Timing the Market

It's not just for the stock market, it's for stocking the shelves in the market:

Consumer-Goods Makers Heed 'Paycheck Cycle'

Makers of household goods and food are paying more attention to the "paycheck cycle," as cash-strapped consumers are showing a tendency to make their largest purchases when their salaries first come in and to cut back as that money runs out.

With more consumers living from paycheck to paycheck, some companies have looked at ways to time their promotions around periods when consumers' wallets are likely to be well cushioned.

PepsiCo Inc.'s Frito-Lay snacks business in some stores has tried "promotions that are different at the beginning of the month than at the end of the month," Chief Financial Officer Richard Goodman said in a recent interview. "People have more money to spend at the beginning (of the month) and a little less at the end," he said.

The insight to promote around paychecks came from one of the company's retailers, said John Compton, the chief executive officer for PepsiCo Americas Foods. That retailer noticed "the strength of the first of the month compared to weakness at the end of the month as people were simply running out of cash," Mr. Compton said. Early in the month the Purchase, N.Y., food and beverage maker started promoting large "multipacks" of snacks sold in the range of $5.98 to $6.98, while near the end of the month it pushed smaller packs that sold for less than $2.

"The first of the month we might promote bigger sizes and at the end of the month we might shift down to smaller sizes in order to keep our sales growth going." said Mr. Compton. "It's worked well." The company's direct store delivery system, which delivers products directly to retail store shelves, gives it more flexibility on merchandising and promotions.

Consumer purchases can be driven by a paycheck cycle in good times and bad. But the cycle has been heightened in the midst of the U.S. recession and global slowdown.

Reaching consumers at the right time and stocking store shelves with the right package size can be key for makers of branded consumer goods, which are pushing to drive sales at a time when consumers are cutting back on even daily basics.

Kimberly-Clark Corp. has watched the paycheck cycle "to make sure we understand it so we have the right things in stock," said Kimberly-Clark's Chief Executive Thomas Falk. The company has seen volume spikes in the first week of the month in its Depend incontinence products business, which is used a lot by senior citizens, who get Social Security checks around that time.

"We want to make sure we've got extra inventory and displays set up so we don't run out of stock at retail," Mr. Falk said. "It's just an understanding of how the consumer wants to buy, so they've got the right mix of goods at retail so they are not disappointed." Consumers have been picking smaller pack sizes rather than the big bundle packs later in the month, Mr. Falk said.

H.J. Heinz Co. has noticed the paycheck cycle coming into play, and not just in the U.S. The consumer industry is suddenly seeing a "more sophisticated, more disciplined consumer," said Chief Executive William Johnson.

In the U.K., the company has looked at concentrating promotional activity around certain weeks when consumers are most likely to have their paychecks in hand.

As consumer companies gathered last week at one of the industry's largest annual conferences, the theme of offering consumers better "value" took center stage. Most consumer makers aren't cutting list prices for their brands, so finding ways to help consumers stretch paychecks is key. Some companies are rejiggering products to keep prices down and push the value concept.

ConAgra Foods Inc. reworked its Banquet frozen meals so that it could continue to sell them for $1 a meal, a price that was difficult to maintain as raw material costs spiked. So the company tweaked the meals, eliminating some varieties and coming up with fresh ones, to keep them under the $1 price tag.

Heinz is offering consumers larger ketchup bottles that sell at smaller price gaps to private label in the U.S. Meanwhile, Frito-Lay in North America will begin adding 20 percent more product to take-home bags of its corn-based Tostitos, Fritos, Cheetos and Doritos without increasing the price.

(Source: The Wall Street Journal, 02/23/09)

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