Why low income shoppers are a future opportunity

Why low income shoppers are a future opportunity

In the US, low income households are outpacing their high income counterparts in consumer packaged goods (CPG) spending, according to the latest research from Information Resources Inc (IRI).

In fact, the low income group will spend some US$85.3 billion on CPG in 2007 and will generate an additional US$84 billion in incremental CPG growth during the next decade, the study reports.

Lowering the target To capitalise on this opportunity, IRI suggests that retailers and manufacturers need to more thoroughly understand and anticipate the needs of this highly-fragmented segment of households and categories, and not be tempted to consolidate them into one group.

The study, entitled 'The Lower Income Shopper Report', identified five key lower-income micro-segments that are expected to be responsible for many forthcoming growth opportunities, and uncovered significant variations in shopping frequency and spending levels as well as channel and category-level dynamics.

Future retail growth According to IRI's strategic consulting president, Thom Blischok, "Lower-income households are already providing real growth for progressive retailers, such as Save-A lot, Aldi, and Dollar General. This will also be the sweet spot for Tesco's new retail format that is entering North America this year."

Almost 40% of American consumers are considered "lower income", representing one of the most underserved shopper segments in the US, the report explains. But when this group is broken down and analysed in terms of the wants and needs of different shopper segments, products can be more effectively targeted with the right timing, pricing, and even shelf locations.

Ways to differentiate Both retailers and manufacturers have traditionally treated this group as a single entity by focusing exclusively on price as the main factor for differentiation, and investing little in product and packaging innovation based on lower income consumer needs.

But IRI suggests that these consumers have needs that are different in many ways. For example:

• A need for smaller packaging;
• A need for shorter buying cycles;
• Improving variety and selection;
• Convenient store locations and formats;
• Products that help time-pressed lifestyles;
• Products that support healthy lifestyles and address obesity;
• A better variety of ethnic products.

"The upside is huge for retailers that make smart investments in private label assortment, innovation, packaging and value merchandising focused on these shoppers' unique needs and preferences," adds Seitzinger. "This is a weak spot for retailers because store brands are clearly not meeting their needs across all categories. Progressive retailers can drive private label growth if they focus on building stronger relationships with lower-income shoppers by improving variety and packaging."

Micro-segments IRI studied the five lower-income micro segments, all of which are positioned to drive a large share of sales growth for retailers and manufacturers:

1. Singles and married couples, aged 25-34;
2. Seniors, aged 65 and over;
3. Households with children;
4. Hispanics;
5. African Americans

For each micro segment, the report provides 4-year trends of key performance indicators (KPIs), including category development, sales growth and household penetration across 60 food, beverage and non-food categories. It also suggests which categories will be best positioned for growth, which are most vulnerable, and how retailers and manufacturers can respond to those conditions.

Four steps to improvement Retailers can make the most out of their own unique opportunities by working within a four-step process suggested by the report:

1. Value the size of the business opportunity and investment implications;  
2. Use lower income household segmentation as a means to differentiate from competitors;  
3. Understand lower income spending nuances and proactively adjust store offerings;  
4. Validate the steps required and execute them decisively.

Manufacturers can also win a larger share of spending across lower income segments by sharpening their focus on these groups, and by better understanding current emerging trends and future implications for their categories and brands.

More Info: 

http://us.infores.com