A curious thing happened on the way to the double-dip recession this fall. Even as Canada’s economy was teetering–again–grocers were noticing customers buying more premium products. Betty Kellsey, public relations manger for Safeway Canada, says demand is “significant” at Safeway’s full-service meat and seafood counters, where the selection often skews to the premium side. “There’s a real desire for premium and natural products affecting all four walls of the store,” she says. Likewise, Rocco Agostino, store manager of Longo’s in Thornhill, Ont., says he’s noticed shoppers seeking out more higher-end fare in the last year. Meanwhile, at the ultimate premium grocery chain, Whole Foods, sales were up 12 per cent in the fourth quarter, including a healthy rise of eight per cent in same-store sales.
Despite the tough economy, shoppers are in a splurging mood. Spending on luxury goods in Canada–everything from food to fashion to airline flights–was up 11 per cent at the start of this year after rising 10 per cent in 2010, according to American Express Business Insights.
Sales of speciality foods, which tend to be high end, have been increasing since the recession hit in 2008, says David Browne, senior analyst at Mintel Group, up 7.4 per cent in 2009–10, from a four per cent hike in 2008–09. “Consumers in the specialty market acted less cautiously in 2010 and that trend has continued in 2011,” he says.
How can that be happening at a time when, overall, “price is still king?” as Carman Allison, director of industry insights at Nielsen puts it. First of all, while the majority of Canadians don’t feel the effects of the economic recession lifting, many middle- to high-income earners are on the rebound. Around 29 per cent of households earning $100,000 and up say they’re better off now than a year ago (compared to 21 per cent of Canadians on the whole), according to Allison. “The rich are becoming more confident and that’s going to fuel a lot of the trends that we’re seeing now.”
That supermarkets are seeing premium products do well reveals the trend is not just limited to a minority, well-off consumer. The recession has forced consumers across the board to figure out not only where they can cut their spending, but also where they can increase it. “It’s about trading off and saying, ‘I’ll save here so that I can spend there,’ ” says Allison. The clincher is high-end products have to offer added benefits, such as health or an impressive taste.
Browne at Mintel points to Pom Wonderful juice as one product consumers are willing to splurge on due to its health claims. Examples of other added-benefit grocery products that Nielsen tracks include super-premium coffee (including Starbucks) and whitening toothpaste. Sales for super-premium coffee went up 30 per cent between April 2010 and April 2011, almost double the 16 per cent growth of the mainstream brands. Whitening toothpaste saw a 21 per cent increase in dollar sales, in comparison with a four per cent decrease for mainstream toothpastes.
Premium grocery items include Pom juice and Starbucks
Grocers can capitalize on the premium trend with in-store demonstrations and sampling that hit home to consumers the added benefits of the products. Allison suggests advertising savings on necessary products that don’t have exciting benefits. In other words, consumers are likely to stock up on sale-priced paper towels in order to justify their spending on premium products.
Premium fare that also provides convenience tends to pack a double-punch for consumers who “seem to be busier than ever,” says Kellsey. Marinated meats and pre-made sauces are doing well at Safeway, she says. David Stezenko, co-owner of Quality Market in Thunder Bay, Ont., says his customers are increasingly attracted to “eye-appealing platters to impress their guests.” And grocers with travel rewards programs should promote that fact since travel is a sough-after luxury these days. “Consumers are increasingly looking for ways to enrich their lives,” says Colin Temple, head of merchant services at American Express.
An increased focus on premium products is likely to pay off for many a grocer. The trick is to be more strategic than ever about which premium goods are marketed and how sales and loyalty programs fit into savvy consumers’ desires.