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YOUNG ADULTS WORLDLINESS AND CONSUMPTION I I I I I ~ I I I i But instead of seeking the best of the best and flashing it to the world, this post baby boom takes pride in recognizing value. Having grown up with escalating materialism and advertising promising prestige and envy from less fortunate others, this generation sees BMWs, Godivas and Rolexes as colossal rip-offs. Getting comparable quality without paying for the status badge motivates (and makes possible) purchases for these consumers. I

t CHANGING PATTERNS OF CONSUMPTION CONTRIBUTING FACTORS I I I I The arrival of this generation is as much the cause of the much-heralded new trends in the market as the aging of the baby boomers. While the material-success fueled generation that made the 1980's what they were grows into middle-age family values, their yuppie impulses are not being replaced by newcomers to the market. What is happening in the market across many different categories is the decline of expensive, status- oriented often European brands. While some have interpreted this as a "return to basics," or the end of some sort of consumer fad the evidence suggests that a power legacy of the 1980's remains: high standards of quality. What is gone is consumer willingness to pay for status symbols or slight increments in quality associated with great increments in price. Here are some examples:

t CHANGING PATTERNS OF CONSUMPTION THE AUTOMOBILE MARKET I .1 I I i. The 1980's were good years for expensive imports; sales of European imports peaked in 1986, up more than double from a decade before. A new more sophisticated generation of consumers moved away from the "bigger is better" psychology of the Big Three to a more European appreciation of driving. But during the end of the decade, consumers became unwilling to pay for what they saw as status symbols; BMW sales in 1989 fell back to 1982 levels. But instead of returning to the boxy behemoths and tiny tin cans of the 1970's, they turned to cars that offered European styling and luxury performance at more modest prices; in spite of the recession, most recent 1990 YTD figures show the total luxury market up 8%. But BMW, Saab, Mercedes, Jaguar, Volvo and Sterling sales are all down, losing ground to more sensibly priced new Japanese luxury models and Lincoln, now modeled after and positioned as an American Mercedes. Mass-market manufacturers have come to recognize that the new taste for European styling and the new appreciation of driving as an "art" has reached beyond the automotive market's high end; one can't imagine "Fahrvergnugen" happening ten years ago. The result today: Volkswagen sales are up 4% after a long, steady decline. I

t CHANGING PATTERNS OF CONSUMPTION THE CANDY MARKET f I 1 I I I I I In the $11 billion candy category, resembling the cigarette category in its downmarket skew, new product successes have been extremely rare; 22 of the top 50 brands were among the top 50 in 1920, and most of these 22 are among the top 25 today. But during the 1980's low-volume, but high-profile brands like Godiva and Lindt benefitted greatly from better-travelled, more sophisticated consumers' appetite for imported quality and cachet. While the desire for status symbols faded with the demise of yuppieism, the taste for high quality remained. Recognizing this, Hershey launched "Symphony" as a "European-style" chocolate bar at a standard candy price, making it in less than a year one of America's top 25 brands. By comparison, Hershey's upscale Golden Almond Line, launched in the 1970's, enjoyed only modest success. Now, Mars, traditionally content with its stable of mass-market gold mines, is launching Sussande, another "European- style" chocolate at American chocolate prices. ~ o ( N W O 1 N 0

it CHANGING PATTERNS OF CONSUMPTION THE WINE MARKET I I I I V c I During the 1970's, imported wine generally meant Lambrusco--or perhaps Blue Nun. But the 1980's, with its penchant for quality and sophistication, brought tremendous sales increases for expensive French and, later, Californian wines. By the late 1980's, the explosion in growth of high-price wines abruptly stopped, forcing vintners to take pause and regroup. Many vintners saw opportunity in the "fighting varietals"--cork-finished wines in the $4-$8 range-- that offered the European wine values of the high-end (corks, specific variety as opposed to "chablis" with a small "c," impressive labels, etc.) with prices closer to Carlo Rossi than Rothschild. As a result, jug-wine holdout Gallo, controlling 60% of total U.S. wine production, was forced to join the fighting varietals with a major campaign repositioning the brand with European-style brand values. I

t CHANGING PATTERNS OF CONSUMPTION THE WATER MARKET I I I I I I I I From 1984 to 1988, bottled water imported from France more than tripled in gallonage. But in 1989, French water sales rose only 7.7%, while imports of less expensive Canadian water more than doubled in one year--even before the Perrier contamination scandal caused consumers to evaluate their water consumption. The example of Canadian brands such as Sparcal and Montclair has aroused the attention of both Pepsico and Coca Cola, who are test marketing moderately priced sparkling water products such as H2OH! and Clarte. Consumers weaned on Perrier in the 1980's are unlikely to return to tap water or big plastic jugs from questionable suppliers, but the soft drink giants are betting that they will accept a more sensibly priced mass-market bottled water, as will soft drink users that avoided Perrier because of its cost. I

t CHANGING PATTERNS OF CONSUMPTION THE HOME APPLIANCEIHOME FURNISHINGS MARKET I I I I I P I I I The taste for European design and performance in home appliances gave rise to Cuisinart, Braun, Krups and other European appliances; from 1988 to 1989, Braun's share of the market more than doubled to 11%, largely at the expense of clunky American brands like Procter-Silex and West Bend. But during the last two years, American manufacturers have fought back; new "Eurostyle" appliances are available from Hamilton Beach and West Bend. American companies have adapted Cuisinart's technology to increasingly price and convenience-oriented customers, forcing Cuisinart into bankruptcy by taking over the "chopper market." The taste for European style in home furnishings brought the 1980's such icons as Tizio lamps and "Eurostyle" cabinetry. Seizing the moment when American willingness to pay exorbitantly for quality design had passed--even when taste for it had not-- Ikea is the exemplar of a new breed of stores that offers imported design at reasonable prices; since coming to the U. S. five years ago, Ikea is now the nation's fourteenth largest furniture retailer, with stores in only six DMA's. I

t CHANGING PATTERNS OF CONSIIMPTION THE FASHION MARKET I I I I I I I I I I Throughout the 1970's and 1980's, Americans underwent escalating fashion consciousness. French and then Italian designer labels boomed as baby boomers showed off their newfound worldliness. But by the late 1980's, the success began to trail off for high end European imports. GFT, the Italian fashion conglomerate marketing such labels as Giorgio Armani, Ungaro, Valentino and Christian Dior, has seen America fall from its most important export market to its fourth because of declining sales. For American designers, the rejection of overpriced high-end clothing has provided a windfall: the enormous successes of moderately priced second lines such as Anne Klein's Anne Klein II, Donna Karan's DKNY, Calvin Klein's Calvin Klein Sport all attest to consumers who want fashion cachet but don't want to pay extra for it, as they must for European designers who until last year have refused to develop second moderately priced lines. The Gap has been even more successful at seizing onto young consumers' unwillingness to pay extra for a designer label. With its "individuality" campaign aimed at the twentysomething generation, the Gap has doubled in size to $1 billion since 1985, with sales up 20% versus year ago as a result of the new advertising campaign. Newsweek called this growth, "the transformation of The Gap from the Snickers bar of fashion to something more like Godiva chocolates." In effect, for all that the Gap pretends to be anti- designer fashion, it is only a new breed of fashion, but at the right price. I

t CHANGING PATTERNS OF CONSUMPTION THE COFFEE MARKET I I I I Throughout the 1980's, coffee marketers agonized over what to do about aging, increasingly health-conscious franchises, and their ability to attract younger consumers to the category. And while they were busy introducing decaffeinated or instant this and that, sniping at their competitors with price promotions and turf invasions, a major new trend was building. Gourmet, local specialty and boutique brands sprouted up. Dismissed as peripheral by companies interested in volume, they were not given much attention--until such hitherto obscure brands as Millstone Coffee had captured one third the volume in Washington State, and similar brands began to do the same in other regions with major concentrations of young adults. Gourmet coffee, which in the early 1980's accounted for less than 2% of the market, has reached a share of nearly 12% of the $6.6 billion market, and is expected to exceed 20% by the mid 1990's. These brands, with their quirky handcrafted images and specialty market character, are now on the way to doing what KGF, Nestle and P&G had dreamed of doing all along: halting a slide in category sales by renewing a "coffee culture" among young people previously relinquished to Pepsico and Coca Cola. Now there's Maxwell House French Roast, but the golden opportunity to be the brand for a new generation of coffee drinkers is fading.

t THE AMERICAN CIGARETTE MARKET: ABSENCE OF A WELL-POSITIONED UPMARKET CIGARETTE I I I I While every category is unique, and many may not seem to offer opportunity for upscale brands, even at standard prices, we believe that consumer tastes have been overlooked by major cigarette marketers. Cartier, Yves Saint Laurent, Ritz and Dunhill cigarettes are all too expensive for a population already made to feel guilty about smoking. The notion of paying substantially more for what their "rational" brain tells them is not much different is not only a great barrier to trial, but also a financial imposition on the vast majority of smokers. Smokers don't want to have to rationalize even further something that is an irrational pleasure if they don't have to. Moreover, from a product standpoint, European imports do not offer American customer qualities that are acceptable to his tastes. The unfiltered, black tobacco cigarettes that sell well in France, for example, do not meet the product requirements American needs dictate. Finally, the few designer brands on the market are the equivalent of designer logos: each of these brands is a badge designed to tell the world, "I have enough disposable income to afford something beyond the ordinary." These brands, especially Cartier and Yves Saint Laurent, are in the minds of young adults incarnations of vulgar ostentatiori associated with an irrelevant brand of materialism. ~ C.~ Q ~ Q01 Q I