A Buying Behemoth

Behold the millennials. The demographic group, frequently classified as comprising Americans in their late teens to mid-30s, not only is the largest population segment, but also is evolving into a powerful shopping force. Consumer packaged goods (CPG) sales volume generated by millennials will increase 70 percent between 2014 and 2020, while that generated by baby boomers will decline 16 percent, forecasts Nielsen, a New York-based market research firm.

Overall, millennials generate an estimated $200 billion in annual purchasing, and that total is set to expand as the economy strengthens, notes IBIS World Inc., a New York-based research firm.

To optimize store brand-related buying activity on behalf of this increasingly lucrative segment, retailers must cater to millennials’ specific needs and characteristics. They include a strong tendency to research and purchase products online, interest in wellness-oriented and premium items, and a focus on convenience and newer alternatives.

“It is critical for retailers to understand millennials,” states Jill Ahern, senior director, consulting solutions, for Havi Global Solutions, a Downers Grove, Ill.-based provider of supply chain, packaging design and marketing services. “The challenge is to deliver on value and maintain relevance as the millennials themselves change.”

Indeed, more millennials are marrying and having children, resulting in higher spending per shopping trip, even though the segment shops less frequently than other demographic segments, including Gen-Xers and baby boomers, says James Russo, Nielsen’s senior vice president of global consumer insights.

Common denominators

Other shopping behaviors more common to millennials include a willingness to pay a premium for items with healthful attributes. In fact, 29 percent of respondents to a Nielsen survey cited such willingness, compared to 26 percent of Gen-Xers, 23 percent of baby boomers and 15 percent of persons from the Greatest Generation.

About 73 percent of millennials, meanwhile, are shopping with mobile devices, compared to 33 percent of the general population, Nielsen reports, noting that a similar percentage of millennials have a mobile device in hand while walking the store.

Such attributes create strong marketing opportunities for retailers, including the dispensing of digital coupons during shopping trips. Indeed, 83 percent of millennials say they use coupons, and 31 percent have downloaded a coupon on their phones using a store application, versus just 11 percent of baby boomers, Nielsen notes.

Millennials also are 44 percent more likely to download coupons online than Gen-Xers or baby boomers, adds Bridg Inc., a Los Angeles-based provider of technology that tracks and analyzes consumer purchasing behavior.

“It is essential for retailers to have a digital mobile strategy,” Russo says. “That is not just having an app and pushing out content, but conversing with millennials in a two-way conversation.”

Millennials, he adds, “are perhaps the savviest consumers we’ve seen and should not be taken for granted.”

Position private brands

Millennials also are ripe candidates for store brands because they are willing to try new products, Russo notes. Private label selections should meet needs such as price, wellness and quality that are not being addressed by comparable national brands.

“Millennials are open and receptive of information,” he says. “There is not an inherent disposition away from store brands. The group grew up at a time in which private label could be seen as high-quality and premium. It creates an opportunity for store brands to grow.”

For optimal results, retailers must address the specific needs of different shopper segments within the group. Forty percent of millennials are multicultural, for instance, compared to just 26 percent of baby boomers, Nielsen reports. Millennials also are in different life stages, and because they are economically diverse, they shop differently. Segments include students in their late teens and early 20s, as well as older millennials who have children and are progressing in their careers.

Still, some elements remain common to most millennials, including a desire to have fun while shopping and discovering new products or brands while supporting brands that reflect their values, says Rachel McGuire, principal analyst for Kantar Retail, a Boston-based retailer and shopper insights firm.

Because most millennials have a smartphone or tablet and a natural tendency to go online, it is important that retailers have a strategy for merchandising their store brands on the web, she adds.

“Retailers need to convey the value of the brand beyond price, whether it is in-store, with a web application or online,” she says. “It is especially appealing to millennials to learn why they should buy a product other than that it’s the least expensive item.”

Tell tales

Indeed, because millennials’ buying behavior is influenced by product data, retailers should convey stories about their items. For example, they could convey where ingredients were sourced and the impact of the product on the environment, Ahern notes.

“Products must be kept new and interesting,” she says. “Marketers can’t be complacent. Retailers’ selections should always be evolving and contain the premium elements that the consumers are willing to pay more for.”

Retailers also will benefit by developing selections of private brand foods that are organic, natural and free of hormones to cater to millennials’ focus on health and wellness, says Ben Ball, senior vice president at Dechert-Hampe & Co., a Northbrook, Ill.-based sales and marketing management consulting firm.

Many millennials are single or in two-person households, so they also tend to be interested in foods that are sold in smaller quantities and not the larger portions common to club stores, he notes.

“The group is less brand-conscious when it comes to food and beverages and [is] more willing to accept private label if it has the attributes and qualities they are looking for,” Ball states. “They also are value-conscious, but not as price-conscious as baby boomers or Gen-Xers because so much of their income is disposable. That includes those who are still living at home and have low fixed costs.”

In addition, millennials desire convenience and personalization and are less forgiving if a product does not deliver as intended or does not correspond with their interests or desires, says Amit Jain, Bridg founder and CEO.

“They also tend to lack patience, want everything on demand and are willing to pay for convenience,” he notes. “They go for the next shiny object quickly, and retailers have to constantly evolve to meet the group’s expectations.”

With their robust purchasing and openness to new products and brands, millennials are an alluring match for retailers’ private brands. To drive activity from the increasingly fruitful segment, retailers will need to aggressively and continually respond to the segment’s evolving needs, wants and demands.