More trading down

Catalina Marketing analyses consumer buying behavior using the more than 250 million transactions holders of supermarket and pharmacy loyalty card holders that CM records each week.

The company’s studies of how consumer purchasing habits have changed since the financial crisis make interesting, if grim, reading.  Last June, for example, the Financial Times reported that the average national brand had lost a third of its previously most dependable customers to cheaper store-brand goods during 2008.

The FT has just reported the results of another CM study, this one about changes in the kinds of things Americans are buying in the supermarkets rather just changes in the suppliers chosen.  The findings:

1. impulse purchases are way down.  Sunglasses buys have been cut almost in half and sales of tights are off by nearly a third.

2.  men have left the salons and returned to supermarkets and drug stores for hair-care products

3.  dogs and cats are being reduced to eating dry food instead of the canned “wet” meals they enjoyed in better times

4.  families are apparently spending more time at home, if rising sales popcorn and a 70% year on year jump in purchases of ice cream and cake (comfort food?) are any indication.

The fact of trading down shouldn’t be particularly surprising, since it occurs in every recession.  Even the rapidity of the change in consumer behavior this time around and the large number of areas where trading down has occured may have lost their ability to shock, since we have been reading about–and experiencing them–for some time.

Two observations, though.  I wonder how far can we extrapolate changes in the way consumers are treating everyday purchases now to the way they will treat more expensive, less frequently purchased items when they need/want to buy them.  In other words, how confidently can we bank on an explosion of pent up demand when the unemployment rate begins to fall?

More important, why have big losers from trading down, the packaged goods manufacturers, begun to outperform in the stock market?  Investors aren’t buying utilities or telecom, so I don’t think this is simply a general counter-trend rally.  Can the trading down phenomenon already be fully discounted?  One option this might suggest for an active manager is to underweight other defensives–telecom and utilities–and overweight staples.  Let’s see if this movement has any legs first, though.

Leave a Reply

%d bloggers like this: