Monday, October 20, 2008

BRANDS, ECONOMY & CONSUMER BEHAVIOR

NOTE: This post is written from a Food Marketing angle.

BrandWeek has an interesting article about brands that do well during turbulent economic conditions. It is clear that some brands or segments do better. More meals at home means firms that are ingredient or raw material [Home cooking] oriented should see sales growth. Firms in food service will see shrinking margins and declining revenue as the total [food service] pie becomes smaller.

Assumption: Consumers pull back on dining expenses in an uncertain economy

Back to the article... Why Some Brands Cheer a Sour Economy

Likewise, Wal-Mart, which seemed to be losing brand power only a year ago, today is poised to reap the rewards of consumers who are looking to save some cash. In September, as same-store sales for Kohl's and Nordstrom fell 5.5% and 9.6%, respectively, Wal-Mart's rose 2.4%. Author and branding expert Rob Frankel thinks the retailer's gains will closely mirror the economy: "Wal-Mart is the brand that reminds people they are poor. Nobody shops at Wal-Mart because they want to; they shop there because they have to. The minute the economy recovers, Wal-Mart's sales will drop like a brick."

The snippet above [Ed. bold added] indicates that the writer believes Walmart is a brand for the poor and that people only shop there because they have to. Thirty years ago Walmart was a relatively small regional retailer. The US economy has grown tremendously in the last 30 years. People have continued to shop there during this time frame. Walmart had yearly revenue of $348 billion in 2007.

As people gain in affluence they increase spending at retailers that make them 'feel' like they are part of another demographic 'the Affluent'. Costco is an example of a firm that has done a tremendous job selling that feeling to Americans [some would suggest Starbucks as another, $4 coffee drinks].

Now that people are shopping Walmart more out of need, they are beginning to see what a tremendous value they present to consumers. Category best sellers at much lower prices than other retailers. When the economy picks up [in the next 12-18 months?] people will be hesitant to go back to their freewheeling spending. Walmart will retain most of these new shoppers. The more a shopper saves by shopping Walmart the more money that is left for other things.

Where these saved dollars may go...
  • Dining out
  • Debt reduction
  • College
  • Books
  • Internet
  • Computers
  • Travel
Questions:
  • What percent of new Walmart shoppers will defect when the broad economy recovers?
  • Are you cutting back on eating out?
  • Are you preparing more home meals?
  • How much do you budget, generally, for dining out, now vs. a year ago?


PS: This post was written before reading the comments on the site with the original story. There were ten comments at the time this was posted. Read them, you might find them insightful.

Ed: Walmart has changed the way their name is presented. Formatting of the Brand Week section was left as published.

1 comment:

Ann said...

That’s great..! I am a big fan of WalMart.