Lessons Learned

Looking back on 2013, it wasn't the best of times, but it wasn't the worst of times, either. From a government shutdown to the election of a new pope, the twelve months on the calendar had their fair share of events that made headlines. And good or bad, those events shaped both the world and its people, changing how we think and act in both big and small ways. Sometimes those changes are easily seen, and other times they're barely noticeable.

Here, three of the events and trends that affected consumers, demanded to be acknowledged in 2013, and ultimately gave retailers the insight they need to do business, and to do it well.

The Cautious Consumer

While many issues and events in 2013 affected how retailers did business, there were none that had such a significant influence as the U.S. economy. Recovery was slow going, but contrasted against years past, at least it was going. A June 2013 article in Bloomberg Businessweek stated:

"Four years into the upswing, the economy isn't seeing the excesses that often trigger a contraction. Inflation is slowing, not quickening. Household debt is shrinking, not expanding. The labor market is slack, not tight. Pent-up demand bodes well for the longevity of the recovery. Confronted with high unemployment and a depressed housing market, Americans have put off forming families, buying homes and acquiring cars. Now, with house prices rising and payrolls expanding more rapidly, their behavior is changing."

For retailers, that slow recovery translated into cautious consumers in 2013. While in general the economy got better, it didn't get exponentially better, and it didn't get better for everyone.

"There were a lot of caveats," says Bryan Gildenberg, chief knowledge officer for Boston-based Kantar Retail. "But from an underlying point of view, you saw shoppers behaving in a tolerance range that was overall improved." And while consumers felt more optimistic, the biggest trend in purchase behavior, he notes, was a rise of "samers."

"Samers," Gildenberg explains, is that group of consumers–a rather large group in 2013–who didn't want to spend more, and they didn't want to spend less.

"They've locked in on a budget number, and that's what they're trying to hit," Gildenberg says.

That, he continues, translated into a variety of consumer shopping behaviors–making clearer choices, postponing the purchase of a significant item because they might not have the money one month and are willing to do without certain things, and being more decisive in how to spend their money.

"Consumers are recovering cautiously, and they're recovering very, very judiciously," Gildenberg says.

As they watch their dollars closely, what consumers do choose to spend their money on is shifting. Susan Viamari, editor of Chicago-based IRI's Times and Trends, notes that convenience and grab-and-go products have seen an increase in popularity, as consumers eschew paying an upcharge for a snack or a coffee at fast food drive-thrus.

Additionally, packaged fresh products got more play at grocery and convenience stores, thanks to consumer desire to eat in and eat healthy.

But just because consumers stayed in more often, they didn't ditch their social lives completely. In prudent economic times they turned to retail, rather than restaurants, for solutions. And retailers and manufacturers answered, Viamari says, rolling out products that gave consumers a taste of excitement without the high restaurant price.

Viamari points to IRI's list of 2013 New Product Pacesetters–those CPG products that have grossed the highest sales in their first full year in the market–which include Bud Light's Lime-a-Rita as well as multiple premium gourmet coffees.

"Consumers are looking for different ways to get food and beverage excitement without having to pay a premium at a restaurant or bar," Viamari explains.

Furthermore, as the economy kept consumers cautious yet still seeking products that had some pizazz, retailers responded heavily with price point-centered promotions–10 items for $10, or 5 for $10, or whatever worked best for the consumer.

"Publix has put a lot of energy and promotional intensity into BOGOs," notes Gildenberg. "They know their shoppers are on a budget, and the easiest way to prove to them that they're getting more is to offer them a chance to spend 'X' amount of money, and get more than they usually would. That's a pretty sensible proposition."

Additionally, the sluggish economy increased the audience for the dollar channels. It's not that retailers such as Family Dollar or Dollar General necessarily did anything different during these lagging economic times, Gildenberg explains, simply that they did the same thing but with a slightly broader audience.

"Increasingly, they're carrying the brands that people know and love," he says. "And consumers can make their budget number work much more easily in that environment. So what you've seen over time is an expansion in their demographic of shoppers."

Whereas regular shoppers of the dollar channel were those consumers who both wanted and needed to save more, now the channel is seeing more consumers using their stores as part of a comprehensive budget convenience.

The Next Generation

If there is one thing that 2013 showed retailers, it is that millennials are ready for the world, but the world–the consumable retail world, anyway–isn't quite ready for millennials. They are, simply put, a puzzle to retailers and consumer packaged goods companies.

"You've got an interesting combination of consumer factors with millennials that are quite tricky for retailers," explains Gildenberg. "They're broke, but they're not terribly depressed about it. They're optimistic about it. They are individualistic, and they want to be different–just like all of their friends. And trying to capture that as a retailer is difficult."

The other quandary, Gildenberg notes, is that millennials are tech-abled, but they actually like shopping in store, rather than online. Gen X-ers, he says, are the ones who over-index in online buying, as well as a good percentage of baby boomers. But for the amount of time spent online, Gen X-ers spend more of that time online shopping than millennials do.

"There are a lot of these duopolies with millennials," Gildenberg says. "But the most successful retailers are the ones that embrace those contradictions and approach millennials with a deep sense of transparency." A universal characteristic of millennials: The generation simply doesn't trust certain corporate monoliths, but they will trust those companies who can convey who they are and what they're doing.

"Since they're so used to being able to find out what they want to know when they want to know it, you've kind of got to live your life on the outside," Gildenberg says.

While there are some retailers that have gotten a slight handle on how to bring in millennials–Gildenberg cites Philadelphia-based apparel retailer Urban Outfitters as one that has managed to get it right with the demographic for decades–most are still floundering. And that can be costly, both in the short and long term.

"Retailers are aware that this generation is just entering prime earning power, and those who haven't cracked the code of how to talk to them are looking at their average customer age with increasing concern each year," notes Rob Haslehurst, managing director of LEK Consulting, Chicago. "The focus on store experience, on digital commerce, and on non-traditional marketing is all made critical by the increasing importance of millennials."

He adds that one challenge for retailers and manufacturers is taking a brand that a millennial would associate with a parent's generation and transitioning it to their generation with any level of authenticity.

Understanding millennials' shopping habits also has proven challenging for retailers. When looking at consumers on the whole, Gildenberg says, understanding shopping habits is something they tend to do well. But looking at millennials specifically is where the process starts to break down.

"The problem is that millennials haven't formed their shopping habits yet," Gildenberg explains. "They're not the classic two-income family, suburban mom, with two kids. Retailers understand that life stage very well. Finding someone who has been living with roommates for so long and trying to figure out that person's life stage from a consumables point of view is really hard." With millennials, there are too many varying factors–too many different types of households, people delaying "adult" decisions such as marriage or children.

"There are a whole host of issues around habit formation that we just don't know, and there isn't a consumables retailer out there today who has harnessed that knowledge," Gildenberg says.

"Tech" to Me, Consumers

Computers, smartphones and tablets are a permanent fixture in a majority of households, so it's no surprise that 2013 was the year that online shopping truly crystallized as an essential part of American life. Amazon.com made headlines when it speculated on the use of drones for delivery, and while that may happen someday, what's more notable is that many consumers saw it as a relatively logical and acceptable next step for the online giant.

"Amazon is not a curiosity, it's not something we think might be a big deal some day," says Gildenberg. "On a monthly basis, Amazon is the second most shopped retailer in America. Only Walmart gets a higher percentage of Americans shopping in their stores per month."

Haslehurst notes that experience in shopping online in other areas such as for travel lead to an expectation of choice for consumers, "which is easier for retailers to deliver, but which the best traditional retailers are starting to successfully embrace through the use of mobile and emphasis on customer experience." He notes that the 2013 holiday season hurt a number of retailers, as consumers either shopped at home directly, or at least did price comparisons before going to the physical retailer to purchase, thereby driving down margins.

"Holiday mall traffic trends are certainly alarming, and create something of a burning platform," Haslehurst says, "necessitating a revisit of key strategic levers going forward."

To that end, where consumers buy a product and where they physically pick it up–or have it delivered–is becoming increasingly complex. Click-and-collect formats, where consumers can buy online and pick up at a store or other designated location, such as a locker or established depot, started taking shape in 2013, and look to become increasingly more mainstream for multi-channel retailers in the coming year.

Molly Strzelecki is a freelance writer living in Chicago. She has been covering trends in the consumer packaged goods industry for more than a decade.