Recessions and Premium Consumer Brands

In January, 43 million student loan borrowers will have to make payments again after a two-year pause. This is hundreds of dollars per month in additional expenses. Covid payments have already ended. Inflation in retail CPG items is a permanent lift of ~10%.

With or without layoffs, consumers no longer have a cushion to engage in experimental trade-ups, except in one-off edible indulgences.

What happens typically is that travel, leisure, and sit-down dining expenses get slashed first. This causes a retail food/beverage tailwind and surges in volume as more meals now happen at home in the middle class. 

Struggling family households shift down-market into hard discounters for more of their monthly needs.

The combined result of all this is a loss of trial for premium CPG items among the folks I call ‘pragmatic adopters’ in my book – Ramping Your Brand

Special occasion trade-up in food/beverage gets hit the most. Wine, chocolate, party food, deli items, and Costco party volume all get hit as some portion of their shopping volume evaporates (vs. trade-down on price/quality). 

I learned years ago that content, premium consumers of health-positioned brands wouldn’t change their buying behavior even in a recession, even with a job loss. There is a psychological block to slipping backward on a health habit with a very powerful, near-term health benefit (in the eye of the beholder). 

And on the other end of the stickiness continuum are culinary trade-up purchases. Unless the consumer is a committed Foodie (a low % of the population), getting folks to trade up to premium flavor experiences (e.g., Raos) is challenging.

The most considerable headwinds, though, are for brands entering or in the nine-figures because this is when you start building most of your trial from infrequent repeaters (i.e., 1-2 times a year) more than habitual weekly consumers (who buy at least monthly).  Your strategically high-value outcome largely determines your recessionary fate.

Dr. James Richardson

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