The results are in from the Christmas shopping season and the winners and losers are clear. In the UK, Tesco , Wm Morrison, Debenhams and Marks & Spencer underperformed while clothing chain Next , John Lewis and its food arm Waitrose and the hard discounters Aldi and Lidl did well. In the US, Sears, Pier 1, L Brands and American Eagle Outfitters were among those who struggled while the warehouse club Costco surged ahead. In Germany, Metro also reported soft Christmas trading.
The results are symptomatic of a recovery that remains fragile on both sides of the Atlantic and the rise of online shopping, but they reveal a more fundamental change in consumers’ shopping habits, too.
Since the advent of the financial crisis, we have seen the rise of what researchers at Rabobank’s Food and Agribusiness research unit call “hybrid consumers”. Previously, retailers could work out the social and financial status of their customers by the type of products they bought – value, mid-market or premium.
But in the last few years a new type of shopper has emerged, who shops at both ends of the spectrum – frequenting hard discounters such as Aldi for everyday groceries while trading up to premium brands such as Waitrose or Whole Foods for products that they find socially or emotionally important.
It’s not a phenomenon restricted to groceries – you can see it in travel, even within the same “transaction”, where people will happily fly off for a luxury weekend break where they will stay in a high quality hotel but fly on a budget airline, while in clothing, brands such as Primark and Top Shop happily rub shoulders in wardrobes with Armani and Dolce and Gabbana.
The rise of the hybrid consumer has been driven in part by the financial crisis and the consequent drive to save money. But it has also come about in part as a result of the rise of the internet and the ability this gives to shoppers to compare prices and also to “experience” brands they would not otherwise consider. The retailers themselves have helped the phenomenon, not just through the rise of the hard discounters but also the growth of private labels, which started as a tactic to attract value shoppers but have moved into premium brands in recent years.
Demographics have also played a role, with younger consumers more brand aware but less loyal.
Clearly, this is creating winners such as the brands named above. But, according to Rabo, in the face of this polarisation of the market, “the mid-market has been under pressure as products in this segment are perceived to offer neither quality nor value to today’s hybrid consumer”. The Dutch bank predicts that while the extreme ends of the market are set to grow by high single-digit numbers, the mid-market segment will actually decline by 1% to 2% per year through to 2017.
This spells trouble for some of the world’s biggest retailing brands, such as Tesco, Carrefour, Delhaize and Safeway, which have made their fortunes sitting squarely in the mid-market.
According to Rabobank, “the strategic implications of this market dualisation are profound. Food processors, food retailers and foodservice companies alike will need to adapt or risk fading away.”
The internet will inevitably become more important for both distribution and marketing, and brands will have to work harder in the face of declining customer loyalty. This will involve a focus on healthier products, natural and fair trade ingredients and a visible commitment to sustainable business practices and corporate social responsibility.
Next Christmas’s retail winners are likely to be those that have embraced the hybrid consumer rather than stuck stubbornly to the middle market.