Recession requires rethink as spending power shifts

The Lower Income II Report: Serving Budget-Constrained Shoppers in a Recessionary Environment​ urges manufacturers to question assumptions about lower earners, saying that the commonly held belief that they spend less and therefore represent less economic opportunity is wrong.

Combining its own panel data with a Census Bureau survey, the report projects an increase in the number of lower income households in the US from 45.6m in 2008, to 52m in a decade. In the same period, it predicts that spending on consumer packaged goods (CPG) for this group will increase from $87.6bn to $105.2bn.

“Lower income households CPG spending growth is outpacing higher income households and this group will generate over $84bn in spending growth over the next decade,” ​the report said.

Consumer dissatisfaction​

In addition, it outlines the areas which manufacturers need to address in order to appeal to lower income shoppers. Specifically, it says that consumers are dissatisfied with a narrow assortment of affordable products, a lack of product innovation and development, and ineffective marketing to lower income groups.

The report said that there is an opportunity for companies to differentiate themselves from their competitors by targeting this group, and urges companies to determine what share of their sales – and how much of their growth performance – is driven by lower income shoppers.

Segmented opportunity​

IRI asserts that one of the problems is that manufacturers tend to regard lower income households as one group, when it actually consists of several ‘micro-segments’. Those segments positioned to drive the greatest share of sales growth in the economic downturn include households with children, Hispanics, African-Americans, seniors over 65, and 25 to 34-year-olds, it said.

“Looking at food and beverages categories, private label shares vary considerably are across micro-segments – illustrating where retailers are doing particularly well in serving lower income shoppers – and where they have untapped opportunities.”​

For example, 36 percent of fresh bread and rolls bought by lower income households with children was private label, compared to 27 percent for over-65s.

Private label growth​

Private label growth has been in the spotlight recently, as consumers of all income levels are spending more time in the home and cutting back on more expensive branded products.

IRI’s data shows that there was negative growth in private label products throughout 2007, until the second and third quarters of 2008 when the trend was reversed, being led by those on lower incomes. The third quarter of 2008 saw positive growth for private labels across incomes of 7.6 percent – and 8.2 percent for the lowest earners.

The IRI report defined ‘lower income’ as households earning less than $35,000 per annum.