US consumers turn to Dollar stores

$1 items.pngMajor changes are taking place in US retailing. They echo the changing focus of emerging Asian markets. Taken together, these must have important implications for chemical demand.

US retail markets have been evolving over the past 3 years, as the Crisis began to hit, and the baby-boomers moved beyond the peak 25 – 54 age group of maximum consumption:

Back in 2007, the major retailers began to report that consumers “appreciate the opportunity to save on everything” (Wal-Mart) and “are more focused on value-for-money” (Tesco).
• Then this trend spread to impact the major consumer products companies. Even Procter & Gamble was forced to respond, after its sales were hit by competition from low-cost ‘own brands’. They introduced the Basic range, with lower performance and price.
• Now, the New York Times is reporting that “Dollar stores have shown the biggest gain in shopper visits over the past year“. These are stores where most products sell for $1 or less. In turn, manufacturers are starting to produce “smaller packages that cost less“.

The implications are obvious. The richest consumers in the world are no longer focused on buying more of everything. Instead, they are beginning to redefine purchases into ‘needs’ and ‘wants’.

This trend is now spreading across all categories. Large so-called McMansion homes are definitely out of fashion, as are large Hummer vehicles. Equally, of course, the emerging economies of Asia are increasingly focusing on the vast untapped markets on their doorsteps, such as China’s rural population, rather than ‘aspirational’ consumerism for the lucky few.

India, for example, is successfully introducing the nano car, priced at $2k, aimed at providing an alternative for families using a two-wheeler. Whilst Unilever’s Shakti project is aiming to sell single items of toiletries etc to 600m people who cannot afford to buy western-style volumes.

Richard Brasher, Tesco’s commercial director, warned 3 years ago that “Coming down the road is a tougher time.” He announced that Tesco was changing its focus from affluent shoppers because “if you don’t have the basic things right, you will be talking at the edge rather than at the centre“.

Today, as chemical companies focus on their 2011-13 budgets, these comments seem more insightful than ever in terms of likely future demand patterns.

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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3 Responses to US consumers turn to Dollar stores

  1. Robbo 28 September, 2010 at 3:00 pm #

    Hi Paul,
    I’ve got some anecdotal evidence that times are hard in the US. Travelling from Manhattan to JFK last week, the cab’s radio was full of ads for lawyers offering to reschedule loans and mortgage for people struggling with repayments or in the repossession process. There was a jam, it took about an hour, I heard the ads repeated several times.

  2. John Richardson 29 September, 2010 at 7:48 am #

    Fascinating stuff, Paul

    So as a chemical company, if you’ve already made the right capital investments to raise your competitiveness and integration – and are located in the right markets – you should be able to supply very cost-effective PP to, for example, the makers of the Nano?

    Is there also a case for building in more feedstock flexibility (e.g. for cracking LPG) and then sweating some old and therefore fully depreciated assets very hard in places like Europe? (provided they are not too worn-out to be worth continuing to operate).

    If cost is King, and the outlook is as bleak as you suggest, this could make more sense than adding greenfield capacity to meet what might continue to be tight markets in C3s, C4s etc – as you’ve blogged on before.

    A much broader question and one that would take a book to answer (!) is where this focus on cheap-cheap could leave some of the chemicals innovators in the West. Sure, water treatment, infrastructure etc are likely to remain boom areas in emerging markets – but where goes the demand for high value chemicals into high value consunmer goods?

  3. Mitch 2 October, 2010 at 10:40 pm #

    It’s a bit more complicated in the U.S. Look at food retailing. Without a doubt there’s been a flight to value grocers in the recession. However, Whole Foods Market, hardly a value grocer, is doing extremely well. The same is the case for big, popular regional supermarket chains. Wegmans on the East Coast and H-E-B in Texas ($15B annual sales).

    What’s actually happening in the U.S. is a bi-frication: solid discount retailers (and many of the dollar store chains) are gaining sales, but solid higher-end grocers also are doing well.

    It’s more about value than price. Shoppers see value in Whole Foods, Wegmans, H-E-B (Trader Joe’s and others as well), even though the price-points are a bit higher.

    In terms of the dollar store segment – the chains are over-building. a few years down the road we’ll see lots of dollar format store closings.

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