Consumer food retail preferences “driven to extremes”: health, price, convenience dictate choices

Posted by Daniel Palmer on 1st September 2008

A new Rabobank ‘Food Retail’ report finds consumer preferences for healthy, gourmet or convenient foods are being driven to extremes. Increased food prices could, however, heighten consumers’ price sensitivity.

“In spite of the economic decline, many consumers continue to be driven by factors beyond price, which has created a ‘barbelling’ trend,” said Rabobank Analyst Stephen Rannekleiv. “This means consumers are gravitating toward one extreme or the other – whether it’s a healthy lifestyle, convenience, price or something else.”

Mr Rannekleiv warns that food retailers must look beyond traditional differentiation strategies to succeed in today’s economy. As such, the report examines three key elements for effective positioning: customer and competition knowledge; ability to communicate a value message; and cost controls.

Customer and competition knowledge

Consumers continue to maintain various priorities like health, gourmet, convenience, or price when it comes to purchasing food. As some consumers now focus on one of these priorities to an extreme, almost abandoning the others completely, retailers will find a combination of healthy lifestyle offerings with other differentiators, such as price and convenience, could be a key element behind success.

Communicating a value message

“In the current economic context, value is increasingly important to consumers, but it is ill-defined and subjective,” Mr Rannekleiv said.

The Rabobank report suggests that retailers balance their response to current consumer priorities without jeopardising the long-term value of their brands’ identity. Retailers should consequently focus resources on those that respond to consumer demand, rather than repositioning the image of a brand to respond to cyclical conditions.

“Reducing prices and offering specials only serves to compromise margins unless consumers perceive the value clearly enough to drive increased traffic,” Mr Rannekleiv advised.

Cost Controls

Budgeting is as important as ever, with businesses needing to manage costs more effectively to ensure their margins are not squeezed too tightly in the wake of a potential price battle. “While smaller retailers have faced cost disadvantages for some time relative to their larger competitors, the ongoing challenges in the economy can be expected to create greater price competition,” Mr Rannekleiv added. “This will further squeeze margins and create an increasingly challenging environment for smaller chains, and will likely lead to further consolidation.”