This Weekend's Contemplation - What is the Consumer Buying? Is SPAM Making a Comeback?

Consumer behavior is beginning to change as a result of economic uncertainties and higher energy and food prices. But, the real question is how has the consumer changed their consumption patterns. Everyone has probably heard of the move away from trucks and SUVs and into more fuel efficient cars. But what about food and other products? I found the article below interesting. From Market Watch:

Wondering how consumers are coping in such a troubled economy? Look at what's selling instead of which sales are tanking.

As consumers muddle through all that is plaguing the U.S. economy, they have battened down the hatches and sharply shifted their spending habits, turning to money-saving options that run the gamut from transportation to health as they find ways to pay for dramatic increases in gasoline and food.

What emerges is a new paradigm of consumerism that some experts believe will live long after this economic crisis is resolved.

"Suddenly consumers are focused on buying what they have to have as opposed to buying what they want to have," said Howard Davidowitz, chairman of Davidowitz & Associates, a New York-based retail consulting and investment-banking firm.

"This is a permanent change for Americans, who will face a declining standard of living over the next 20 years," he added.

Consider this: Truck and SUV sales are losing air as quickly as a popped tire but hybrids and fuel-efficient car sales are holding their own. Sales of scooters, which can cover twice as much ground on a gallon of gasoline as America's favorite Toyota Camry sedan, are gaining as fast as prices at the pump.

Sales at department and specialty stores have been in the dumps for many months. But sales at drug stores and most deep-discount stores are in rally mode as more people opt for stores closer to home and those perceived as value giants.

Meanwhile, home-seamstress haven Jo-Ann Fabrics inc delivered surprisingly strong first-quarter earnings after a stretch of dismal results, thanks in part to strong sales of sewing notions, quilting and craft items. Same is true for Michael's Arts and Crafts, suggesting that consumers are going back to the basics as they spend more time at home.

At the grocery store, the soaring costs for chicken, fresh strawberries and beans are leading consumers to the frozen- and canned-foods aisles where the prices are more palatable for a family of five. Even Spam is making a comeback.

"This is impacting every single American right now," said Dan Houston, president of Principal Financial. "No one's immune."

Yes, even the rich are joining the cut-the-corners club, according to a bevy of reports. Take dining patterns: When BIGresearch asked if they had cut down on going out for meals this year, 36.2% of those with household incomes over $100,000 said they had -- a 13 percentage point jump from a year earlier. A tightening up on restaurant meals from January through March of 2008 accounted for most of the increase.

The Food Marketing Institute recently reported that 83% of consumers are eating home-cooked meals in, of all places, their own homes at least three times per week. FMI also found that wealthier households are more apt these days to buy food to make at home than lower-income households that tend to pick up cheap burgers and fries at fast-food restaurants.

The latest update of the Principal Financial Well-Being Index found that more Americans are pinching pennies when it comes to everyday spending.

Since April, 56% of workers and 55% of retirees told Principal that they have pared spending because of the economy's woes. That's significantly more than workers, at 38%, and retirees, at 32%, who said the same thing only six months ago.

More than two-thirds of both groups said they're forking over about $100 more a week on groceries compared with last year. About half of both groups are eating out less and also stocking up on store or generic brands more often, while more than one-third of them are giving up convenience and premium items for cheaper alternatives. Another one-third is stalking multiple stores in search of sales.

But what are they buying? According to Information Resources Inc., which uses sales receipts of consumer products as a measure of shopping behavior, they're forgoing fresh fruits and vegetables in favor of the frozen varieties because they're cheaper. Don't confuse that with frozen prepared foods. They're shunning those to cook from scratch, but using the frozen vegetables, fruit and meats instead of the fresh products.

In the last year, sales volumes of frozen pizza fell 3% while receipts for frozen dinners and entrees dropped 4%. Yet sales volumes of frozen vegetables were higher by 4% while frozen poultry sales jumped 8%.

Sales of Spam -- the shoulder-pork-in-the-can luncheon meat -- are up some 10% amid a price hike and were a big contributor to parent company Hormel Foods' Hormel Foods Corporation second-quarter profit growth.

"We're still seeing very robust sales," Chief Executive Jeff Ettinger said on the quarterly conference call of Spam and Hormel Compleats, "because I think the consumers in this environment are still seeing those as excellent values versus some of their alternative meal options."
Consumers are also turning to analgesics and cold medicines to treat ailments on their own rather than seek -- and pay for -- a doctor's visit. Sales of thermometers, for example, surged 8.3% in the last year.

"We're in a transformation from a real-live, in-your-face consumer perspective," said Thom Blischok, president of IRI Innovating and Consulting. "People won't stop using toilet paper, but they will stop using other products."

Blischok sees three major consumers trends occurring that vary by income. Those making under $50,000 a year are redefining what goes into their shopping carts, choosing hot dogs instead of steak. "They're finding ways to stretch the meal dollar by going back to just the essentials," he said.

The mid-tier consumer in the $50,000 to $100,000 income range is "selectively deselecting" in what Blischok called a "substitution strategy." They're choosing to buy cheaper wines and to swap out bottled water for tap with a purifier, he said.

Those earning $100,000 and above are doing something similar in what Blischok labeled "de-prioritizing."

"These people are asking themselves, 'Do I really need a $100 bottle of wine? Wouldn't a $40 bottle do,'" he said.

All income groups are also switching to "affordable indulgences," he said. Rather than opting out of something like, say, ice cream, many consumers will get a quart instead of a half gallon, or they'll decide to buy coffee grounds to brew at home rather than buy Starbucks drinks daily.

Among the more disconcerting findings in a recent IRI survey was that one-third of consumers said they will buy fewer healthy products because they're more expensive. Forty-six percent of those were earning $35,000 or less.

Elsewhere, consumers are giving up their gas-guzzling cars for short-distance driving and jumping on scooters. "Scooter sales are through the roof," said Johnny Scheff who owns Motoworks Chicago. Scooters, which are like super-bicycles with motors, can get anywhere from 60 miles to, some owners insist, 95 miles on a gallon of gas, depending on their size.

Scheff is already seeing sales triple what they were a year ago and expects scooter sales to make up 80% of his business this year versus 20% traditional motorcycles. "My business has turned into a scooter shop overnight," he said.

At Vespa, sales in May surged 105%, according to Chief Executive Paolo Timoni, and are on track for a 40% year-over-year increase. He points to rising gas prices and the efficiency of the Vespa compared to an SUV or a truck as well as a capitulation of sorts among American consumers.
"They're finally getting it," he said. "People have been using scooters in Europe for years and there was a stigma about it in the U.S. That's changed now with gas prices so high."

Finally, consumer confidence sunk to a 16-year trough in May, inflation expectations touched an all-time high and spending intentions were scaled back for most categories, according to the latest economic data. But consumers plans to buy new TVs hit a fresh high, further underscoring their desire -- or plain need -- to find entertainment at home.

David Rosenberg, Merrill Lynch's chief economist in North America, thinks nesting has become a trend.

"In order to get from point A to point B without spending $75 filling up the tank, households now seem bent on cocooning by staying home to watch television rather than drive to the local theater and shell out more than $11 to watch a film -- and an extra $5 to get there," he said.