The Customer: Wine Appetites and Beer Wallets

The 2008 consumer, complex and roiling in its many needstates, has become a multi-headed hydra whose rituals and habits are being altered by external forces. It is, however, a creature predictable on at least one front: It always appreciates the convenience and value of the neighborhood c-store.

Pinched by rising costs of fuel, food and fundamentals, consumers have spent the first half of 2008 in cost-cutting mode, antithetically seeking out higher quality products at lower prices through more convenient venues.

Gas prices are dancing around $4 a gallon, and some households are devoting almost 19% of their budget to energy costs, according to David Nelson, economics professor at Western Washington University. Continued increases in the cost of energy and agricultural production will drive inflation further and ultimately set the stage for a prolonged recession.

But just as the economy is demanding more from the consumer’s budget, consumers are demanding more from retailers. Shoppers are trading down on products, combining shopping trips and errands, cutting coupons, eating out less frequently and reducing spending on the whole as they elbow their way into prudent purchasing.

 

Respond Accordingly

Todd Hale, senior vice president of consumer and shopper insights at Nielsen, said that a c-store’s success will depend greatly on how well the retailer shapes itself to the needs and characteristics of its local economy and demographics.

Lower income households, for instance, are 27% more likely to greatly reduce spending in this troubled economy, while higher income households are more likely to require less dramatic adjustments in spending. As household income impacts spending, operators should study their market and tailor in-store offerings accordingly, either through value pricing and couponing for less affluent regions, or health, wellness and organic products for more affluent areas.

Hale identified two segments of the population that are positioned for continued growth in the next decade: the aging population and ethnic populations.

Population gains from 2000 to 2020 for the age group 85 and older is expected to jump 70%, while gains in the 65- to 84-year-old bracket will jump 54%, according to Hale, increases that could drive the growth of functional and vitamin-enhanced products.

Among ethnic consumers, Asians and Hispanics are expected to see the biggest surges in population. From 2000 to 2020, both groups will see 68% growth. Mass marketing isn’t an approach that will work well with any of these groups, so retailers who use targeted marketing for distinct ethnic or demographic profiles will find their promotions far more effective.

While nearly every profile of consumer will scale back spending to some degree, convenience store are still positioned to retain strong growth and sales if they recognize and respond to margin-boosting categories.

In foodservice, for instance, a recent Technomic study revealed that consumers are abandoning the traditional foodservice channels, but convenience stores are poised for 5% growth in the foodservice category. This jives with c-store industry analysts who have long said that the consumer need for speed of life, product portability and affordability can drive this industry’s growth despite a fickle consumer psyche.

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