Rabobank Report: Rise of the “Hybrid Consumer” to Polarise the Food Sector

23 May 2013 --- The rise of the 'hybrid consumer' is an emerging trend with significant implications for food companies, food retailers and food service companies. According to a new report from Rabobank, consumers are becoming less interested in mid-market products and are instead trading down when it comes to everyday value-for-money items, such as basic groceries.

Using money saved by trading down on staples, hybrid consumers are trading up to premium, high-end products that matter most from an emotional and social perspective, such as premium brands in supermarkets and fine dining. As a result of this trend, the food retail sector will become increasingly polarised into value and premium, with middle ground players struggling to retain market share.

Marc Kennis, Senior Analyst, Rabobank Food & Agribusiness Research and Advisory, commented: "The implications of this market trend are profound and touch on areas such as product offerings, distribution channels, marketing and brand management. Given the driving forces of hybrid consumption, i.e. women's increasing role in household spending and the growing importance of Millennials (generations Y and Z), we believe that hybrid consumption is a long lasting phenomenon. Therefore food processors, food retailers and food service companies alike will need to adapt or risk fading away."

Rabobank has identified the three main forces driving the hybrid consumer trend:
•    Socio-demographic developments. The growth of women's purchasing power and increasing influence over household spending is a major factor; research indicates women are more objective than men when it comes to food purchasing decisions. Additionally, younger generations who grow up using social media are more likely to make food choices based on merits rather than on the specific brand loyalty.
•    Food retailer strategies. The advent of discounters has added to consumers' options to trade down, and in recent years private label products have increased trading up options. Increased use of the internet as a tool to compare products and prices has also led to greater consumer awareness regarding food product purchasing.
•    Macro-economic developments. The recent global recession has accelerated the existing market dualisation. Constraints on disposable income and falling confidence has encouraged trading down on basic items. At the same time, consumers still want to occasionally indulgences themselves, even in times of economic hardship and are willing to pay a bit extra for premium quality.

Hybrid consumer patterns are reflected in the growth rates of retailers. Those geared towards the mid-market are showing lower growth rates over a longer period than their peers at the extreme ends of the spectrum. Between 2007 and 2012, above average performers in the US were either hard discounters, such as Aldi, or premium formats, such as Whole Foods and HE Butt Grocery. Similar trends exist in Western Europe. Growth rates at mid-market operators, such as Morrison's, Tesco, Sainsbury and Asda, have been clearly lower than at discounters such as Aldi and Lidl as well as upmarket retailers, such as Waitrose.

Rabobank identifies a range of strategies and tactics that will allow nimble food processors, food retailers and food service companies to benefit from the rise of the hybrid consumer.

These include:
•    Move up to the premium segment of a specific product category. For example, by offering healthier alternatives, using more natural ingredients and incorporating corporate social responsibility as well as sustainable business practices. The French spirits company, Pernod Ricard, is an example of a company that has been successful in 'premiumising' its product offering.
•    Offer 'value' products within the premium segment and 'premium' products within the value segment. By doing so, retailers can cater to consumers that have become more cost-conscious due to waning consumer confidence and purchasing power. UK retailer Waitrose offers bakery products under a premium private label, thus enabling increasingly cost-conscious, customers to continue shopping at their favourite high-end supermarket but at a lower cost.
•    Use value products to sell premium products. Supermarkets and food service outlets can use this strategy to attract customers with value-for-money propositions, while simultaneously aiming to sell premium, more expensive products to these same customers. A well known UK-based coffee chain, for instance, offers coffee to-go at relatively low price points to generate traffic and simultaneously aims to sell higher priced food products, such as premium sandwiches.

Source: Rabobank