'Hybrid Customers' Put Mid-Market Foodservice Companies at Risk

NEW YORKThe rise of "hybrid customers" could cause a struggle among middle-ground food retail companies hoping to retain market shares; therefore, food processors, food retailers and food service companies alike will need to adapt or risk fading away, according to a new report from Rabobank.

Hybrid customers want less mid-market products, and instead, they trade down for everyday items like basic groceries. Using money saved by trading down on staples, hybrid consumers trade up to premium products, so the food retail sector will become increasingly polarized into value and premium, causing a problem for middle-ground players.

"The implications of this market trend are profound and touch on areas, such as product offerings, distribution channels, marketing and brand management," said Marc Kennis, senior analyst, Rabobank Food & Agribusiness Research and Advisory. "Given the driving forces of hybrid consumption, i.e. women's increasing role in household spending and the growing importance of Millennials (generations Y and Z), we believe that hybrid consumption is a long-lasting phenomenon."

Rabobank identified  three main forces driving the hybrid consumer trend. One factor includes socio-demographic developments, such as the growth of women's purchasing power and the younger generation's likelihood to make food choices based on merit rather than brand loyalty. The second factor involves food retailer strategies and the advent of discounters. This adds to consumer awareness regarding food product purchasing. Finally, macro-economic developments also affect the hybrid customer trend. The recent global recession accelerated market dualization, and constraints on disposable income and falling confidence has encouraged trading down on basic items. However, consumers still want occasional indulgences.

The growth rate of retailers reflects the hybrid consumer patterns. Those geared toward the mid-market show lower growth rates over a longer period than their peers at extreme ends of the spectrum. Between 2007 and 2012, above average performers in the United States included hard discounters, such as Aldi, or premium formats, such as Whole Foods and HE Butt Grocery.

Rabobank also identified strategies for food processors, food retailers and foodservice companies, allowing them to benefit from the rise of the hybrid consumer.

The first strategy involves moving up to the premium segment of a specific product category. For example, offer healthier alternatives, use more natural ingredients and incorporate corporate social responsibility, as well as sustainable business practices.

Second, offer "value" products within the premium segment and "premium" products within the value segment. This way, retailers can cater to consumers that have become more cost-conscious due to waning consumer confidence and purchasing power.

Lastly, use value products to sell premium products. Supermarkets and food service outlets can use this strategy to attract customers with value-for-money propositions, while simultaneously aiming to sell premium, more expensive products to these same customers.