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A declining market for branded consumer goods?

Tuesday, October 19, 2010
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According to The Economist the consumer goods multinationals like Procter & Gamble (P&G) and its archrival Unilever, had a grim time last year: profits plummeted. This year has been only slightly better. Economies are still ailing, and the cost of raw materials is climbing.  But there is something else happening. Basic consumer goods were long assumed to be more or less recession-proof. Shoppers may not be able to afford Dior dresses or Cartier watches, went the argument, but they still need loo paper and detergent. Yet people are finding ways to save money even on daily necessities.

The article argues that consumers are shopping less and with more purpose. Some people deliberately pick up a basket rather than collect a trolley in supermarkets, to prevent themselves from buying too much. Some buy smaller packets, which are cheaper, or huge ones, which are better value. Many make do without air fresheners, hair conditioner and other fripperies once deemed essential. Many scour the internet for special deals. According to a report by PwC, a consultancy, 93% of shoppers say they have changed their behaviour as a result of the economic downturn.

Many have traded down from name-brand to store-brand products. Alarmingly for, say, Kellogg’s or Heinz, many have discovered that Tesco’s cornflakes and Wal-Mart’s baked beans taste no worse. A survey of 2,500 American households by Consumer Edge Research found that supermarkets’ own labels have become increasingly popular, especially for staples such as milk, peanut butter, bottled water and cooking oil. Trading down is most common among households with an income of more than $100,000 a year. (Poorer people bought fewer posh brands in the first place.) Store-brand goods are especially popular in Spain, the Netherlands and Germany.

Consumers are also trading down from one name-brand to another: for example, from Lindt chocolates to Cadbury’s. Some 18% of packaged-goods buyers switched from a premium brand to a cheaper one during the recession, according to McKinsey, another consultancy. Most said they found that the pricier brand “was not worth the money”.

Terrified consumer-goods firms have cut costs and slashed prices. P&G launched a less expensive “basic” version of its Tide brand of washing powder, but then withdrew it because it was too popular. Many firms are pushing “three for the price of two” deals and the like. Some see opportunities amid the gloom. As people eat out less, Kraft Foods, an American firm, sells more Macaroni & Cheese and other ready-made meals. As hedonists cut back on spas and beauty salons, P&G sells more beauty products that can be applied at home.

Companies with a strong presence in emerging economies have the brightest prospects. Shoppers in China and Brazil are trading up to foreign brands, making up for some of the new stinginess in developed markets.




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