‘Its the price that matters’: Wal-Mart and Tesco signal a major change in consumer priorities

Consumer attitudes have shifted sharply in recent weeks. This could have big implications for chemical companies, and they need to respond quickly.On Thursday, the president of Wal-Mart Stores U.S.A., Eduardo Castro-Wright, came out with a no-holds barred statement to accompany June sales figures.

‘Consumers continue to be challenged financially, with more pressure on discretionary spending’, he said. ‘Gas (eg gasoline/petrol) prices have moved to be their chief concern in our latest survey and they appreciate the opportunity to save on everything.’

Outlining a new Wal-Mart strategic focus, he added ‘We are committed to helping our customers find lower prices by working with key suppliers, reducing packaging and lowering distribution costs’.

On Friday, Tesco, the UK retail giant, joined Wal-Mart in identifying this new trend. Commercial director, Richard Brasher, announced that Tesco was changing its focus from more affluent shoppers and green issues. ‘If you don’t have the basic things right, you will be talking at the edge rather than at the centre’, he stated.

‘Consumers are more focused on value-for-money than they were a year ago. I could see price coming up the agenda last year, although the talk was all about quality’, he added. ‘Coming down the road is a tougher time, and that is why we are doing this now’.

Brent crude oil prices reached a new all-time high on Friday night at $79.64. So chemical companies are going to have to increase prices further if margins are not to be squeezed. This will not be easy in the new retail environment.

Volumes may also come under pressure, if the consumer is becoming more focused on value-for-money. Whilst Wal-Mart’s statement also highlighted a likely push to reduce packaging volume – which will provide not only cost-savings, but an easy win on the sustainability agenda.

How should business managers respond to this new consumer focus? The next few weeks provide a vital breathing space, whilst consumers in the Northern hemisphere head for the beach on their summer vacations. By the time they return, chemical company CEO’s will need to have a major ‘cost-leadership’ programme ready to roll-out.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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One Response to ‘Its the price that matters’: Wal-Mart and Tesco signal a major change in consumer priorities

  1. john richardson 19 July, 2007 at 6:30 am #

    Hi, Paul

    The mood among Asian consumers remains ridiculously upbeat, particularly in markets such as Singapore where the property market is booming.

    Inflationary pressures are just as great here, but there seems to be no drive towards cost cutting among retailers – in fact, quite the reverse.

    It’s rather that the region continues to be buoyed by strong stock markets, booming property values and the constantly accelerating process of “plasticifization”.

    By this, I mean people passing the income threshold which turns them into consumers of things made from plastics and chemicals. Hence, retail parks are springing up in India, Singapore is teeming with high-end retail developments where nobody gives a damn about how much plastic wrapping is used, and of course there’s China’s consumer explosion.

    But a major correction will have to arrive because of the inflationary pressures. The question is will governments act in time to prevent a repeat of the 1997-98 downturn?

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