By Kevin Meyer
Behold! The financial crisis has helped the U.S. consumer understand the value of just-in-time!
Nearly three years ago I told you about my efforts to avoid buying in bulk, preferring to adopt the more European practice of purchasing goods and foodstuffs just when they're needed. I received considerable backlash from folks that reminded me I could save a lot of money by buying more less frequently. Yes, those were supposedly lean folks. Total supply chain cost anyone? Storage space cost? Obsolescence (ie "Daddy, I don't like Capt'n Crunch anymore!")?
This morning The Wall Street Journal tells us about a new trend triggered by the financial crisis: the "just-in-time consumer."
The Great Depression replaced a spendthrift culture with a generation of frugal savers. The recent recession, too, has left in its wake a deeply changed shopper: the just-in-time consumer.
For over two decades, Americans bought big, bought more and stocked up, confident that bulk shopping, often on credit, provided the best value for their money. But the long recession—with its high unemployment, plummeting home values and depleted savings accounts—altered the way many people think about the future. Manufacturers and retailers report that people are buying less, more frequently, and are determined to keep cash on hand.
"Consumers are saying, 'I'm going to buy what I need for a specific period of time,' rather than loading up and buying two or three extra units just because they can get a good price on it," says Richard Wolford, CEO of Del Monte Foods Co. He calls the phenomenon "need it now."
Pantries are a-thinning!
Over the past two years, the number of items kept in American pantries has fallen about 20%, according to a recent SymphonyIRI survey. Consumers are also cutting back on the range of goods they stock.The average household had 369 unique items in its medicine cabinets, pantries and cosmetics bags this year, compared with 404 in 2006, the survey found.
P&G expects consumers' leaner, pickier shopping habits to last. "There's almost a confidence and pride in the ability to make tailored choices for themselves," says Joan Lewis, P&G's global consumer and market knowledge officer.
The value of cash – and how to better use cash tied up sitting in a pantry for a year. So how are retailers reacting?
Executives peddling wares from canned goods to cashmere say the shift in consumption habits is prompting them to change how they produce, package, price and deliver their goods. Food and household-product manufacturers, including Del Monte and Kimberly-Clark Corp., are rolling out smaller package sizes for consumers who would rather buy a week's worth of toilet paper or dog food than stock up for a month.
Grocers are trying to accommodate smaller but more frequent shopping trips. Supervalu Inc. is changing displays more often. BJ's Wholesale Club Inc. is going after a new clientele of families and individuals by selling eggs and margarine in smaller lots. Apparel makers and retailers such as Elie Tahari and Net-a-Porter.com are changing their production and selling schedules for shoppers who increasingly want to buy their clothes in season rather than ahead of time.
But what about cost?
Smaller unit sizes, for example, generally mean higher prices—and therefore higher profit margins for manufacturers. Still, the phenomenon is so new it hasn't shown up broadly in earnings. A Kimberly-Clark spokeswoman notes that potentially higher profits on smaller packages can be offset by higher manufacturing costs.
So if consumers begin to want smaller unit sizes more frequently, doesn't this also present an opportunity for retailers and manufacturers? After many long years of being slammed by the likes of Wal-Mart and Costco, could the small corner store finally have some leverage? The larger operations will have to learn how to be more efficient in smaller and smaller batch sizes.
The new shopping behavior is having a big effect on club stores, the ultimate pantry-filling destinations, which offer low prices but require bulk purchases. Some, including Costco Wholesale Corp. and BJ's, have reported increased shopping-trip frequency and decreased transaction sizes. To adjust, some discounters are rethinking their businesses.
BJ's, based in Natick, Mass., began courting new customers two years ago to expand its membership, including smaller households and empty-nesters. It began shrinking its package sizes, in part to lure shoppers more interested in weekly purchases than monthly stock-ups. Now, the chain of 191 stores sells cartons of 18 eggs, instead of only five-dozen egg packages. It offers two containers of margarine of nearly two pounds each instead of only five-pound buckets.
Some manufacturers are capitalizing on the trend – including Newell Rubbermaid, which has been working with lean for many years.
As a result of delayed buying, Newell overhauled its manufacturing process and simplified its product portfolio. This will enable it to better handle last-minute surges in demand for popular Christmas gifts like its Irwin pliers and Calphalon cookware. "It's better for our inventory situation and our manufacturing to be able to produce and ship in a more even pattern, rather than all at once," Mr. Ketchum says.
Isn't it amazing what you learn when you focus on cash – and what you can do with it if you find it hidden in the pantry – or on the high seas? Perhaps some housewives could teach some outsourcing-loving CFOs some lessons!