Lower-Income shoppers’ CPG spending levels create big opportunity.

It may be surprising to some that lower-income households actually outpace their higher-income counterparts in consumer packaged goods (CPG) spending. In fact, this group alone will spend $85.3 billion on CPG in 2007 and will generate an additional $84 billion in incremental CPG growth during the next decade. To capitalize on this enormous opportunity, retailers and manufacturers need to deeply understand and anticipate the needs of this highly-fragmented segment of households and categories and not consolidate them into one homogeneous group.

The Lower-Income Shopper Report: Learning to Better Serve Lower-Income Shoppers, identifies five key lower-income micro segments that will be responsible for many of the growth opportunities and uncovers huge variations in shopping frequency and spending levels as well as channel and category-level dynamics. The report empowers retailers and manufacturers to better understand the key differences among lower-income households, so that they can use these valuable insights to their competitive advantage in hopes of attracting and retaining lower-income household loyalty.

“Lower-income households are one of the hottest opportunities in the marketplace and are already providing real growth for progressive retailers, such as Save-A lot, Aldi, and Dollar General,” said IRI Retail Solutions and Strategic Consulting President Thom Blischok. “This will also be the sweet spot for Tesco’s new retail format that is entering North America this fall.”

“Almost four out of every 10 consumers are considered lower income, representing one of the most underserved shopper segments in the United States,” explains Sean Seitzinger, leader of the IRI Center for Retail Innovation. “Retailers and manufactures need to have a thorough understanding of the various lower-income shoppers—they are a major growth ‘silver bullet.’ Once you break the group down and understand the wants and needs of the different shopper segments, you can then put the right products with the right pricing on the right shelves with the right displays to meet all of their needs.”

Lower-Income Micro Segments

IRI studied the following five lower-income micro segments, which are positioned to drive a large share of sales growth for retailers and manufacturers:

– Singles and married couples aged 25-34
– Seniors older than 65
– Households with children
– Hispanics
– African Americans

For each micro segment, the report delivers four-year trends of key performance indicators (KPIs), including category development, sales growth and household penetration across 60 food, beverage and non-food categories. The IRI analysis provides insights into which categories a best positioned for growth, which is most vulnerable, and how retailers and manufacturers should respond.

Shopping and Spending Trends

Both retailers and manufactures have been treating this group as a “one size fits all” group by focusing exclusively on price as the only factor for differentiation and investing little in product and packaging innovation based on lower-income consumer needs. The IRI analysis, based on a 2007 shopper survey, finds that they have needs in common with and different than other households, including:

– Need for smaller packaging for shorter buying cycles
– Improving variety and selection amounts value offering, especially private label
– Convenient store locations, store formats, and products that address time-pressed lifestyles
– Innovative, better-for-you products that support healthy lifestyles and address obesity
– Strong variety of ethnic products that serve an increasingly diverse population

“The upside is huge for retailers that make smart investments in private label assortment, innovation, packaging and value merchandising focused on these shoppers’ unique needs and preferences,” adds Seitzinger. “This is a weak spot for retailers, because store brands are clearly not meeting their needs across all categories. Progressive retailers can drive private label growth if they focus on building stronger relationships with lower-income shoppers by improving variety and packaging.”

Retailer and Manufacturer Action Steps

The report includes cross-demographic, cross-category analysis that goes beyond narrowly-focused category reviews to provide meaningful implications and action steps. Retailers can make the most out of their own unique opportunities by working with the following four-phase process designed to help retailers:

– Value the size of the business opportunity and investment implications
– Utilize lower-income household segmentation as a means to differentiate from competitors
– Understand lower-income spending nuances and proactively adjust store offerings
– Validate the required steps towards success and execute and drive the process

Manufacturers can also win a larger share of spending across lower-income segments by sharpening their focus on these groups and better understanding current emerging trends and future implications for their categories and brands. Specifically, the IRI report provides clear direction for manufacturers on how to:

– Work with retailers to adjust category space, assortment levels, and adjacencies
– Understand how current channel and category spending patterns will impact spending and growth
– Review packaging, including sizes, pricing and messaging
– Focus on affordable better-for-you product innovation as a key way to deliver value

For more information at http://us.infores.com