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US consumers turn to Dollar stores

Chemical companies, Consumer demand, Economic growth
By Paul Hodges on 27-Sep-2010

$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.