Macroeconomically, 2017 was better-than-expected in many ways for the US. Unemployment rates declined from 4.7% at the beginning of the year to 4.1% in the last quarter. Changes to tax rates are expected to put more money in the hands of consumers. Businesses grew, so not surprisingly, stock markets performed very well. Cotton Incorporated Lifestyle Monitor Survey revealed that “46% of consumers are optimistic about the US economy”.

All this would normally signal good news for consumer spending in 2018, except that the picture gets fuzzier when you consider that the University of Michigan’s Consumer Sentiment Index (CSI) declined in the last two months of 2017. Also, after a slight increase between October and November, the Conference Board’s Consumer Confidence Index (CCI) declined a tad between November and December. The latter is important because it is a measure of how consumers expect to feel about their spending in six months.

The mega trend – especially for Retail and CPG companies- is how American “consumers” are changing in terms of who they are and what they expect/value. In terms of the composition of the US marketplace, Baby Boomers, Gen X and Gen Y remain significant; however, Gen Z is emerging rapidly as a major consumer segment in its own right. It is estimated that Gen Z will represent almost 40% of US consumers by 2020.

Being true Digital Natives, Gen Z consumers are completely at-ease with social media and the convenience of buying services and products “on-demand”. This gives them greater heft in the marketplace. Ms. Roopa Varghese, Sr. Director for Digital Marketplaces and New Brands at Georgia-Pacific says, “Both demographics and in store habits (of consumers) have changed. Demographically, millennials are now in their peak earning years: they actually drive about thirty percent of CPG and Retail spend today”. These demographic shifts have major implications for what products CPG companies will need to offer and how/where retailers will need to sell them. In the past decade (after the financial meltdown of 2008), technology has accelerated the move to e-commerce, but consumers have become more conservative when it comes to spending on discretionary items. Price comparison web sites only facilitate such behaviours. To quote Ms. Varghese, “Consumers are much more cautious than they were prior to 2009 and they’re much more value-driven”. This partly explains why discount retailers such as Dollar General and Dollar Shave Club are doing so well. Even in the apparel space, most consumers today seem to consider “discount brands” such as Walmart or Target and casualwear brands such as Gap or Old Navy as “best fitting with their lifestyles”.

America’s multicultural texture adds an additional layer of complexity to the changing consumer landscape. A Nielsen report titled “Multicultural Millennials: The Multiplier Effect”, released on January 18, 2018, contains some very interesting information. “Most multicultural Millennials are fully ambicultural, shifting from what was once a dominant family-based culture to a posture that blends a variety of cultures into a new mainstream”, the report states. The report points also out that multicultural Millennials are first generation professionals with rising disposable incomes and are in “prime acquisition mode”. The study estimates that this segment spends US$65 Billion directly- and influences US$1 Trillion in consumer spending on CPG and entertainment! It is no surprise that retailers and CPG companies are devising strategies to specifically target this segment.

While quality and price will remain critical determinants of the consumer purchase decision even in the years ahead, product attributes such as health and wellness, social impact and safety will become important too. Transparency and customer experience will become front and centre when it comes to shopping- whether online or in-store (or in dual mode). With online shopping becoming more convenient and secure, more and more consumers will adopt- but they will also expect higher levels of customization and personalization. Many consumers will to use a combination of online and in-store purchases. All this will place a greater burden on retailers if they are to consistently deliver on their brand promise. Industry players will need to rely on not just technology-enabled insights, but also product and service innovation. As Ms. Varghese observes, “For retailers, optimizing the omni-channel experience across all of the multiple touch points of the consumer journey both in-store and online, has become really important”.

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