Tuesday, August 16, 2011

the affluent are critical spenders

restaurant briefing

Understanding Affluent Consumers
“Affluent” Americans are defined by various financial criteria; regardless, the affluent are critical spenders. The top 5% net worth individuals now account for 37% of all consumer expenditures (up from 25% pre-recession), more than the entire bottom 80%. The affluent, too, suffered setbacks in the last few years and reduced their spending as a result. Now, while cautious in their growing optimism about the economy, they are loosening their grip on a recession mentality. They have money and are willing to spend it. “Our current data shows intentions by this group to spend more,” reports Dr. Jim Taylor, vice chairman, The Harrison Group, which, with American Express Publishing, produces the annual Survey of Affluence and Wealth In America.* While Jim acknowledges that some sectors, including restaurants, will lag behind others, “Compared to 2008, intentions to spend are up across all categories.”
But this doesn’t mean that affluent consumers’ spending decisions will be made in the same way as before the recession. In his recent book, Selling to the New Elite, Jim observes thatconsumption and acquisition were easier for the affluent to do without than they expected – a conclusion shared by The Futures Company, whose data indicate that 69% of affluent women and 72% of affluent men don’t miss many of the things they had to give up because of the recession.** In fact, the process of coping has made affluent consumers feel smart, not deprived, says Jim. “And most expect to continue their newfound frugality and value orientation. ‘I’ll buy whatever I want’ has been replaced by ‘let’s buy only what we need.’” The list of what affluent consumers “need” is expanding, he continues, and is often centered on family. Both Jim and Cara David, svp, American Express Publishing and the study’s co-director, underscore that recent economic challenges have strengthened families and thatfamilies factor strongly into spending decisions. “A restrained lifestyle has brought the affluent closer to what matters most to them: family and friends,” advises Cara. “Families are cohesive, which has made life much more rewarding. In fact, feelings of personal success have made the affluent more confident, more able to make decisions that don’t require reliance on anybody else – except their families. After family, friends, and doctors, there aren’t many other people whose opinions matter to these folks.”
“Family has been and will continue to be the ultimate passion for most,” adds Jim. “But the newest and most pressing passion – one that extends through every financial strata – is value. According to our survey, 64% of the affluent shop regularly with coupons. It’s important to recognize that the dynamic at work here is a value orientation, not strictly price sensitivity. In fact, the affluent have shown tremendous reluctance to buy the lowest-cost option or to trade down in quality. It’s just that a lower price reduces risk.” According to Cara, purchasing has become a bit of a game for this group. “They’re having fun at it and they do it quite well,” she told attendees at a recent American Express Publishing’s Luxury Summit. “Because of the recession, 77% in our study said they have become more resourceful; 72% said that they have become much smarter shoppers thanks to today’s economic situation. They know quality, they know service, and they know pricing.” However, Jim cautions that appealing to this group based on price is a strategy fraught with peril. “It diminishes perceived quality, dilutes your brand image, and you’ll find it much harder to raise prices later. Increase value instead of lowering prices.” Another dynamic at work is what Cara calls present-tense reality. “At the same time, these consumers have become more confident, they’ve also lost faith in the future – most don’t really care about it, because they don’t know what it is – viewing it one day at a time and looking at what really matters today. They see few rewards in planning based on future scenarios that are beyond their control.”
According to the survey, in 2009 the affluent and wealthy said they were planning to decrease spending in restaurants in the coming year by 10%; in 2010 that figure improved to -2% and stabilized in 2011, showing a slight intention to increase spending (+2%) – but still below pre-2009 levels. In fact, Jim says, the average affluent family is eating at home four times a week – almost twice the often as it did pre-recession. And when these families do dine out, “It’s not about being sophisticated anymore. They want to be happy, comfortable, at ease. If I were running a restaurant, I would be focused on reducing the complexity and number of decisions I was asking people to make.” Another characteristic of these self-reliant consumers is a distrust of salespeople, which Jim says applies to restaurant servers. “Train your servers to know the menu cold,” he advises. “Most also believe that salespeople lack passion. Teach servers to engage customers by expressing passion for what they do and the products they serve.”
* The Survey of Affluence and Wealth In America defines affluent households as those with at least $100,000 annual disposable income.
** The Futures Company defines affluent households as those with at least $100K annual income.
July 19, 2011

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