As the economy has gone through a period of transition so have consumer purchasing patterns. In some categories consumers have traded down to less expensive products and in others they have maintained or grown their purchases of premium products. Information Resources, Inc., the Chicago-based research firm, dubbed this trend "sophisticated splurging" in "The value/premium dichotomy," a report published this past June that identified how consumers are continuing to buy the premium brands they want but are doing so at value outlets such as dollar stores and supercenters.
Value retail channels have demonstrated "exceptional" growth at the premium end of the spectrum, benefitting from an everyday low price reputation, according to I.R.I. The expansion of premium products is not limited to national brands, either. Some retailers also are capitalizing on the growth of premium-priced products with the introduction of high end private label products, seeking to go beyond replicating national brands in an effort to maximize differentiation.
In response to changing consumer dining habits, many of today’s premium private label product introductions are aimed at bringing the restaurant experience into the home. For example, in September 2008 Supervalu, Inc., Minneapolis, introduced Culinary Circle, a line of 150 products priced 20% to 25% below casual restaurant food and 10% to 15% lower than other premium national brands. Target Corp., Minneapolis, also is participating in the trend with its Archer Farms high-end shelf-stable microwavable meals, which are available in a variety of flavors, and sell for $2.49 per box.
The I.R.I. report also identified how consumers are targeting their purchases of premium products. For example, consumer concerns about health and wellness have driven the growth of premium brands, according to I.R.I. While bottled water unit sales have decreased 3% over the past year, premium bottled water unit sales have increased 11%, driven by such products as Glaceau’s Vitaminwater, a brand owned by The Coca-Cola Co., Atlanta. In a similar vein, I.R.I. said yogurt sales were essentially flat during the year while premium yogurt sales grew by 34%.
To continue to be able to afford premium indulgences, consumers have reduced the number of times they eat out during the week, said Thom Blischok, president of consulting and innovation for I.R.I. He noted in the I.R.I. report that of the top 10 items where brand preference beats price as the most important decision influence, indulgent items such as chocolate candy, cookies and ice cream make the list.
Capitalizing on the premium indulgence trend are companies such as Mars Inc., which through its Mars Snackfood U.S. division recently introduced the Dove Silky Smooth Milk Chocolate with Peanut Butter bar and expanded its Seeds of Change portfolio of chocolate products with six new flavors.
But the market for premium, indulgent products is not without its pitfalls. The Hershey Co., Hershey, Pa., announced last month it was discontinuing its on-line gift business as well as its premium Cacao Reserve and Starbucks line of products.
"The few things that we have tried in premium, frankly, as you can tell from our announcement today, weren’t all that successful," David West, president and chief executive officer of The Hershey Co., said in a conference call with financial analysts on July 23. "We just didn’t get enough scale in our on-line Hershey’s gifts business to make it a profitable business. We’re still committed to on-line and reaching the consumer base that way, we just didn’t have the right business model.
"And the timing of the launch of the Starbucks proposition, frankly, we just missed the window. We were in the wrong window. Our partner obviously had some other business challenges and the consumer at that price point just wasn’t sustainable.
"We’re focused more on our Scharffen Berger and Dagoba brands as we go forward and we are preparing ourselves for when the consumer does go there. It’s all about differentiation."
Discussing I.R.I.’s conclusions in its report, Mr. Blischok said the current market situation is anything but established.
"The findings remind us that shoppers often act in unpredictable ways, and that the results of one action, such as dining out less, often has repercussions in other C.P.G. categories," he said.
This article can also be found in the digital edition of Food Business News, August 4, 2009, starting on Page 30. Click