A NEW consumer may well "polarize" the food retailing sector by dividing it into a low-end market and a premium market with no mid-market, according to a new report by Rabobank.
The "hybrid consumer" will have "significant implications" for food manufacturers and foodservice and retail companies, according to the report, which was put together by Rabobank's Food & Agribusiness Research group.
Consumers are becoming less interested in mid-market, mid-priced groceries and meals and are, instead, trading down for basic items while, using the money saved on basics, trading up for high-end, premium experiences such as fine dining or supermarket brands that have emotional and social relevance, Marc Kennis, a senior analyst with the research group, said.
As a consequence of this trend, the food sector will become "increasingly polarized" into a trade-down, value-for-the-money segment and a trade-up premium segment, with mid-market players struggling to hold onto their market share, Kennis said.
"We believe that hybrid consumers will be a long-lasting phenomenon," he said, and food processors, restaurants and retailers "will need to adapt or risk fading in relevance," he said.
The report identifies three critical forces that are creating the hybrid consumer:
1. Women's financial power and, therefore, influence over household spending has grown, with women generally being more objective than men in making grocery and restaurant meal decisions.
Additionally, millennials — born between the late 1970s/early 1980s and the early 2000s, which make up about 30% of the U.S. population — are more likely to make food buying decisions based on merit rather than brand loyalty.
2. The advent of discount retailers and improvement in private-label products have provided consumers with more options for trading down.
3. The 2008-09 recession accelerated market dualization to trade down for basics and up for premium experiences and products.
The growth of the hybrid consumer is reflected in the growth of retailers, Kennis said, with mid-market retailers experiencing slower growth than retailers at the extreme ends of the spectrum. He said similar trends exist in Western Europe.
The report suggests that "nimble" companies can meet hybrid consumers' needs by responding to their trade-down and trade-up characteristics. It suggests:
* Move into premium products that are more healthful, with more natural ingredients and/or are produced in socially responsible, sustainable ways.
* Offer "value products" in the premium segment and "premium products" in the value segment so hybrid consumers have something specific to look for when trading down or up.
* Use value products to sell premium products, attracting consumers to a restaurant or store with value-priced products and providing them with premium choices to go with the former, i.e., coffee to go plus premium sandwiches.
Rabobank, headquartered in the Netherlands, has nearly $1 trillion in assets and provides financial services in more than 40 countries. In North America, Rabobank is a premier lender to the agribusiness, food and beverage industries.