Wednesday, September 01, 2010

Payday is Spend-day

When I read this headline, I wondered what was really going on....

Are consumers maxed out on their credit cards?

Are they unable to get credit?

Or are they simply becoming more thrifty and not spending until they actually have the cash in hand?

Shoppers Still Stick To Payday Purchases

Consumer-products makers continue to see shoppers stock up on necessities around payday, a sign that some of the frugal habits consumers picked up in the recession linger.

The so-called "paycheck cycle" -- where shoppers make purchases in tandem with salary checks or government payouts and then pull back on spending as they run out -- became more prevalent at the height of the recession. But many consumers are stubbornly sticking to that buying pattern even as the economy improves.

Unilever NV said it continues to see a sales jump in the first week of the month in the U.S., with brands like its lower-priced Suave shampoo, and kitchen staples Skippy peanut butter and Ragu sauces getting some of the biggest lifts as paychecks are cashed.

"A lot of people are still truly living paycheck to paycheck," said Lisa Klauser, vice president for consumer and customer solutions at Unilever North America.

Consumers typically shop close to payday, but the paycheck cycle "heightened during the recession, and it's one of the behaviors we would now call the new normal," said Ms. Klauser.

Finding ways to appeal to frugal Americans has turned into one of the biggest challenges for consumer companies. The persistence of a marked paycheck cycle suggests that some recessionary patterns will be hard to shake off -- particularly among consumers with lower incomes.

Some brands are trying to reach payday shoppers. Jeff Ettinger, chief executive of Hormel Foods Corp., said retailers still talk of the paycheck cycle as having an impact on the timing of sales. Hormel is trying to time some promotions around the cycle and is working with retailers to make sure it has the right brands stocked at pay time. Ms. Klauser said Unilever tries to time marketing programs like coupons for when shoppers are likely to have more money.

The exact cycle can be hard to predict as timings of paychecks and government payouts vary, but many companies notice a jump at the beginning of the month. The cycle has become more prominent in brands popular with shoppers on low incomes or getting government benefits. Food-stamp benefits, which more people are using, generally are received in the early days of the month in many states.

ConAgra Foods Inc. said it sees a sales spike of about 2% to 5% in the first two weeks of the month for brands like Banquet frozen meals, Snack Pack pudding, Manwich sloppy joe sauce and Hunt's ketchup. ConAgra said that the brands tend to be heavily used by households on government-assistance programs, and it attributes the sales lift early in the month to factors like paychecks, government checks and food stamps.

Dawn Brown, a single mother in Rockford, Ill., who makes about $33,000 annually, said she lives paycheck-to-paycheck and stocks up on necessities early and mid-month when she gets paid. She became more careful during the recession, timing purchases early in the month when her neighborhood stores offer big discounts. Ms. Brown, who works as a credit counselor at Chicago nonprofit Family Credit Management, said many of the people she counsels tend to have similar purchasing habits.

The paycheck cycle also appears in more discretionary categories. Jim Moseley, a senior vice president for consumer planning at Diageo PLC said the company sees the cycle play out most in its "subpremium," or more-affordable brands. Lines like the company's more affordable Gordon's Vodka appeal to consumers looking particularly hard for value, he said. At the height of the recession the company saw the paycheck cycle play out a little in premium brands as well, though that trend has since eased out.

The big brands say that consumers remain willing to pay for a higher-end product, but want to ensure they get good value for money. That focus on value is another recession habit likely to stick. "We have created a generation of smarter consumers," said Mr. Moseley.

(Source: The Wall Street Journal, 08/30/10)

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