SPOTLIGHTSPOTLIGHT
MAKING AN IMPRESSION IN THE RECESSION
While all around companies sink, a certain few have chosen to swim - and fast
DIAGEO
DRINKS BRAND
WALMART
DISCOUNT RETAILER
MCDONALDÕ S
FAST FOOD RESTAURANT
It’s no secret that during times of economic downturn expenditure on alcohol and cigarettes goes up; it’s not the vices themselves that people are particularly enjoying more - rather the small pleasures that one can partake in that don’t feel like they cost the earth. Diageo, whose extensive portfolio of drinks brands includes Guinness, Smirnoff, Tanqueray and Jose Cuervo, along with various vineyards, have seen a rise in their UK business of five percent, across all their brands.
They have embraced the fact the consumer has moved away from premium brands to those they trust; these brands however, are definitely not the norm and still pride themselves on a quality, value offering that is affordable but isn’’t ‘cheap’.
However, the group has suffered a two percent loss which, stacked against their sales of $5.2 billion and compared with the losses of other businesses around them, seem like a drop in the ocean. This is, after all, a 2% drop in sales - not a 2% loss. They have also been helped by promotional pushes during the traditional peak seasons.
When times get tough, consumers ‘trade down’ buying more inexpensive goods. In the US two retailers have been going head to head in the value sector of the market - Walmart and Target. Walmart seems to have trouncedv Target whose sales have dropped as Walmart’s increased for 22 months straight. Howard Davidowitz, the chairman of Davidowitz & Associates, a national retail investment-banking and consulting firm said that a “double whammy” was driving Target down; while Target was devoting precious shelf space (40%) to home and apparel items and 20% to consumables, Walmart, the world’s largest food retailer set 45% of its space to this area. Davidowitz said, “Walmart sells what you need to have as opposed to what you want to have.”
American Research Group’s (ARG), Britt Beemer, said “Walmart works hard to build a strategy around groceries. They look at groceries as a way to get people in the store for the first time.” Consumers are moving away from the apparent apparel retailer as a superfluous luxury and instead concentrated on the fundamentals.
Success was redefined in the recession; a steady line on the graph became the new up. McDonalds, fast food retail outlet, had a higher growth during 2008 than 2006 and 2007 and opened an impressive 600 stores during 2008. It racked up same store sales growth in 2009.
While food snobbery is becoming rife and more and more people aspire to farmers’ markets and organic produce, one thing is clear - the sales speak for themselves. People curb expenditure during a recession and a key focus of this is in areas like eating out - they still want to eat out but want to spend less and less doing so; McDonalds became a viable alternative to cooking at home or going to the chippy or local Chinese.
When times are hard, firms cut prices and thus margins to keep customers coming through the doors. McDonalds’s ran bargains a-plenty. However, it also focused on a new higher-margin area that would appeal to the new ‘trading down’ consumer - coffee. People quit their £3 per day cappuccino habit, Starbucks cut back while the burger giant expanded. Granted, coffee snobs won’t be seen queuing there but it has impressed some afficionados. Over the past two years, McDonald’s have ground down Starbucks coffee shop market share with their well- priced, approachable offering.
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