THE INDULGENT consumer can be a boon for supermarkets — when she's not shopping at Costco or Whole Foods.
Indulgent shoppers are “the sweet spot for supermarkets,” said Jonathan Ziegler, an analyst with PUPS Investment Management Co., Santa Barbara, Calif., “because they buy items with higher rings and certainly higher margins. And they are likely to make ancillary purchases to go with the higher-end merchandise they've already picked out.” What is “indulgent” is all in the eye of the beholder, he added, “and it cuts across supermarket formats. Someone might indulge for a party or to fulfill his own whims. It's about buying something over and above the most basic item.
“Indulgence could also refer to someone switching to filet mignon from hot dogs every so often, or someone who buys high-end wine instead of ‘two-buck Chuck’ at Trader Joe's or someone buying flowers every couple of days.”
There are fewer indulgent shoppers patronizing stores of late because of the weak economy, Ziegler said. “When the economy was better, there were more indulgent shoppers because people felt better about spending.”
Supermarkets do devote some of their advertising dollars to these shoppers, he added. “They would be remiss if they didn't advertise to the indulgent customer by including higher-priced perishables in their ads, or flowers, or Scotch or upscale wines.”
Bill Bishop, principal at Willard Bishop, Barrington, Ill., described indulgent shoppers as “24-karat customers.”
Although they comprise only a small segment of the buying public — probably less than 10% — “they have to be identified carefully because they have the money and the ability to spend more than other shoppers,” he said.
“Frankly, it's a really important group for the upscale market segment and the mainline supermarket operator who wants to hold onto a good swatch of business rather than see it move to Whole Foods,” Bishop pointed out.
With Whole Foods' sales rising, “it would seem the indulgent shoppers are spending more of their money there, and spending it faster,” Bishop noted. “For that segment, spending is truly discretionary.”
But those indulgent shoppers can be retained by conventional operators to keep them from moving over to Whole Foods, Bishop said. “Only about 5% of shoppers do most of their spending at Whole Foods, which means 95% of shoppers only go in for something special. So mainline retailers don't need to spend a lot of money to get more business from the indulgent consumer.”
One researcher said these types of consumers actually spend less money than other groups in the supermarket, however.
“These are people who spend less than the average group in the supermarket — only about $5,700 per year,” said Mack Hoopes, lead investigator for the “Shopper Perspectives” study issued annually by Henkel Consumer Packaged Goods Co. North America, based in Phoenix, which calls this type of consumer the “carefree” customer.
That figure was up $300 last year compared with 2008, however — apparently the result of the carefree shopper eating out less and buying more food products from supermarkets to eat at home.
Indulgent shoppers tend to shop two times a week, and particular retailers attract this type of shoppers, such as Costco, Hoopes told SN. In fact, “carefree” shoppers account for approximately 50% of Costco's revenue, he said.
The people who can be characterized as indulgent or carefree are not the biggest earners, Hoopes pointed out. “About 6% of them make only $10,000 a year, so their attitude is not based on income,” he said.
“While the traditional wisdom says people with a lot of money spend more on indulgences, our data says money has nothing to do with it,” Hoopes explained. “They just buy what they want to buy.
“They don't have time to shop or read ads — for them it's all about a tradeoff between time vs. energy.”
In addition, these shoppers do not use coupons, Hoopes told SN.
“In fact, they won't be caught dead with coupons. And if they buy something on deal, it's by accident. They buy what they want when they want it.”
