Viewing the value trend as the new normal

by Keith Nunes
Share This:

As economic recession took hold in 2008, consumer purchasing patterns shifted toward value-oriented propositions. Even as economic growth has resumed, albeit at a slower than desirable rate, the consumers’ focus on value, particularly in the food and beverage sector, remains firmly in place. Economic pessimism may be one reason for this stubbornness, but the growth of private label brands, the emerging strength of dollar stores as a vibrant retail category and the continuing success of quick-service food chains such as Chipotle, Panera Bread and Panda Express, also are credited with driving consumer value expectations.

Most recently, the McDonald’s Corp. said it is readjusting its focus in North America back to its dollar menu offerings. As U.S. economic recovery became more apparent the past few years, the fast-food company shifted its emphasis away from promoting value and toward promotion of premium items. But following weaker-than-expected North American performance during the recent third quarter, McDonald’s said it is going back to emphasizing value.

“During challenging and uncertain economic times, it is vital that we provide this value to our customers in uniquely McDonald’s ways to maintain and grow market share over the long term,” said Pete Bensen, chief financial officer for McDonald’s Corp., when discussing the company’s third-quarter results on Oct. 19.

Private label brands in the United States are forecast to expand their share of the market from 20% today to 25% to 30% in the next decade, according to the market research unit of Rabobank. That growth would put the United States on par with Europe in terms of market penetration and translates to nearly one in every three food product purchases in the United States being a store brand.

The Rabobank report highlights several reasons why market penetration of private label brands will gain, most notably through investment, a focus on value, and the changing dynamics of the retail sector. The latter is being impacted by mass merchandisers like Wal-Mart and Target as well as hard discounters like the dollar stores.

The impact of big box stores such as Wal-Mart and Target is well documented, but dollar stores, the newest of the retail food marketers, have enjoyed an upward trend in penetration for several years. Two out of three Americans shopped this channel during the past year, according to the SymphonyIRI research group. Increasingly, dollar stores are going head-to-head with other retail channels for share of routine shopping trips.

The accelerated evolution of the dollar category is leading to the development of more sophisticated store formats. The Family Dollar chain, for example, is adding cooler space to more than 1,000 locations in 2012, and another chain, Dollar Tree, is adding to its food and beverage assortment.

Efforts like these contribute to dollar channel retailers drawing in shoppers from other retail channels. The most impactful shift is the transition of heavy drug channel shoppers — the top one-third of spenders within the channel — into the dollar channel, according to SymphonyIRI. The research company added this should not be a huge surprise as the two channels carry many of the same consumer packaged goods categories and both are well positioned, geographically, for easy-access, fill-in shopping trips.

While the recession may be to blame for the initial focus of consumers on value, during the past four years it is increased competition from a variety of emerging retail models that is reinforcing consumer expectations that price demands will be met. The challenge facing food and beverage manufacturers is how to differentiate their products in this business environment and eventually how to redefine consumers’ perceptions of value. Price is only one component of this equation and innovation definitely offers opportunities to bring about change in consumer ideas of what to look for in shopping.

Comment on this Article
We welcome your thoughtful comments. Please comply with our Community rules.

The views expressed in the comments section of Food Business News do not reflect those of Food Business News or its parent company, Sosland Publishing Co., Kansas City, Mo. Concern regarding a specific comment may be registered with the Editor by clicking the Report Abuse link.