Cash or debit?

While the winds of change have whipped through consumer banking industry, Packaged Facts sees role of debit cards being repositioned, not significantly reduced.

First, despite the hype surrounding debit interchange regulations, profit motivate is alive and well. The hype tends to obscure a very important fact: debit cards continue to generate huge sums for the banking industry. Our recent report on Debit Cards in the U.S. projects that debit interchange will bring in $14 billion in 2012. While this represents a 30% drop from 2011, it’s clearly not small change.  And over time, the industry will recoup revenue lost to debit interchange regulation, thanks to long-term electronic payments share growth.

Let’s not forget that debit cards remain far more profitable for their bank issuers than paper-based transactions. And with paper-based payments enjoying a recession-driven renaissance, debit remains the primary means of continuing to convert paper-based payments. And the silver lining of lower interchange rates is that debit may become a more palatable payment option for industries previously resistant to it.

But most importantly, consumers have not only grown accustomed to using debit, but they also see value and utility in using the cards. In banks’ continued quest to translate paper and check payments to electronic payments, the debit card remains their strongest ally: According to proprietary survey results contained in our report, almost two in three engaged debit card users (those who use their cards at least once a month) use their debit card so that they can avoid carrying cash, half use their debit cards so they can avoid paying with cash, and almost 6 in 10 use a debit card because it is more convenient than cash.

The downside? We expect credit cards to siphon away a small share of transactions made by affluent, credit-worthy debit card users, and we expect emerging prepaid card programs to siphon off a significant portion of major banks’ least profitable checking account holders. But given longer term electronic payment trends, this will only serve to moderate debit card payment volume and transaction growth—not kill it.

Bodybuilders beware: Grandma is eyeing your protein stash

Interest in protein has been heating up over the last few years, and not just for the serious athlete or weekend warrior.  Protein is increasingly seen as the closest thing to a secret weapon for fighting the war on obesity, especially at breakfast.  Protein also is becoming recognized as critical to maintaining muscle mass over the age of 40, with the need for protein ratcheting up with each passing decade.  While it has long been considered that American (and Western diets in general) are overabundant in dietary protein, recent research suggests that higher levels of protein intake may be beneficial both for appetite control to help with weight management and to fend off muscle loss among older consumers.   And yes, protein is still important for athletes and exercise enthusiasts to help rebuild muscle after workouts. 

More good news:  Protein is no longer relegated to bars and shakes.  Food and beverage manufacturers are starting to boost the protein content of “real” foods and beverages across numerous categories through ingredient additions for that specific purpose, as well as through deliberate formulation to achieve target protein levels, often associated with making content claims (e.g. “good source”).  Companies are also adding the word “protein” to their brand names to distinguish them from ho hum, me-too line extensions in otherwise crowded categories.

Protein alternatives to meat are not only addressing the needs of flexitarians, vegetarians and vegans, but also traditional carnivores who are embracing the notion of “Meatless Mondays” (or other meat-free episodes), whether on health, sustainability, economic or other grounds.    And many of these meat alternatives have appeal that goes well beyond their protein content.  Take the ancient grain quinoa, for example, which offers consumers a back to the future adventure in culinary history right along with its impressive protein content and quality. 

Protein also has the power to add real food value to reinvigorate declining categories and brands.  Think of those commoditized canned and packaged goods stuck in the center aisles of the supermarket.  Protein can also be leveraged to help create new or strengthen existing consumer targets, especially when products are specifically tailored specifically to sports performance, satiety and weight management, or maintaining muscle mass in older adults. 

As argued in Packaged Facts’ upcoming report on Protein Ingredients for Nutritional Enhancement of Food and Beverages, this last area offers one of the most compelling market opportunities for protein ingredients and products.  Packaged Facts predicts that the deliberate delivery of protein in real food and beverage products targeting Baby Boomers and senior citizens will become big business.  The protein needs of this group are significant, yet many are just beginning to discover this fact.  Food and beverage manufacturers can get in on the ground floor to educate and offer convenient and tasty foods and beverages for meal and snack occasions. 

So, bodybuilders and athletes out there, hang on tight to your protein bars and shakes until AARP members have plenty of protein choices of their own.  Then remember to thank them for sparking protein product innovation. 

Premium chocolate is increasingly populist

Packaged Facts' report on Chocolate Candy in the U.S. shows that chocolate dollar sales rose in 2011 while unit sales remained flat, meaning that even recession-battered consumers have proven willing to pay more for their chocolate. 

So chocolate makers need not worry as much as other food marketers about rising prices. Not much will deter consumers from indulging in this affordable luxury.   Moreover, despite boom times for store brands in the packaged food and beverage industry overall, not much will convince consumers to save money by switching from their favorite brands.  In mass-market outlets, store brands account for 21% of unit sales of microwave popcorn, but only 1% of sales of chocolate bars.

Consumers in fact are increasingly looking to chocolate to satisfy discriminating tastes and demands, reflecting in part the raising-the-bar influence of foodie culture.  For example, sales of organic chocolate in the natural food channel were up a whopping 20% in 2011, according to SPINSscan data cited in our report. 

Chocolate manufacturers have taken note that premium is increasingly populist.  Companies that traditionally kept to a narrow, “exclusive” retail footprint have expanded their product lines to mass-market channels, with the more upscale supermarket chains and outlets among the favored outposts.  And brands that were mostly known for gifting have partially re-positioned themselves as everyday treats, whether for self-indulgence or for sharing with others.  Nothing is more popular than sharing, and nothing is more democratic than chocolate decadence.

Ice cream as personal stimulus package

Despite the Great Recession, ice cream and frozen desserts are doing well for one simple reason:  they are comfort items that make people happy.  (Ditto for dogs.)  Edvard Munch's iconic "The Scream" recently sold for a record $120 million at auction in New York, but that's chopped peanuts compared with the $25.1 billion U.S. market for ice cream and frozen desserts, up 2.4% over the previous year despite the hard times.

This is nothing new.  Ice cream and frozen desserts have long provided “small indulgence” respites from economic woes, with some of today’s most popular brands and flavors having been introduced or popularized during the Great Depression.  Among these are Carvel, Friendly’s Ice Cream, Good Humor, and Rocky Road—a flavor created by Dreyer’s in 1929 and named “to give folks something to smile about." (Ditto for candy bars, which flourished in the Depression era—think Payday, introduced in 1932.)

Recession aside, ice cream and frozen desserts have long had a huge consumer following in the U.S., both at retail and on the foodservice side.  According to a March 2012 survey conducted by Packaged Facts, almost three out of four U.S. adults (73%) eat ice cream or frozen desserts.  Not surprisingly, consumers enjoy more of these treats in the summer, but the recent unusually warm winter boosted business during the first quarter.  Some 86% of adults who eat ice cream/frozen desserts have done so at home (or someone else’s home) within the last six months, two out of five have bought ice cream or frozen desserts at a scoop shop for take-out during this timeframe, and one out of four has enjoyed these products sitting down in a scoop shop and/or at a restaurant after a meal.

In the retail arena, recent launches making a big splash include frozen Greek yogurt, TCBY frozen yogurt,  Unilever’s Magnum ice cream bars, and Nestlé’s new Wonka Ice Cream brand.  That Mediterranean Diet to Willie Wonka arc tells the story: while households with children remain the heaviest consumers of ice cream, the industry continues to shift toward premium and superpremium formulations that target adult palates.  Store brands correspondingly have gotten more sophisticated—think Wegman's Food You Feel Good About Organic Dark Chocolate Ice Cream. The main reason, of course, is the aging of the U.S. population.  Older consumers might or might not count calories, but they are more likely to want their calories to count.   Another is that self-indulging adults are less sensitive to price changes.  Flavor is critical to product success, but witty product names and marketing campaigns don’t hurt, either.  And while comfort has been the name of the game during the recession,  consumers are likely to swing to celebratory splurges as the economy improves.

Anti-time in a bottle

Flawless skin. Silky hair. Lustrous lips. Anyone who has ever walked a drugstore beauty aisle is aware of the promises made by the array of lotions and potions populating store shelves. Cosmeceutical marketers are working hard to deliver on these promises, investing research and development dollars to create products that offer not only beautification of the outside, but actual treatment of skin and hair conditions from the outside in.

As reported in Packaged Facts’ Cosmeceuticals in the U.S. (April 2012), consumers are looking for skin care, hair care and color cosmetic products that will improve their appearance virtually overnight (in the spirit, if not at the cost, of the surge in quick-fix plastic surgery) while also demonstrably delivering long-term improvements to skin and hair health.  According to Packaged Facts’ March 2012 online consumer survey, 28% of respondents purchase anti-aging-specific skin care or cosmetic products, and 15% purchase skin care and cosmetic products due to their antioxidant content claims.

Prompting the growth in demand for these products is the “graying of America” and Boomers’ desire to keep the effects of aging at bay.  Also influencing growth in the cosmeceuticals market is the insistence of recession-battered consumers on getting more for the money—and indeed cosmeceuticals typically offer the performance of standard products plus extra health benefits, usually in the form of added marquee ingredients. 

Typically these marquee ingredients are "natural," and many hail from the food and beverage aisles, capitalizing on headline food and nutrient trends.  Marketers have long worked the overlap between the natural cosmetics market and cosmeceuticals, as consumer demand for natural but functional ingredients to replace undesirable chemicals in their products has risen to an all-time high. 

Particularly strong sellers are mass-market versions of high-end products at price points more palatable to middle-class shoppers.  Many consumers are willing to buy more expensive mass-market moisturizers and conditioners when they are presented or perceived as a relative bargain compared to department store and salon products (if not to old school, standard formula mass-market personal care).

So what do cosmeceutical consumers want?  Paradoxically, instant and long-term anti-aging that's natural--and affordable.  Convenience is taken for granted.

Millennials: More settled than you might think

Although popular culture often imagines 18- to 29-year-olds as living the life of freewheeling, unattached singles, many in this age group have already settled down.  When advertisers think about how to approach adult Millennials, they need to remember that there is a more than one in three chance that those in their target audience are absorbed in the mundane details of supporting a family, running a household and raising children.

Data cited in Packaged Facts' May 2012 report, Millennials in the U.S., show that more than a third of 18- to 29-year-olds are either married or are living as part of a couple.  About the same percentage are or will soon be parents.

Still, there are many generational ties that bind Millennials, regardless of their stage of life.  These include a deep comfort with technology, heavy involvement in social media, a multitasking mentality and non-stop immersion with screens on cell phones, digital tablets and PCs.  The challenge for marketers is to leverage this common ground while showing an appreciation for the diverse lives Millennials lead in fact rather than fiction.

Dog and cats as America’s four-legged therapists

You can’t pet a goldfish. You can’t take a hamster on a three mile run through the park. And you can’t teach an old (or young) hermit crab new tricks. Reptiles? Not the most ideal snuggle buddies on chilly evenings. Pet pigs? Those are speed bumps for the SoHo social networker on the go.

But dogs and cats, now there’s a pair that many Americans can get behind. And not just as animals worthy of all the doting our pet parenting instincts can muster, but because these animals provide a discernable psychological boost to those they interact with. True, dogs and cats have long been a staple of the practice of animal-assisted therapy for hospitalized individuals. In the 21st century, however, an increasing number of pet owners with all options open are boldly proclaiming that their cats and dogs are more than just family or companions—they are the therapy these individuals always knew they needed. It’s the reason why memoirs such as Bruce Goldstein’s Puppy Chow Is Better Than Prozac: The True Story of a Man and the Dog Who Saved His Life resonate with so many Americans.

According to Dog Population and Dog Owner Trends and Cat Population and Cat Owner Trends, twin reports just released by Packaged Facts, 75% of dog owners and 84% of cat owners agree that their pet positively impacts their mental health. Rather than footing costly therapist bills, many of these pet owners are opting to reward their four-footed therapists by purchasing higher-priced pet products and services—particularly those positioned squarely on health, as well as on other premium appeals including pampering, safety and convenience.

Bruce Goldstein describes himself as an edgy, twenty-something New Yorker, but there are many demographic varieties of pet parents. Baby Boomers recently dealing with the empty-nest stage of life, as well as other adults in households without children, are prominent among those turning to dogs and cats as mental health benefit providers. If the trend grows, as Packaged Facts believes it will, the pet industry will continue to be heavily influenced by the spending habits of Baby Boomers and other households with the discretionary income to ensure that their dogs and cats live as smartly and age as gracefully as they do, or at least have trendier meals and better toys as time takes its toll.

Targeted health and wellness foods: What's inside

Taste, convenience, and price are typically cited as the most influential factors when consumers are grocery shopping.  But when shoppers are making purchase decisions based on their own specific health concerns or those of other household members, the health benefit reputation of a food, beverage, or ingredient is by far the most compelling driver.

This is among the findings from a proprietary consumer surveys conducted by Packaged Facts for our report on Targeted Health and Wellness Foods and Beverages: The U.S. Market and Global Trends (March 2012).  Other Packaged Facts research surveys show similar results, as health benefit reputation is overwhelmingly the number-one reason shoppers buy high-antioxidant and high-omega food and beverage products.

According to a May-June 2011 survey conducted by Packaged Facts—with a sample of 2,000 U.S. adults who in aggregate were Census representative on the primary demographic measures of gender, age bracket, race/ethnicity, geographic region, and the presence of children in the household— nearly two-thirds (63%)  of U.S. grocery shoppers have purchased a food or beverage in the past year for the purpose of addressing one or more of 22 common health and wellness concerns.

 Notably, a larger percentage of adults consumers choose foods or beverages for the management of two specific health concerns—cholesterol (24%) and digestive health (23%)—than for key general functional or quality-of-life benefits such as energy levels (17%) or appearance/beauty (13%).

In seeking to address such health concerns, shoppers are proactive about doing research to educate themselves about dietary nutrients.  Just over half of targeted health and wellness product shoppers consider health, nutrition, and wellness websites to be among the most valuable sources of information — the type of information that contributes to the all-important health benefit reputation of a product.  In fact, these shoppers consider the Internet to be significantly more useful than other types of media, including journals, magazines, newspapers, TV programming, and radio.

Particularly through the Internet, therefore, it is critical that marketers of targeted health and wellness products convey the health benefits of their products clearly, consistently, and frequently, based on authentic cultural traditions and legitimate scientific research data.  Even when shopper purchasing of targeted health and wellness foods is only for a nice-to-have potential benefit, credibility is crucial to product success.

Don't drink and get downsized

In the wake of the bleakest economic period that the country has faced in nearly a century, the pressures of the job market are popping up in unlikely places.  As noted in Packaged Facts’ report on Antioxidant Products in the U.S., for example, Employee Vita Occupation-Specific Vitamins were not just targeted but "tailored" to specific occupational health needs.

According to the company's website (now offline) , this was “achieved by creating proprietary blends that addresses unique health needs such as immunity, stress, energy, joint care, skin care, focus, clarity, heart health, etc., eliminating the need for someone to figure out what they should take as well as eliminating the expense and inconvenience of taking multiple vitamins."

Farther afield in the novelty products arena are Health Essist Health-E-Strips Alcohol Defender hangover-prevention strips, which garnered 101 “likes” on facebook.  The mint-flavored, tape-like supplement contains milk thistle, Vitamin C, and other ingredients, and is designed to dissolve in the mouth before drinking.

Not to be outdone by mint tape, beverages claiming to prevent hangovers have dipped their toe into the antioxidant beverages market.  Resurrection Anti-Hangover brand, created by Mississippi's Magnolia Beverage Company, markets itself as the first ever "Pre-Tox" beverage. 

Resurrection ($4) works by drinking before, or while, consuming alcohol.  According to the marketer, the proprietary herbal blend helps prevent the formation of cytokines, which are free radical by-products, created by the body in response to excessive alcohol consumption.  Cytokines create flu-like effects on the body’s tissues, resulting in headaches and nausea.

In this same vein is the Mercy brand anti-hangover drink, debuting in 2011 from the New York City-based Neu Industries.  According to the company's promotional material, however, Mercy is "targeting a more mature crowd—that is, people with day jobs.”  It’s not just don’t drink and drive these days, but also don’t drink and get downsized.

The shrinking middle (pet market) class

Is the middle slipping out of the pet market?  In crunching the numbers for Pet Product Retail Channel and Consumer Shopping Trends in the U.S. 2012, Packaged Facts expected to see discount stores increase their pet product shopper base, given the ongoing economic sluggishness.  Instead, it’s the pet specialty channel that’s been advancing.  From 2007 to 2011, pet stores saw their customer base rise from 50% of dog or cat owners to 56%, a net add of 5.5 million shoppers.  Meanwhile the discount store pet product shopper base fell from 31% to 28%.

There’s no question pet owners, like virtually all Americans, tempered their spending during the recession.  But the steady shift into the higher-priced pet specialty channel makes it clear the upper end of the market is alive and well.  During the past decade, much of the value of the U.S. pet market has shifted into more recession-resistant higher-income demographics. The latest Census Bureau data confirm that this upmarket shift continues, both cause and effect of the product premiumization trend at play for several years now, increasingly concentrating pet market value among significantly higher-priced products.

Still, given the Great Recession, how to explain discount stores’ declining pet product shopper base?  Although Walmart, Target, and the like have been coming on strong in the pet market, they no longer have the price-focused consumer to themselves.  While the pet food recalls of 2007 took pet owners seeking safer foods out of discount stores and into the pet specialty channel, the recession has pushed discount store shoppers into even more bargain-priced channels.

Dollar stores and wholesale clubs have therefore been coming on strong, through a combination of EDLP and new store brand programs.  According to Gino Biondi, director of private-brand development for Family Dollar, pet “is one of FD’s fastest-growing categories, and our private-brand pet business is growing even faster” (Pet Business “Pet Aisle” special report, Fall 2011).  Also worth noting on this front is the new Simply Right store brand pet food line from Sam’s Club.

Where does all this upper and lower market action leave the middle?  Well, it’s clearly still there.  In Packaged Facts’ September 2011 Pet Owner Survey, 55% of pet product buyers characterize the pet food they buy as average priced.  However, unless you’re a Nestlé Purina or a PetSmart, your middle market prospects may be limited.  Why?  One of end of the spectrum are devoted pet parents—the dream consumers of the pet market—and these informed shoppers who know you get what you pay for.  At the opposite end of the spectrum are pet owners determined to buy on the cheap, without too many questions asked.

These days, the pet market line is increasingly drawn between those who view their pets as family members and buy the best foods they can afford for pet health and pet pampering, and those strongly focused on price.  As a result, pet shoppers are migrating in two directions—up or down, in either case siphoning shoppers out of the market middle.