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01.31.2003

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Entering the Soul Age.

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Trends To Watch In 2003

With 2003 well on its way, we still see many of the influencers of the past year. Though 9/11's impact sits farther back in our minds, the fundamental shift that followed in the days, weeks and months after the attacks still reside, exemplified by a deepening of values and a desire for simplicity.

Click here to review Trends for 2002.

As this shift in consumer behavior continues, here are a few other trends we see shaping up in 2003:

The Price is Right.
Continuing Price Elasticity in Niche-Market Spaces. After traveling around the country for the past year talking to consumers of all persuasions, our most consistent, powerful finding is that fiscal instability is not leading to heightened price sensitivities in the specialty retail sector. To be certain, while some consumers may have less money to spend all around, said cash flow shortcomings do not appear to be significantly altering retail shopping behavior for those retailers offering added value via experience and community. In short, consumers are frequenting high-margin, niche-market, specialty retailers in the same proportions as before the perceived economic slowdown.

The Battle for the Lowest Price. We will see this initially in terms of an increase in price wars between conventional retailers that will eventually lead to the expansion of Wal-Mart and dollar stores at the expense of everyone else trying to compete on price. We've already seen this happen with the mass discount stores and have seen the beginnings of this with grocery stores. Expect to see the process continue in grocery. At the same time, expect to see a counter-trend develop in which everything but price is manipulated, as retailers attempt to carve out a space that differentiates themselves from Wal-Mart. This will lead to some innovative successes and some creative failures, but the end result will be a widening gap between the (relatively) pricey retailers valued by consumers and the rock-bottom price retailers that consumers currently love. The middle ground will continue to give way to these two extremes (much like the income distribution). Specifically, all this will take the form of:

Intensification of the price wars
Extension of these price wars from mass discount and grocery to other channels
Further differentiation of retailers unable or unwilling to compete solely on price with the consequent increase in prices for their wares
Disappearance of many mid-priced goods and services and the retailers that concentrate on them, to be replaced with higher priced private label brands at one end and inexpensive commoditized brands at the other.

Keeping it Local. Keeping it Real.
The Local Store. Retail grocery stores found 2002 the year to get local. In this past year, we've seen stores like Albertson's make significant shifts in how they do business at the local store. Currently large chains are learning that they need to cater to the local market; therefore, more stores are offering products as well as store formats to meet the local needs.

The Local Connection. More consumers will flock to farmers' markets or local produce stands. Buying local in 2003 will become as important as products like organic in that the significance of "local" is that it represents similar values to where your customers live, work and play. Buying local gives them the direct link to extend and expand into their own community, empowering them and giving them the sense of belonging. It also reverberates the experiential nature of the community with the immediate and impactful realization that they're involved. Finally, it reinforces the idea that the grocery store is "their store" -- their own personal space -- where they can participate and join in their neighborhood environment, where they, in turn, leave their own thumbprint. This relationship is realized not just in the layout and space of the physical store, but the products and services themselves become an experience of their own local community.

Organic Going Mainstream...Still.
The Transformation of Organic from Specialty to Ordinary. Many people are talking about the mainstreaming of organics, but there's more afoot. We're convinced that "organic" will become so commonplace that consumers will no longer pay much attention to it as an important product attribute. Just as we have seen "no preservatives" and "nothing artificial" go from a handful of products to practically everything, we'll see organic ingredients added to nearly every processed food. The only thing that will prevent organic from becoming the price of admission is, well, the price of admission. Organics will be cheaper, but they will never be as cheap as non-organics for obvious reasons. Because availability and cost will always be an issue, not every manufacturer will be able to incorporate them and not all consumers will be able to afford them. The demystification of organics in processed foods, however, will not necessarily extend to unprocessed foods, such as produce and meats. These will continue to command price premiums and to differentiate themselves from their alternatives in terms of higher quality/health perceptions, despite numerous studies and official pronouncements to the effect that organic does not imply higher quality/health products.

As organic brands are beginning to strengthen in the food world with consumers already looking to various leading brands in the organic milk, yogurt, frozen food, and beverages, for example, conventional retailers will capitalize on this decade-long organic growth trend and roll out private label organic lines to increase both their category offering and share of organic sales. Established store brands that develop organic lines can emerge as new competition for branded lines, bringing new users to the category, particularly if they are able to keep the cost to the consumer down.

Wellness-izing the World.
Wellness-izing of Convenience Stores. Convenience stores are and will continue to offer more healthy alternatives to the fatty lunches and fast breakfast meals consumed by millions of on the go workers. Seven-eleven, for instance, is now beginning to offer fresh lunches in the 5 dollar range in an effort to frame itself as a healthy and even quasi-gourmet destination. This move illustrates a trend in the channel toward health and wellness which will continue as long as Americans are proactive about their health. The wellness-izing of the convenience channel is an especially interesting trend in that it illustrates the fact that even within an industry which has become omnipresent in lunch decisions by selling high fat low nutrition meals, health and wellness are taking hold among managers and at the shelf.

Wellness-izing of the Fast Food Industry. As consumers, researchers and now litigators continue to communicate the woes of obesity, fast food restaurants will be offering more healthy alternatives. McDonalds, for instance, positioned in the middle of the "burger wars," has acquired small chains that offer inexpensive, fast and convenient meals in an apparent effort to test viability in the wellness market. While McDonalds and others are hesitant to move away from the core business -- fast and fattening meals -- the acquisitions and menu changes speak to industry willingness to at least attempt to offer choices that are appealing to the millions of Americans who are becoming increasingly more concerned about their health and wellness. The growing health concerns of Americans, combined with double digit growth in, for instance, the organics segment of the wellness market is indeed enticing -- especially in a rough economy -- and hence we will see more convenience restaurants offering healthier higher margin meals in an environment that promotes health and wellness.

Conclusion.
The trends presented above -- "wellness-izing" industries that were once anything but wellness-like, the price elasticity of specialty niche markets as our economy continues to struggle, and the continued growth of all things organic -- demonstrate that consumers today are looking beyond the physical sense of what's "good for you" or healthy. Consumers in 2003, much like last year, are seeking a balanced lifestyle in the products and services they choose to combine the mental, emotional, spiritual and physical wellness.

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