New data from Nielsen shows that consumers increasingly are willing to pay more for better quality and greater convenience when shopping for food.
New research from Nielsen shows that increasingly, global shoppers are willing to pay more for better quality and greater convenience when shopping for food. The report titled, “Think Smaller for Big Growth” is based on an online survey of more than 30,000 Internet users in 61 countries and tries to understand the global shopping experience.
This is a marked shift from the old retail motto of “bigger is better.” In the early 2000s, big box retailers spread across the U.S. and the world like the idea of a superstore with every product at the best prices gained traction. But in more recent years big retailers have been shuttering stores, and some are taking new small format approaches. Promotions and special deals have become increasingly important in the fierce competition between big retailers, but as they gain customers, they also hurt bottom lines.
“Perhaps the new retail mantra should be ‘Go small or go home,’ as the ‘Bigger is better’ paradigm has been challenged virtually everywhere,” said Steve Matthesen, global president of Retail, Nielsen “Hyper-localization and specialization are fueling today’s retail growth. As lifestyle and consumption habits change, we’re seeing a structural shift in where consumers shop and what they buy, and some small formats are driving big growth. Mass-market strategies are also losing relevance as consumers look for unique experiences that meet their demands.”
The survey results show that while the price is important, high-quality fresh produce, at 57 percent, is the most commonly cited attribute by consumers as “highly influential in their decision to shop at a particular retailer.” “Convenient location” comes in second at 56 percent, “products wanted are regularly in stock” at third with 54 percent, “good value for money” at fourth with 52 percent, “carries the food and non-food items that I need” at fifth with 50 percent, and “lowest prices overall” coming in sixth at 48 percent. Price is important, but it is not the most critical factor.
“While intense promotional activity among retailers and manufacturers has created an expectation among consumers that low prices should be the norm, some consumers are recalibrating their spending— and increasingly, the value is about more than the lowest price,” said Matthesen. “Consumers are often willing to pay more if they think the benefits outweigh the price.
One of the most effective ways retailers can avoid pricing wars, and unsustainable promotion strategies are to increase the perceived benefits they provide. To keep shoppers coming back, however, brands must exceed shoppers’ expectations and convincingly demonstrate that the higher price is genuinely justified.”
The report attributes the change in preferences to a rising middle class, increased urbanization, and the growth in Millennial spending power, a group that has long preferred quality to price.
These forces have reached a critical mass and now appear to be driving a structural shift in local preferences and require a change by retailers in their approach to growth. The mass market is currently composed of many small markets and retailers will be wise to take notice.