CHICAGO, Jan. 4, 2006 – As consumer packaged goods (CPG) retailers and manufacturers perpetually strive to predict and proactively respond to changes in consumer demand, a recent study by Information Resources, Inc. (IRI) recommends marketers take a look at the current and projected state of the U.S. economy to illuminate indicators of forthcoming trends. According to IRI, macroeconomic conditions provide an underlying current that significantly influences consumer purchase decisions.
The Times & Trends report, entitled “Macroeconomic Trends: Understanding and Predicting Consumer Spending Patterns,” provides an in-depth assessment of the link between U.S. economic health and consumer spending on CPG and healthcare. The study highlights opportunities for manufacturers and retailers to more accurately assess the success of a specific marketing or promotional initiative, identify the optimal timing of a new product introduction or advertising campaign, and enhance the accuracy of sales forecasts. According to the study, effective economic forecasting is a strong potential source of competitive advantage.
“CPG marketers will find it highly valuable to dissect the relationship between macroeconomic conditions and consumer spending trends within their products and stores,” suggests IRI Executive Vice President and Global Chief Marketing Officer Janet Eden-Harris. “This IRI study will help retailers and manufacturers see this relationship at the industry level and identify essential early warning economic indicators. Empowered with this information, they can act on these insights in their strategic and promotional plans and consequently win at the shelf by implementing the right marketing and merchandising initiatives at the right time.”
According to the study, as the U.S. Gross Domestic Product (GDP) goes, so goes spending within the CPG/healthcare sectors. When the United States’ total value of goods and services produced rises or falls, consumer spending also increases and dips respectively. The two trends are most aligned during major economic events (i.e. recessions), which illustrates the fact that spending on CPG and healthcare is not insulated from economic downturns and further highlights the study’s recommendation to incorporate total economy trends and forecasts into planning and forecasting for categories, brands and stores.
In terms of specific departments, data from the past decade reveals that non-food CPG products show signs of being more sensitive to relatively minor GDP adjustments, while spending on food items tends to primarily respond to significant swings in the GDP. More specifically, food at-home spending typically tends to be impacted sooner by economic downturns but with less dramatic swings than away-from-home food spending. The study suggests that higher income consumers fuel total away-from-home expenditures and feel the pinch of an economic downturn later than lower income consumers. The result is new growth opportunities for food manufacturers and retailers.
In order to discover the proper timing of product development and marketing and merchandising initiatives, the IRI study recommends that manufacturers and retailers study the unique relationship between general economic trends and their specific categories, brands and stores that vary according to the income mix of the consumer base, promotional sensitivity, price elasticity and brand equity.
Within the healthcare sector, spending tends to be less impacted by general economic trends. Data show that consumers will still spend their dollars on the “must have” items even during difficult economic times. Makers of prescription, over-the-counter (OTC) and other healthcare products should thus focus on major industry events, such as OTC switches, regulation and the implementation of Medicare Plan D, when developing their strategic marketing plans.
Interestingly, private label shares across U.S. supermarkets, drugstores and mass merchandise retailers, excluding Wal-Mart, declined shortly after the past two economic peaks, and then private label experienced a relatively sharp share increase once the economy dipped again. The study hypothesizes that once consumers become more comfortable with economic conditions, they tend to relax their once tight budgets and also advises brand manufacturers to take note of economic peaks and the following potential opportunities to capture market share.
The report concludes by outlining the projections of several respected GDP forecasters, who predict solid economic growth into 2006, but also warns that a review of current trends in real average hourly earnings suggests the potential for spending deceleration in spring 2006.
The complete report can be found in the Thought Leadership section of the IRI website at www.infores.com.
About the Report
Findings presented in “Times & Trends: Macroeconomic Trends: Understanding and Predicting Consumer Spending Patterns,” are based upon an extensive analysis of consumer data from the IRI Consumer Network™ Household Panel, scanner-based sales tracking data across food, drug and mass channels (excluding Wal-Mart) from IRI Infoscan® Reviews and government sources.
About Information Resources, Inc.
Information Resources, Inc. (IRI) is the world’s leading provider of enterprise market information solutions and services, empowering its clients to grow their business profitably in a complex marketplace. Driving the transformation of the consumer packaged goods (CPG), retail, and healthcare industries, only IRI provides a unique combination of real-time market content, advanced analytics, enterprise performance management software, and professional services. The company’s portfolio of services, solutions, and technology enable leading retailers and their suppliers around the globe to see what they are missing, act faster with greater confidence and win at the shelf. Ninety-five percent of the FORTUNE Global 500 in CPG and retail leverage IRI to power their business. For more information, visit www.infores.com.