The world’s leading retailers have been extremely reliable leading indicators for the chemical industry, since the Great Recession began.
They were the first, back in July 2007, to highlight the major changes underway in consumer markets. Tesco, the world’s 3rd largest retailer, warned then that they were changing their focus away from more affluent shoppers and green issues:
“Coming down the road is a tougher time, and that is why we are doing this now.”
Now Tesco’s UK CEO Richard Brasher, who gave that warning, has gone one step further. Launching a £500m ($775m) discount campaign, he explained:
“Today is the New Normal. Customers are challenged. They have got to make ends meet”.
• From the 1980s onwards, consumer companies developed the concept of ‘mass customisation’, which aimed to provide higher perceived value
• They could afford to do this by outsourcing manufacturing to lower-cost factories in Eastern Europe and Asia
Consumers loved this benefit. But now, the market is polarising again.
Luxury brands are still doing well, and so are the bargain ‘Dollar Stores’ which keep prices low. But the middle ground is disappearing.
Tesco and the other major retailers are having to make a choice about how they position themselves in the New Normal. Clearly, they have to go down-market, and compete on price, in order to survive as volume players.
In turn, of course, they will force the same choice on their suppliers.
Companies will therefore find it increasingly difficult to ignore the New Normal, if they wish to maintain their volumes and pricing power.