel good about drinking coffee produced by farmers who are guaranteed a basic minimum wage and who are encouraged to practice organic and sustainable cultivation.
Don't be surprised if McDonald's starts offering sushi, Balzer said. It's part of the principle that all things flow down to mass market. The challenge for food retailers and brand marketers, Balzer said, is how to bring affordable luxuries down-market to the masses.
The study was conducted across seven industry sectors: food, apparel, cosmetics/skin care, electronics, footwear, furniture and housewares. The survey examined various brand attributes that may drive consumer purchases. It looked at the impact of brand loyalty, advertising, brand saturation, premium brands and other specific attributes such as celebrity endorsement. Responses were calculated by gender, age, income levels and geographic regions. The study found consumer perceptions on brand attributes often differ when measured against gender, age and income.
For example, in assessing what matters most to food shoppers as far as price, quality and value, price was first among women and men. About a third of respondents said price had the greatest impact on their overall purchase decisions.
"I've always loved that price is always the top of everything because I don't think anybody believes it. Everybody thinks we are going to value-add, higher quality. Price always comes out No. 1," Balzer said, who noted that it is also no surprise that Wal-Mart is No. 1 in grocery because of its low-price position.
Close behind price in the survey results were quality (28%) and value (23%). Convenience, an attribute known to draw shoppers to traditional supermarkets, was ranked fourth (11%), and brand was ranked last with just 5% of respondents saying it had the greatest impact on purchase decisions.
Across the industry sectors, there were variations by gender as to the importance placed on various attributes. For example, in apparel, men are more brand-conscious and less price-sensitive. In skin care, quality is twice as important to women than even price.
Income Matters
When looking at those food shoppers with high incomes - $60,000 per year and above - quality was by far the most important attribute, followed by value. The attribute shifts to price with younger food consumers, ages 18-29, who also have lower incomes. As individuals age, the priorities change and consumers are willing to spend more for better products, the survey indicated.
"As you might expect, we see higher concerns about quality as income rises and less concern about the price of a product. This talks about some of the new retail environments showing up that are knocking on the doors of higher-income consumers," Balzer said.
But Balzer noted that quality and value are very subjective attributes. "Price is easy. There is immediate feedback. The moment you spend less money you know you spend less money. Quality, you aren't quite sure."
Even though brand recognition scored low on the survey as an in-store driver compared to price, quality and value within the food channel, the study found brand loyalty is important to food shoppers. Other industry segments such as furniture and housewares scored very low on brand loyalty when consumers were asked if they described themselves as being loyal to a favorite brand. The food sector scored the highest with over a third of consumers (36%) saying they are loyal to favorite brands.
Asked if shoppers look for specific brands when they shop, food drew the highest score compared to the other six industry sectors with 86.5% of consumers saying they either always or sometimes look for specific brands. Looking for specific brands was not a driver for furniture and housewares.
"The power of developing brands within a supermarket is much more important than developing brands in other sectors," Balzer said. "I am not sure we've realized the importance of brands and the value of advertising and supporting brands in the food store as opposed to other industries."
The food sector scored relatively high on brand loyalty with females. They were about 10% more loyal than males. Yet, most loyal were females to the skin care category.
Ad Power
Overall, the leading advertising vehicle that influences purchase decisions is very industry-specific. In the food category, the primary form of advertising that influences consumer purchasing was newspapers for 62% of the respondents. Television advertising came in a distant second, with a third of consumers saying that it influenced their purchasing, and magazines ranked third at 11%.
What surprised Balzer about responses to the media mix of advertising in the food sector was the low score the Internet received from food shoppers. This was not the case for electronics, which placed the Internet as second between TV and newspapers, with 32% of consumers saying it influenced their decision.
"As an emerging information source, the Internet hasn't moved into the food industry as an advertising tool. Newspapers and television still dominate," he said.
Balzer noted the impact of life stage changes on the media mix as consumers age and find more leisure time. One of the easiest leisure time activities is reading, he said. "As baby boomers move into this stage, and there will be more of them, what will be their choice of reading? Everybody has been thinking it should be electronic, but I am not sure that will be the case. As consumers get older, newspapers become more important as an advertising tool," Balzer explained.
Statistics from TSN Media Intelligence show that television tops the media mix in dollar volume for confectionery and snacks, prepared foods, and dairy, produce, meat and bakery goods. Spending on network, cable, syndicated and spot television totaled $2.2 billion last year for these categories, a 0.6% increase over the previous year. Media spending on total magazines, not including Sunday, local and B2B magazines, for the same categories rose 10% to just over $1 billion last year. Advertising spent on the Internet rose 45% to $58.7 million. Total
newspaper spending, including national newspapers, rose 8.6% to $32.6 million.
Private Label, Celebrity Endorsements
When it comes to private label, consumer awareness is very high in the food sector. Just over 80% of consumers said they were aware of private label in food. This was behind apparel, which was recognized by 86.1% of consumers surveyed. It was no surprise that women are aware of private brands and designers in skin care, furniture and housewares.
When it comes to celebrity endorsements, such as Fabio and I Can't Believe It's Not Butter, the food sector falls in the middle. Forty-four percent of consumers said they were aware of celebrity endorsements. Cosmetics, skin care, apparel and footwear pulled in two-thirds or more in consumer awareness for celebrity endorsements.
Apparel and food seem to have the greatest level of awareness of celebrity ownership - Newman's Own, for example. About 40% of apparel consumers and nearly 30% of food consumers said they were aware of celebrity ownership.
Combining celebrity endorsement/ownership awareness among food shoppers fell in the middle compared to other industry sectors.
Once a product reaches a high level of popularity and is sold in multiple outlets, it doesn't appear to have much of an impact on overall purchase behavior for food shoppers. However, age and gender does seem to be a factor depending upon industry sector. Those consumers aged 18-29 are twice as likely to buy based on popularity, but not so in food and furniture. Over 50% of women are more likely to buy popular items but not so in electronics.
Consumer expectations are high that quality will be maintained for food brands or even increase. Of those respondents purchasing food, nearly a quarter said they expected quality to improve in the future, and 56% said they expected quality to stay the same. Just 7% said they expect the quality will decline. This reinforces the notion that consumers expect the best, and while price may drive the sale, they still expect good quality in their purchases.
Premium Trade Up
Retailers and manufacturers have some room to trade shoppers up to better products with over half of shoppers saying they are willing to pay a "little more" for premium items.
Percentage of consumers willing to pay for premium brands
Willing to pay a little more 55.3%
Not willing to pay more 37.9
Willing to pay a lot more 5.8
Methodology
The NPD Group-Fairchild Branding Survey was conducted in October 2005 by the NPD Group. The survey was conducted among a representative sample of 2,500 men and women who are members of the NPD consumer panel. There were 1,664 consumers who responded. The survey polled adults 18 and over on what brand attributes influence them the most in their purchase decisions. Consumers were polled across seven industry sectors from food to electronics. For more about NPD, go to www.npd.com.
Media Mix
According to NPD survey results, newspapers remain an effective ad vehicle in reaching food shoppers. It appears the Internet, which is growing in media expenditures, can be better utilized in food retailing.
Ad expenditures in confectionery/snacks, prepared foods, dairy, produce, meat and bakery.
2005; 2004; % Increase
Television*: $2.2 billion; $2.1 billion; 0.6%
Magazines**: $1 billion; $917 million; 10.0%
Internet: $58.7 million; $40.3 million; 45.0%
Newspapers: $26.2 million; $21.2 million; 23.5%
*Television includes network, cable, syndication and spot TV.
**Does not include Sunday, local and B2B magazines.
Source: TNS Media Intelligence
Brand Loyalty Power
Food displays the biggest loyalty factor among the seven industry sectors with 35.5% of consumers saying they are loyal to favorite food brands. However, when they get into the store, price, quality and value become bigger drivers.
Percentage of consumers who describe themselves as loyal to favorite brands
Food 35.5%
Cosmetics/skin care 34.3
Footwear28.8
Electronics 24.5
Apparel22.8
Furniture7.5
Housewares 7.0
Internet Influence
In the food sector, the Internet appears to be underutilized as an advertising tool compared to other sectors. Consumers ages 30-44 are most likely to say they're influenced by Internet advertising. Higher-income individuals also report the Internet as an influencer.
Percentage of consumers who say the Internet has an influence on food purchases (by age)
18-29 4.4%
30-44 6.3
45-54 3.9
55 and over 3.0
Price/Quality Trade-Off
As consumer incomes rise, they are more likely to spend more for better products. The same holds true for age. Younger shoppers place more weight on price than quality, but as individuals age, the priorities shift to spending more for better products.
