SUMMARY: Thanks to the consciousness-raising film An Inconvenient Truth and the Live Earth concert series, global awareness of environmental issues has increased, prompting attitudinal changes, but consumer behavior at retail is changing more slowly. In many cases, “green” concerns are the unwitting beneficiaries of tough financial times as people drive less and rediscover the versatility of leftovers.

There’s not much that’s convenient about climate change and its impact on the food chain. Unfortunately, environmental concerns are taking a backseat to more immediate and pressing financial concerns during

this recession. Just one year ago, issues like the environment, health and work/life balance ranked as the primary or secondary concern for consumers. In an April 2009 Nielsen Global Online Survey covering more than 50 countries, it’s the economy and job security that are keeping people awake at night, with global warming falling to 14th place on the list of “biggest and second biggest concerns”.

Half of respondents felt that, over the next ten years, their lives would be negatively affected by climate change, while one-third anticipated little difference. On a country-by-country basis, six of the top seven “most concerned” populations resided in the Latin American countries of Brazil, Argentina, Chile, Colombia, Mexico and Venezuela. The sole European exception—and most concerned country overall—was Greece.

Prudent practices
Forced to review spending habits in an attempt to hold the line on costs, green concerns are emerging as an inadvertent winner. For example, lower new car sales translate into fewer cars on the road and lower

exhaust emissions, with a positive impact on global warming. In rosier times, households tended to waste up to 30% of food—today, families are searching recipe web sites for ways to re-purpose leftovers.

Even as consumers are adopting more environmentally-prudent practices, a disparity remains between the percentage of people who claim to be “concerned about the global environment” (80%) and those who state they have proactively changed their daily behavior in the last six months to address climate change (51%).

Measuring miles
A great debate rages as to the appropriate way to measure the costs of sustainability efforts. Some tout the value of food miles—promoting the benefits of buying locally and limiting transportation costs. Others prefer carbon emissions, because mode of transport and time of year can actually make imported products less damaging to the environment.

The carbon emissions method takes into account the energy required to grow and process a product, which can outweigh the cost of transportation. Examples of cost-effective imports to Europe include New Zealand lamb, Spanish tomatoes, New Zealand winter apples and Kenyan roses.

Trailblazing initiative
Consumers want retailers to step up and bring clarity to the sustainability issue, as they have with food labeling. In mid-July 2009, Walmart Stores made the bold move of announcing an environmental labeling

program that would require every vendor—no exceptions—to calculate the full environmental impact and cost of their products.

Based on this input, Walmart would then assign a green rating to every product in the store. The actual rating system may take as long as five years to implement, but represents a landmark moment for the sustainability movement.

Consumer contribution
The Nielsen Global Online Survey findings suggest that shoppers are trying to make a contribution to the sustainability movement in a number of ways. More than half of consumers purchase energy-efficient products and appliances as well as locally-made items. More than 40% of shoppers choose products in recyclable packaging or buy at a farmer’s market.

More than 30% seek out products with little or no packaging and opt for organics where available. More than one-quarter prefer fair trade products, those that are ethically produced or grown and locally-sourced alternatives.

Gone fishy
One example of an environmentally-sensitive program has been introduced by the seafood industry. Demand for seafood is on the rise thanks to the combined impact of publicity campaigns touting the health benefits of Omega 3 and 6 fatty acids found in fish, and the negative health and environmental aspects of bringing red meat to the table. Fully 92% of people around the world reported eating fish in the last year.

The downside of increased demand for seafood has been a related upswing in over-fishing, leading to the depletion of many species at world fisheries. In response, the Marine Stewardship Council (http://www.msc.com) developed a logo now featured on millions of products that tells consumers the producing company employs sustainable fishing practices. Seven in ten survey respondents felt that the on-pack accreditation stamp for sustainably-sourced fish was important to their purchase decision.

Among the countries most heavily influenced by the fish sustainability label were Vietnam, Philippines, Brazil, Columbia, Saudi Arabia, Mexico, India, Chile, Indonesia and United Arab Emirates.

Tackling responsibility
When asked where responsibility rested for monitoring fishing practices and protecting the sea’s fish stocks, survey respondents voted for country governments (67%), the fishing industry itself (46%), fish manufacturers and processors (28%), people who buy or eat fish (19%), non-government organizations (18%) and fish product retailers (16%).

Table stakes
While many see the move by major player Walmart as a way to differentiate itself from the competition and build consumer loyalty, others believe that in the future, aggressive sustainability programs will become table stakes, simply the price of entry at retail. The ultimate goal is to achieve a triple play where the people, planet and profits all benefit from environmental activism.

“In the previous Nielsen Global Consumer Confidence survey conducted in March, we were seeing the first signs that as far as the world’s consumers were concerned, the recession had bottomed out. Three months later, they’re starting to embrace the idea of recovery – which is a major turning point,” said Jonathan Banks, Business Insights Director, The Nielsen Company.

In Nielsen’s latest survey, which polled 14,029 online consumers in 28 countries late in June, 71 percent of respondents thought their country was in recession – a positive reduction of six points from a high of 77 percent when the survey ran in March 2009.

“The BRIC and Asian markets have recorded the greatest jumps in Consumer Confidence Indices in the past three months,” noted Banks. “Consumer confidence in India jumped 13 Index points, and climbed 9 points in Japan, South Korea, Hong Kong and Indonesia. Consumer confidence rose 8 Index points in Taiwan and Brazil, and 7 points in Singapore, Turkey, Russia, Philippines and the UK. The only exceptions to this upswing were in the USA and New Zealand, which held flat in the second quarter, with Germany the only country to register a decline of one Index point,” said Banks.

Even in the market registering a small decline – Germany – there are encouraging signs that a recovery is imminent. According to the Nielsen survey, nearly one in three Germans (29%) said the recession would be over in the next 12 months, compared to only 22 percent three months ago. One in three Germans also thought “now is a good time to buy the things they want”, indicating a renewed willingness to spend on discretionary items. Thirty-eight percent described their personal finances as “good” for the next year.

“This is one of the strongest indicators of a global consensus among consumers that the worst is over, and that finally, there is light at the end of this long tunnel. And consumers in emerging and Asian markets are clearly of the view that they are driving in the recovery lane now,” added Banks.
The latest Nielsen Confidence numbers are a welcome return to positive, confident territory for consumers in the developed Asian markets of South Korea, Taiwan and Japan, who have been battling economic inertia and political instability for several quarters.

“Asian consumer confidence appears to have been boosted through successful government economic stimulus packages that were speedily and effectively implemented at the onset of the global recession,” noted Banks. In the world’s second largest economy, the Japanese government implemented tax breaks, introduced cash deductions and subsidies on new car purchases, as well as providing cash payment and premium gift coupon schemes to stimulate spending.

“As well as expanding credit terms to small and medium sized businesses, in Japan there are even incentives to purchase eco-friendly household appliances as part of the government’s new environmental policy, and national toll prices for motorways have been discounted to encourage domestic tourism,” observed Banks.

Stock market gains in the BRIC and Asian markets have also had a major impact on consumer confidence,” said Banks. More than any other region, stock markets in Asia have rallied and property prices are starting to regain their pre-recession values. Russia’s stock market is up 60 percent from the start of the year and Taiwan is up over 50 percent. Brazil and Singapore’s stock markets have gained around 40 percent in the past six months and the South Korea and Hong Kong stock markets are up over 30 percent. With stock market gains so intrinsically linked to consumer confidence in Asian markets, it’s no surprise that Asian consumers are most confident about a receding recession, led by Hong Kong (-14 pts), Taiwan (-13 pts), Singapore and Japan (-12 pts), India and China (-10 pts).

“Positive economic news and growing consumer optimism in the past few months have definitely led consumers in these markets to believe that economic recovery will come sooner rather than later,” said Banks. According to the Nielsen survey conducted in March this year, 28 percent of Singaporeans said they expected their recession to end within 12 months – last month this number rose to 39 percent. UAE consumers also share this sentiment. In March, 32 percent of UAE consumers thought the recession would be over within a year but in June 43 percent said they expected the recession to be over before the middle of 2010.

Latest Nielsen data also shows that consumer confidence in the UK – a country that has suffered one of the most dramatic downturns in consumer confidence in the last year – is on the rebound, climbing 7 Index points in the second quarter. “UK consumers are getting the hang of consuming less. People with jobs – still the overwhelming majority – now have more disposable income as they reduce spending on big-ticket items like cars and holidays. With mortgage interest rates at their lowest levels, savings rates are increasing quickly and this has increased financial confidence,” said Banks.
“Consumers know that recovery won’t happen overnight but there has certainly been more good news than bad in the past few months,” noted Banks.

The decline in constant bad economic news in the media has directly impacted on the topics consumers are talking and blogging about. According to Nielsen Buzzmetrics, Nielsen’s service for measuring online conversations, the number of online discussions, or” buzz”, in the UK mentioning the word “recession” dropped around 60 percent between late March and late June this year. “People’s obsession with the recession has switched to how to live and spend more moderately in a new economic era,” said Banks.

Italian consumers have also become more optimistic, showing a strong gain of 7 Index points – their highest Nielsen Consumer Confidence Index since the second half of 2007. “Our survey supports recent Italian government figures which indicate that consumer confidence is returning to the Italian economy. In the last three months, Italian consumers’ concern for job security and the economy fell by 4 percentage points respectively, while average supermarket prices fell 0.2 percent in June 2009, indicating that consumers are less concerned about rising food bills than they were two years ago,” said Banks. The rise in consumer confidence in Italy has also been positively impacted by the government’s stimulus policies and the significant decline of negative economic coverage in the media. Online discussions mentioning the word “recession” have decreased by 35 percent this year according to Nielsen.

Globally, job security and the economy remained consumers’ top two concerns in life but even the level of these concerns has abated in the last three months and recorded declines of two and four index points respectively.

Todd Hale, Senior Vice President, Consumer & Shopper Insights, Nielsen U.S., Jonathan Banks, Director Retail Insights, Nielsen Europe, James Russo, Vice President of Marketing, Nielsen U.S., Jean-Jacques Vandenheede, Director Retail Insights, Nielsen Europe

In what areas of the world, have you seen the most significant changes?

Jonathan Banks (JB): We have already seen a big reduction in shopping trips in European countries since the first quarter of 2008. In Australia, the convenience channel heavily depends on travel to gas stations and there is a strong correlation between gas prices and their store performance. Also Australia saw a faster than expected growth in the discounter channel due to the expansion of ALDI. They succeeded in marketing an offering that consumers perceive to be competitive with the supermarkets on both quality and price. Around the globe, discounter growth was highly correlated with the growth in store numbers, though we now see in some countries (e.g., United Kingdom, Germany and Netherlands) like-for-like growth moving ahead.

Jean-Jacques Vandenheede (JJV): While the surrounding conditions in each market are different, everything today has to do with value. Consumers are flocking to good deals and they are taking advantage of the aggressive sales being offered. However, we have noticed a four to six month delay between the media hype and the resulting consumer behavior. Meaning this: it could get worse before it gets better. Since food is relatively recession resistant, consumers are mainly saving money by cutting back on non-essentials, such as perhaps only taking one holiday instead of two.

James Russo (JR): In the U.S., consumers have been preparing for a recession since the fourth quarter of 2007, according to a Nielsen Global Consumer Confidence survey. However, the most dramatic change in behavior aligns with the severe drop in economic and financial conditions that took place in September 2008. While there are areas of the U.S that are more affected than others, this recession—unlike some others in the past—is broad-based across all income groups. Lower-income households are feeling the pressure of the labor market, housing and credit restraints, and upper-income households are watching their net worth decline, which is most visible in their retirement pensions and housing.

Todd Hale (TH): In the U.S. retailing market, the big surprise has been the severity of shifts from nice-to-have to need-to-have assortment and retailing. In 2008, sales results for discretionary retailers (those serving both high- and low-end consumers) saw their shopping trips and dollar sales plummet in 2008, and sales results for many food categories and food retailers were obviously much better. As a colleague succinctly put it, “if you can’t eat it, you don’t need it”.

What are retailers doing to cope in difficult economies?

JJV: Interestingly, retailers are grasping at basic block-and-tackling methods that place emphasis on resisting price increases, making concessions towards quality, focusing on promotion, investing in private label and negotiating with suppliers on margin increases.

JB: One of the most newsworthy events in the United Kingdom was the closure of the British icon Woolworths. While the economic pressures are affecting a spectrum of retailers, those poor-performing retailers—before the recession—are the ones struggling most. A development to watch is the utilization of Information Technology (IT). As IT continues to get less expensive and more effective, there will be opportunities for increased collaborative buying and sourcing. There is an opportunity to increase savings in times like this, and getting more with what you have is a good investment. Expect to see private label’s share advance more quickly in some categories, in some countries.

JR: Retailers are taking steps to address consumers’ strong desire for value, through their merchandising, marketing and advertising programs. There is a renewed focus on driving return on investment, getting more out of what they have and understanding opportunities (consumers, categories) at an increasingly granular level.

TH: U.S. retailers are placing a strong emphasis on value and their private label programs. In the past year, Kroger has gone head-to-head with Walmart with matching prices on food basics such as bread, milk, eggs, and bananas. On the heels of Save-A-Lot’s successful “Fuel your family for less” program, other grocers have implemented their own “Feed a family of four for $8.00/$10.00 per meal” programs. With a decline in commodity prices, grocers like Wegmans and Giant Eagle (Pittsburgh) have advertised price cuts across their stores.

From the consumer packaged goods executives you have spoken to, what is their level of optimism?

JJV: Caution and uncertainty are the operable words to use. Executives are planning for the worst and hoping for the best. Rather than over-reacting to the conditions, they are looking for segments of opportunity wherever they can be found. All the market indicators we are tracking show that the markets are holding. The majority of the categories are showing positive volume growth in Q4 of 2008.

JB: Now is not the time to slow down and pull back from brand development. Think about how long it takes to get a new product through the pipeline. From a new product development point of view, marketers should have reduced their efforts two years ago if they wanted to be less dynamic through the downturn. History tells us that really great brands have been launched in the middle of recessions where advertising can cost less.

JR: As we speak to hundreds of manufacturer and retail executives, 2008 was clearly a year of uncertainty. Questions such as; how bad is the recession going to be, how long will it last, and what do we need to know were on the minds of every executive. In 2009, the discussions are starting to turn towards: How do we plan for a recovery? What is our exit strategy to assure growth in an up market? Should we increase our advertising and marketing spending? Positive developments will come as many of these plans will take months to execute. Companies need to stay ahead of the curve.

TH: CPG manufacturers have a more pessimistic outlook on 2009 than most retailers I have spoken with. However, many manufacturers do see opportunities to at least hold firm on their marketing spending. While big retailers like Target, Walgreens and Walmart announced plans to reduce store expansion in 2009, they are still expanding and investing in new formats. The same is true for a number of other national and regional grocers as they look for opportunities to test or open new formats and find new locations to expand their footprint.

What are the biggest opportunities for consumer packaged goods manufacturers and retailers in 2009?

JB: Sustainability remains an extremely important long-term trend as opposed to a fad. Today, ethical companies can use this platform as a differentiator. Within three years, it will be expected and opportunities to promote it will diminish as ‘doing the right thing’ becomes the norm.

JJV: Now is the time to plan ahead and develop an exit strategy out of a crisis. Look at all potential pitfalls and determine a plan to turn things around. Not planning for an exit strategy is actually slowing down the recovery.

JR: The biggest opportunities will be found by aligning with the deepening consumer behaviors that have been occurring since the beginning of 2008. As the economy slows, these behaviors will intensify. Some of these behaviors include:

• greater at-home related opportunities;
• fulfillment of basic over discretionary needs;
• pervasive trading down;
• variety and convenience taking a back seat to value.

TH: Consumers have told us how they are staying home more often and consuming more meals at home or at work. This speaks to meal solution opportunities for food manufacturers and retailers. In addition to the “meal deal” promotions many grocers have implemented, there are opportunities for at-work meals and other meal solutions. One example is ConAgra’s new line of microwave meals. New product opportunities can come to those manufactures that provide a product that delivers real benefits. Value messaging is another strategy coming out loud and clear, such as Kraft’s TV advertisement that compares the size and price advantage for Velveeta cheese with a block of cheddar cheese.

While unit sales of many non-food, health & beauty aids, and general merchandise products fell in 2008, the fact that consumers may be spending more time at home speaks to opportunities in these categories too. Procter & Gamble is a good example of successfully positioning some of their health & beauty brands against higher-prices department store or beauty salon offerings.

What is the one development that has surprised you in 2008?

JB: What surprised me most was the high level of debt families accumulated. Too many families are living beyond their means. Whilst the credit crunch was predicted by some, a good reminder to us all is that in economics, what should happen, usually does…eventually!

JJV: The number of businesses that have been operating beyond their “natural” means—the overuse of incentives, promotions, etc.—has pushed the environment to a limit. Those companies who were healthy before the recession hit will thrive. The ones who were already struggling have been hit harder. Like the athlete who uses prohibited drugs to stretch beyond their physical limits, when corporations operate beyond their means, it is only a matter of time before they will get caught.

JR: The potential for a fundamental shift in consumer behavior is most surprising. This recession is not a cyclical decline and subsequent recovery back to norms. The fundamentals that drove consumption for the past 10 years—most notably, the housing and credit markets and the way households overleveraged themselves—have abated. It is almost as if we are turning back the clock to the 1980s or early 1990s where households start to save and become more fiscally responsible in their consumption habits. And while there is long term gain associated with these behaviors, in the short term, we are looking at a slower, very moderate recovery for potentially the back half of 2009 or early 2010.

TH: What surprised me most was how escalating gas prices—which rose above four dollars a gallon in the first half of 2008—and the mid-September collapse of financial markets had altered the shopping and spending habits among those with higher incomes. These consumers have led the growth in shopping trips to value retailers such as dollar stores and supercenters.

Secondly, the decline in retailer spending and shopping within discretionary retailers, such as apparel, electronics, office supply, department stores, etc., in 2008 has been unprecedented. This trend will continue in 2009, as virtually every major industry (from automotive to housing to restaurants) will continue to experience weak sales in 2009. However, it is hopeful that a U.S. economic stimulus program will be implemented by the second half of 2009, which should drive more consumer spending and make 2010 a better year.

According to a recent 52-country survey by Nielsen, some of these attitudes are universal: almost two-thirds (60%) of the world’s population struggle with their weight — 50% with overweight and 10% with underweight issues.

But as Jonathan Banks, Business Insights Director, Nielsen, notes in the January issue of Nielsen’s “Consumer Insight” online newsletter, tactics for paring pounds — and body image — vary by country.

North Americans, for instance, self-identify as “very overweight” at double the rate of people in Emerging Markets – and at a 30% higher rate than Asia-Pacific and European residents.

In contrast, Asia Pacific ranked as the “most underweight” region, with more than half of respondents from these countries scoring themselves as “underweight” (12%) or “about the right weight” (41%).

Read the full article.

View the latest issue of “Consumer Insight.”