Retailers and manufacturers need to adapt: report

Posted by Daniel Palmer on 24th September 2009

Consumers are spending again in developed economies, but they’re buying less with the change in behaviour to impact dramatically on retailers, suppliers and brands within the grocery sector.

Playbook 2: The Sky Did Not Fall, a report published by The Store-WPP, saw a need for sweeping change by retailers and manufacturers.

“The new retailer will operate stores that are easy to navigate, respect the shopper’s time, and offer plenty of choice but less frivolity,” the report suggested. “Packaging will be minimized. And packages will be bundled according to quantities the consumer wants to buy, not the amount the manufacturer wants to sell. Products will be reliable, safe, and environmentally responsible.”

“Retail and manufacturer brands that understand and respond to these three phenomena can exit the recession recharged for success.”

The report pointed to changes at the world’s largest retailer, Walmart, as a sign of things to come. Their “Project Impact” initiative will see them reduce the size of stores, edit the assortment in every category and reduce aisle clutter in a bid to make the shopping experience easier.

“Retailers need to reconfigure their space” says David Roth, CEO The Store-WPP Europe, Middle East, Africa and Asia, “or else they will be left with large stadiums designed for a sport that customers no longer want to play”.

Walmart is also looking to add information on the environmental impact of all products they sell in the years ahead.

The WPP research explained that consumers are chastened – the world hasn’t collapsed and they are frequenting stores more regularly but without the rash buying of years past.

“Wallets are open, but only a crack,” Mr Roth said. “Consumers are purchasing primarily to fill basic needs. They’re tentative about the state of the economy and are ready to snap their wallets shut at the least provocation from negative economic news or a tone-deaf sales pitch.”

While this consumer anxiety will subside, the underlying retail trend is long-term, the report asserts. Consumers understand that, living in a world of finite global and personal resources, they need to make choices. The choice has changed significantly, from “What credit card should I use?” to “Which product should I buy?”

Even when the economy strengthens, this shift in consumer attitude and behaviour will not be easy to reverse because the economic realities shaping this new consumer are also shaping a new retailer.

WPP contends that the retailer mindset should be one of “price-plus” as discounters perform well.

“Discount is thriving… especially food discounting and apparel value players,” they noted. “But many of the mainstream food merchants, such as Tesco in the U.K., also are relatively strong because they fortified their brand proposition with a credible discount presence. In the U.S., chains that focus on the range of basic foods, such as Kroger, are performing better than the organizations known for premium foods and peripheral, higher margin categories.”Other key findings in the report included:

* New purchasing mentality: Consumers have learned that sometimes the cheaper brand is good enough. Unless they are convinced that a product is tangibly or emotionally better, they will select the less expensive alternative-either branded or own label and pocket the difference.
* Expanded presence of online: The decline in the product range found in stores will be accompanied by the coming of age of online and mobile retailing as more consumers click for product research, broader selection and the purchase reassurance found in online customer communities sharing product reviews and evaluations.
* Greater reliance on brand strength: The most important determinant of success is not the sector served but the strength of brand equity.
* Accelerated growth of new media: The fast-fragmenting media world offers new opportunities-and dangers-for brand promotion. Mass merchant customer databases and direct access to consumers positions mass merchants to become influential media owners at the expense of traditional players.

The full report can be found by clicking here.