COMMENTARY

Cash-Strapped Consumers Seek Simple Pleasures

• by Aaron Paquette , Columnist, September 15, 2022

With inflation continuing to hover near 40-year highs, consumers seek out savings wherever they can find them -- except for one surprising segment.

Most categories saw carnage in Q2. Retailers that stocked up on athleisure apparel, home furnishings and consumer electronics are now drowning in inventory, priced for clearance. Bed Bath & Beyond stock trades for less than a third of what it did in late August, and Kohl’s shares have fallen more than 50% from early May. In July, The Gap parted ways with its celebrated CEO, Sonia Syngal. Its stock remains stuck around $10.

CPG brands aren’t faring much better. P&G’s dominant Tide competes in a detergent market where sales for premium brands fell 3% year-over-year in the four weeks ending Aug 7, while sales of mainstream, value and private-label brands remained flat or increased. Campbell Soup Company reported an earnings decline of about two-thirds year-over-year, due in part to consumers trading down to private-label brands. And according to IRI data reported in the Wall Street Journal, private label is gaining ground in utilitarian categories including oatmeal, pickles, coffee and snack bars.

Which brands are succeeding? For starters, in a shaky stock market, Coca-Cola is up about 5%, thanks to its ability to pass on price increases to its customers. Starbucks has also been surprisingly resilient, with its stock rebounding from a mid-June nadir of $70 to about $84 today, due to strong Q2 earnings. McDonald’s shares have held steady, thanks to higher menu prices and consumers trading down from sit-down and fast-casual restaurants. And Hershey, Mondelez, Kellogg’s, General Mills and Kraft Heinz are also doing just fine.

What do these winners have in common? Consumers will trade down for their commodities, but they pay up for their sugar, caffeine or cholesterol fix. They’re going without new clothes or furniture, and buying the cheapest pantry staples, to free scarce funds for a daily indulgence. Starbucks lattes aren’t bankrupting young adults -- it’s their crushing student loans. And at a time when consumers face skyrocketing costs for energy, housing, education and medical care, they find that a $5 Big Mac, Frappuccino, or six pack of Coca-Cola is an easy way to “treat yo self.”

How can brands convince consumers that they offer daily essentials in a difficult economy?

1. “You’re worth it.” One of the most iconic McDonald’s campaigns is “You deserve a break today,” and in 2022, consumers need that break more than ever. Create permission for consumers to take a much-needed time-out from their stressful day, and demonstrate how your brand can give them 10 minutes of bliss before they get back to the grind.

2. “Accept no substitute.” Another legendary campaign is Coca-Cola’s “Can’t beat the real thing,” and winning brands emphasize that they’re in a category all their own. There’s only one Coke, Big Mac or Hershey’s, and any attempt to trade down is futile, potentially turning a regular indulgence into a one-and-done nightmare. Remind consumers that your brand has no real competitors, only pale imitators, and if they’re budgeting time, money and calories, they shouldn’t risk making a mistake.

3. “Take a trip down memory lane.” During trying times, consumers like the comfort of brands that represent fond memories of happier, more innocent times. The time their grandma took them to McDonald’s. The time they shared a Coke with a friend. The time they met a hiring manager at Starbucks and got the job. Remind consumers of their joyful brand experiences, and provide them with a way to relive those memories (and make new ones).

Today’s stretched consumers seek a $5 vacation; brands that provide it will win market share, and keep private label at bay.