What will be the last supermarket category affected by the sour economy?
Many supermarket executives and other observers say a very strong candidate is nonfood baby products. Even if low-income consumers are forced to cut back, more affluent customers will continue to spend, and indulgent grandparents are seen as impervious to all but the most severe downturns.
While some dollars may be lost as consumers trade down to private label in commodities, like baby wipes and powder, worries about safety in other areas, such as baby bottles and toys, are driving dollars to more expensive goods, as well as natural and organic products.
Because of concerns over plastics and other ingredient scares, “made in China” may well mark such items for sales oblivion, at least in the near-term future.
Recent months have brought multiple news reports about worrisome product ingredients, often linked to China. Wal-Mart Stores and Toys “R” Us have banned baby bottles, pacifiers and other containers made from bisphenol A, a chemical said to be toxic to infants, although this has been disputed by industry studies. Phthalates, widely used plasticizers found in many products, have come under scrutiny. Aqua Dots, a popular toy, was found to have the so-called “date rape drug” or GHB because of a substitution in a Chinese factory.
“If it says ‘made in China,’ it is hard to sell,” said Charles Yahn, vice president of sales, retail development and pharmacy, Associated Wholesalers Inc., Robesonia, Pa. Because of the various scares, “people are very conscious of safety. The two most important things when it comes to the child are safety and quality.”
A key trend in nonfood baby products for the year ahead will be items clearly marked “not made in China,” said Kat Fay, senior analyst, Mintel International Group, Chicago. This has already begun, she said. While consumers may not know what bisphenol A or phthalates are, “if you can say right on the front that nothing in this product came from China, that seems to be something people are looking for. That's going to have some shelf appeal,” she said. Fay likened this to “no trans fats” labels.
While Yahn hasn't seen “not made in China” labeling, more manufacturers are emphasizing “made in the U.S.A.” “If it's made in the States, they are definitely playing that up more than they used to, and for good reason,” he said.
Wherever the product may be manufactured, people are willing to pay more for peace of mind. “Parents are willing to spend more money if they think the item is safer for their kid,” said Doug Barnett, director of GM/HBC, Brookshire Brothers, Lufkin, Texas.
“Although they may not move up to a $12 sippy cup or pacifier, they're still going to pay a higher price if they think it is safer,” he said.
“When it comes to a baby, people are very careful,” said Al Jones, senior vice president, procurement and merchandising, Imperial Distributors, Auburn, Mass. “It makes a lot of sense for there to be some component of natural in a baby set because the new parents and grandparents are potentially more conscious of that kind of thing.”
While parents might have to cut back, “grandparents will spend for a new baby, and that's not going to stop because of the economy. Overall, I think the category is going to be very insulated from the economy,” Jones said.
“These grandparents are more than likely Baby Boomers,” said Mintel's Fay. “They're at the high end of the Baby Boomers and a group that has most of the disposable income. They're much more financially secure. There are no limits when it comes to the grandchild.”
Three product areas will be the last to see cutbacks by families because of the economy, noted Bill Mansfield, president and chief executive officer of VIP International, Garland, Texas, and a former nonfood executive. The first is the family pet, the second is the child and the third is anything to do with the woman's beauty products, he said.
“Those may be the last three groups that today are still governed by upscale, boutique, what's-new-type products. Pets are first, baby is second and mama is third,” he said.
The market research on the baby market shows a steady business that is not increasing very much, but one that is very strong. For example, every year since 2000, the number of live births in the U.S. has been consistently over 4 million, numbers only seen at the peak of the Baby Boom in the late 1950s and early '60s, according to the U.S. Centers for Disease Control and Prevention, National Center for Health Statistics, and reported in a study by Packaged Facts, Rockville, Md.
“It is a good, steady category,” Jones said. “It is not impacted a great deal by bad economic times, but you don't see big surges in the category either. It's a solid category for supermarkets.”
According to a recent Mintel report on “Baby Durables,” “The stagnant birthrate can be tied to the number of women participating in the labor force, resources available for children's education and the number of men and women of child-bearing age. Birthrates for women aged 30-34 and 40-44 are the highest in almost 40 years.” This means more money available to lavish on these babies, and as a result, “the children's luxury market is growing.”
These mothers have been referred to lately as “alpha moms,” Fay said. They are “an older, affluent group of moms who are established in their careers — most of them professional — and with more disposable income.”
But there are also many babies born to less affluent, ethnic families — often Hispanic or black, she said.
Regardless of income, Fay sees people continuing to buy as much as they ever did, but shifting more of their business from the supermarkets to the mass merchants. “Where baby is concerned, there will be no reduction in repertoire, but there will be a change in channel,” she said.
Some sales have apparently shifted from the food channel to drug and mass merchandisers in recent years, according to the Strategic Planner of the Nielsen Co., Schaumburg, Ill., although all three of Nielsen's statistical breakouts showed flat to slightly negative growth for the 52 weeks ending April 19. The “Total Baby Needs” category, including baby and nursing accessories, baby bottles and nipples, bath soap, ointments, powder, oils and lotions, was $1.3 billion for that period in food, drug and mass merchandiser stores, excluding Wal-Mart. The food channel was $215 million, and drug was $169 million.
“Growing families are very important to us and we continue to be committed to offering customers a wide variety of baby products, both in terms of food, where we're expanding our organic offerings, but also in terms of the household products they need for their babies,” said Meghan Glynn, spokeswoman at Kroger Co., Cincinnati.
Private Savings
While parents and grandparents may gravitate to brands, natural and organic, and higher-priced goods for many of their baby needs, private label is a way to save.
“If you are getting hit at the pump, and you are getting hit by gas prices, you're not likely to reduce the amount of nondurable [baby] purchases you are making, but there is the chance that you are going to trade down” to private label, said Fay at Mintel International Group.
“They don't want to cut back on the basic provisions for the baby, but in some cases, if you are talking about baby wipes or powder, that's something that doesn't necessarily have to be branded,” she said.
A reason for nonfood baby customers to embrace private label is because PL quality is getting better, noted Yahn of Associated Wholesalers.
“You are getting the quality that you expect out of a national brand. Everybody has upscaled their private label. If you don't have a good private label in that area, you won't sell it at all. It's not a strong private-label area, so you've got to be right,” he said.