Ferrero U.S.A.’s Phil DeConto provides insights on why consumers are seeking premium products and how retailers and manufacturers can respond.
Retailers and manufacturers are facing a sea change of shopper behavior. Ecommerce was already expanding before the pandemic, but delivery and store pick-up exploded as Americans limited their contact outside the home.
A bright spot for savvy retailers and manufacturers is that throughout all the upheaval, shoppers are still willing to pay more for products and services that work harder for them or deliver upon a higher expectation.
This premiumization trend presents an opportunity to stimulate lagging categories and improve margins by satisfying the changing needs of shoppers. But what exactly is premiumization and which consumers does it apply to?
Premium in this context means more than simply price per ounce. There is generally a shopper cost associated with premiumization, but the real insight is driven by the expectation of more. Examples include delivering upon improved convenience of packaging, transparency around product contents, perceived better-for-you benefits and higher quality, richer or more complex ingredients.
Shoppers are seeking these “premiumized” experiences that make them feel good about themselves and their purchases, give them confidence, portray success and allow them to feel like a trendsetter.
This trend does not just apply to influencers and hipsters. While the roots of the premiumization insight can be seen in millennial shopping behavior, this is really a general population insight.
At 83 million, millennials are now the largest generation in U.S. history, and their $1.4 trillion spending power, according to a recent article on bizjournals.com, has a massive influence on overall shopping trends.
It is important to note that this isn’t exclusive to an income demographic, either. Shopping behavior is premiumizing across lower, middle and high-income households.
Beyond Boutique Websites, High-End Groceries
Expensive beard oils and small-batch whiskey are obvious examples of premiumized products, but this goes way beyond products considered upscale. Look around at your neighborhood convenience store and you will see artisanal beef jerky, organic granola bars, and gluten free cookies. From targeted digital ads to podcast hosts, we are constantly urged to upgrade to healthier vegan snack subscriptions and more gourmet cheeses of the month.
You can pick almost any category and the likely growth driver is a premiumized offering within the category. According to Information Resources, Inc. (IRI), premium items and brands are averaging three to four times the growth rate of their category peers, from online retailers to big box stores to corner drug stores.
Chocolate is an exceptional example of this trend because there are actually two premiumizations occurring.
First, we’ve seen how premiumization is working within the premium segment of chocolate products, which is often driven by special occasions and gift giving.
Shoppers know the difference between introductory and top-tier brands within premium chocolate, and these top-tier premium brands are outpacing introductory brands across different pack types, occasions and seasons.
But this trend isn’t limited to the premium chocolate segment. Ferrero sees the emergence of an “upscale mainstream” segment within chocolate, where the product features of premium chocolate are applied to the everyday consumption occasion of mainstream chocolate.
Kinder Bueno, chocolate bars with a mix of milk chocolate, crispy wafer, hazelnut filling and dark chocolate drizzle, for instance, became a $100 million brand within a year of their U.S. debut and have been recognized as a New Product Pacesetter by IRI.
This success shows that Americans are excited to premiumize their everyday chocolate buying experience. Expansion of the brand into take home packs, including Bueno Minis, allows retailers to highlight this growing trend in the chocolate aisle.
Clearly blocking shelf space for premium, upscale and traditional mainstream chocolate helps the shopper better navigate the aisle.
When it comes to gifts, shoppers want to seem generous. And when it comes to treating themselves, they want it to be worth it.
The shared win for retailers and manufacturers comes from leveraging premiumization in the face of reduced in-person trips. Each trip now matters that much more to the category and the retailer. Delivering on heightened expectations can justify an increased cost at the shelf while also better delighting the end consumer.
Contributor Info: Phil DeConto is vice-president, category management & shopper insights at Ferrero U.S.A., Inc. Since joining the company in 2017, he has built out category management as a function while partnering with sales, trade marketing and brands on key innovation launches, including Kinder Joy in 2018.