Survey: Consumers less price sensitive to health-and-wellness items
NEW YORK — Greater consumer interest in the pursuit of health-and-wellness lifestyles may be contributing to a lessened sensitivy in price across the category, according to the AlixPartners North American Health & Wellness Review survey released Monday. While price remains the most important purchasing criterion, above health and wellness and other attributes, for all food and beverage products, only 76% of consumers in the recent survey said price was “somewhat” or “extremely” important, versus 88% who said the same in the 2013 survey.
Specific to health and wellness-focused food and beverage products, AlixPartners found in its latest survey that consumers appear to be willing to pay a price premium for health and wellness product attributes they view as important. Consumers surveyed reported their willingness to pay a premium for products with such attributes has increased to an 8.9% price premium, versus a 6.2% premium as reported in the 2013 survey.
“This rapid change in consumer price sensitivity may create significant margin-expansion opportunities for retailers, such as in pricing, and producers, such as in formulations,” commented Brian Major, managing director at AlixPartners and co-leader of the firm’s Consumer Products Practice.
Overall, the North American food and beverage industry at large stands to benefit in 2015 from improving macroeconomic conditions and other factors, including modest growth in U.S. median household income, as well as lower gas prices. Most notable, however, is the health and wellness sub-sector’s contribution to growth, which has been three to four times greater than other grocery items in the past decade (based on sales of natural and organic products), and is expected to see substantial near-term growth as economic conditions improve. According to the survey, consumers’ primary health and wellness goal is to have a better quality of life (46% of respondents chose that) over longevity, appearance and other considerations. To achieve that, 59% of consumers surveyed cited “eating healthy” and 54% cited “exercising” as the two most important aspects of their health and wellness regimen.
“While the health & wellness trend has been strong for more than a decade, we believe consumers’ interest in this space is still in the early stages due in part to very favorable demographics,” stated David Garfield, managing director at AlixPartners and co-leader of the firm’s Consumer Products Practice. “At the same time, however, manufacturers, suppliers and retailers are leaving money on the table in health and wellness, due to less-than-optimal actions in areas including pricing, innovation and supply chain.”
In addition to a significant shift in overall willingness to pay a premium for products with desirable health and wellness attributes, there has also been a noticeable shift in which of those attributes are most important to consumers. For example, the attributes “all-natural” and “organic” increased in importance to respondents as compared to the 2013 survey; 21% of consumers cited “all-natural” in the most recent survey as most important (up from 10% who said that in the previous year's survey) and 15% cited “organic” as most important (up from 5% in the year-ago survey). Additionally, consumers' self-reported willingness to pay more increased by the following amounts for these attributes: “organic” (an 11% premium, up from 9.3% in the 2013 survey) and “all-natural” (a 9.9% premium, up from 5.7%).
The AlixPartners study reveals that both baby boomers’ and millennials’ preferences within the health and wellness food and beverage space will have a significant impact, as both demographic groups show high levels of interest in health and wellness. While companies are keen on reaching millennials, baby boomers also present a valuable health and wellness opportunity, according to the study. For instance, the study finds that baby boomers spend a larger percentage of their food and beverage budget on health and wellness items, with 45% of those ages 65 and over reportedly spending at least 20% on health and wellness items and 19% spending more than 40% on such items.
According to the AlixPartners survey, when shopping for health and wellness food and beverage products, consumers favor mass merchandisers (cited by 42% of consumers) over traditional grocery stores (cited by 34% of consumers). This survey also finds that consumers are shopping for food and beverage products across a wide range of retail channels, including drug stores, dollar stores, Internet retailers and convenience stores, as well as traditional grocery stores and mass merchandisers. The survey additionally showed that only 21% of consumers are loyal to one grocery retailer for their health and wellness groceries, while 25% of consumers shop at one retailer for health and wellness and at another for traditional grocery items at least 61% of the time.
“Retailers are facing higher customer expectations, greater supply-chain complexity and increasing competition for the consumer’s health and wellness dollar,” said Richard Vitaro, director at AlixPartners and a member of the firm’s Retail & Consumer Products Practice. “Retailers need to differentiate their health & wellness offering on at least one key dimension, such as product quality, assortment, price or convenience, while being competitive on remaining attributes to be able to separate themselves from the competition while providing a competitive value proposition to competitors.”
The AlixPartners North American Health & Wellness Review surveyed more than 1,100 consumers and examined a number of areas including: the key drivers of consumers’ choice for food and beverage purchases (keeping health and wellness in mind); reactions to current health trends; views on healthy snacking; and satisfaction with retailers and manufacturers when it comes to health and wellness offerings.