A New Economy Calls for New Strategies: IRI

With every American feeling the impact of the country's economic battle and making substantial changes to their everyday lives and shopping habits to stay afloat, the consumer packaged goods (CPG) industry must stay on its collective toes and respond to continually changing rituals with a new level of deftness, according to the latest IRI Times & Trends report, "2008 CPG Year in Review: A Market Re-Defined by Budget-Strapped Consumers."

The report explores CPG industry performance during the past year and provides insights on what to expect in 2009.

IRI has studied this economic transformation since the beginning and has divided 2008 into two stages. Stage I, "Shocking the System," took place in Q1 '08-Q3 '08 and was characterized by an unprecedented rise in energy and food prices.

"Consumers reacted with sharp cutbacks to purchases overall and began a re-evaluation of what, why, where and when they buy food and center store items," said Thom Blischok, president of IRI's Consulting and Innovation. "Shoppers took a new look at old spending habits and started to make significant changes."

Stage II, which IRI named "A Refocus on Impact," began in Q4 '08. During the quarter, commodity prices moderated and energy prices plunged, but consumers continued to cut back. Surprised and concerned by the severity of price increases and the credit crunch earlier in the year, shoppers declined to reopen their wallets as prices moderated.

January 2009 began Stage III, "The Lasting Reality." With the continuing rise in unemployment, ongoing weakness in the banking system and credit structure, and a belief that energy prices will increase again in the near future, consumers remain extremely skeptical. Among consumers earning more than $100,000, there are few signs that shoppers are backing away from their most extreme cost-cutting behaviors, but among all other income groups, wallets remains closed.

"Recessions expose the health of CPG manufacturers and retailers," continued Blischok. "Innovative companies thrive, while weaker companies struggle and fail. To be a success in this recessionary environment, you must anticipate and respond to change before it happens. This is instrumental in establishing long-term shopper loyalty even after the economy gets back on track."

IRI recommends that retailers and manufacturers take the following action steps to improve market share, shopper loyalty and financial position in today's economy:

Planning: Shoppers are making most decisions before they enter the store. Manufacturers and retailers should shift merchandising and promotion strategies into people's homes via traditional media and online social media.

Purpose: Consumers have changed their rituals and are cooking more at home with fresh ingredients, and are bringing snacks and lunches from home to work. Manufacturers should make fresh ingredients more available and rewire their snack strategy. Retailers must make it easy for shoppers to find these ingredients and supporting products in their stores.

Price: Shoppers demand good prices and quality in what they buy. Manufacturers and retailers should redouble their collaboration strategies to offer consumers the best value possible.

Product: Shoppers are buying familiar products, so new product experimentation is at an all-time low. Manufacturers should consider an enhanced brand-extension strategy. Retailers can increase shelf space of existing brands at the expense of new products.

Promotion: Shopper direct marketing has arrived and will become a strategic differentiator. Manufacturers and retailers should develop new media strategies that will ensure consumers' maximum exposure to marketing messages.

Place: Shoppers are looking for the best deals wherever they can find them. Loyalty to a channel/banner is only as good as "What have you done for me lately?" Manufacturers and retailers must review and update the value proposition of products and stores.

Permanence: Shoppers are deeply worried about the future, and many changes they are currently making will last. Manufacturers must update their management structure in a way that facilitates an ongoing ability to offer new shopping experiences that address evolving consumer needs.

For more information or to download the report, visit http://us.infores.com/page/news/times_and_trends.
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