Sunday, 27 March 2011

Brasher of Tesco and King of Sainsbury Confirm Changed Consumer Behaviour

Figures from the ONS last week indicated that shoppers are buying less food, with volume sales in February down 2.2% compared with February 2010. There were reports that this is the biggest month on month drop since records began in 1988. According to Justin King of Sainsbury the February drop came as a bit of a shock. He said “there is a new reality. There has been a quite significant step down by customers”. Whilst a cutback in January is the norm it is unusual for the purse tightening to continue into February, and what Sainsbury is seeing is shoppers deliberately buying less when doing their main shop, and topping up mid week on essentials. Mr. King speculated that this could be in an effort to avoid waste. Shoppers are doing even more cooking from scratch and shunning ready meals in an effort to reduce the “cost per calorie”. They continue to seek out good promotional deals. He added “I don’t see sentiment changing in the foreseeable future”. Richard Brasher, new boss of Tesco, speaking at the Retail Week annual conference, confirmed that behaviour was changing, and also mentioned cooking from scratch and seeking the best offers. But, he said “there is no neat sound bite to sum up what the change is”. Overall, shoppers were being more careful. They were still prepared to buy premium goods but he added that “Value for money trumps being the cheapest.” In his view, consumers are just as keen as they ever were to achieve cherished goals such as a comfortable home, or a good holiday, and that shortage of money was driving consumers to be even better informed about where they could get the best deals. Hard data tends to support what the two retailers are saying. Figures published on the BPEX website show that meat consumption is holding steady, possibly as a result of more scratch cooking. The exception is lamb which continues its downward plunge in sales (minus 11% in expenditure and 21% in volume in the last twelve weeks). Dairyco data shows milk volumes holding up, but prices are well down as retailers continue to price promote.

Monday, 7 March 2011

More on Consumers Reaction to Rising Food Prices

It looks as if the return of food inflation is leading consumers to rethink once again about the way they shop.

In my previous blog we saw that during the 2008 bout of inflation consumers responded by buying less food. They stuck to a budget. They tried to make the budget go further by shopping around, making use of promotions, and buying own label and cheaper “value” ranges, but the main way of coping was to buy less. When inflation eased in 2009 they returned to buying more, and in 2010 not only bought more but were prepared to spend on premium goods.

Research from IGD published in February showed that 91% of consumers think that food prices will rise over the next twelve months. More startlingly 33% think prices will be much higher in the next year compared with 19% who thought the same thing when surveyed in October. As a result, say the IGD, consumers are rethinking how they shop, but are more concerned about getting good value for money than merely chasing the lowest price.

Kantar Worldpanel who audit grocery sales report that in the 12 weeks to February 20th 2011 grocery sales grew by 3.9%, of which 3.7% was due to inflation and just 0.2% to volume growth. Their data shows the discounters gaining market share again with Aldi up to 3.1% from 2.8% and Lidl up to 2.4% from 2.2%. Unlike 2008 though, the increases are a result of existing shoppers spending more rather than new shoppers visiting the stores. At the other end of the spectrum Waitrose continues to boom, reaching their highest share ever at 4.4%.

These two extremes receive much media coverage, but are tiny in absolute terms, accounting for less than 10% of the market. It is what happens in the mainstream 90% which reflects what consumers are really doing. All we know so far is that about 40% of grocery products are bought on promotion and this number shows no sign of dropping. And, in another piece of IGD research we learn that consumers are wobbling a bit when it comes to trading quality and ethics for lower prices. When questioned recently, only 19% of British consumers said that the quality of food is more important than saving money, and just 17% said that environmental and ethical factors are important when deciding what to buy.

Much will be made over coming months about changes in consumer buying behaviour, particularly by supermarkets eager to demonstrate that they have their finger on the consumer pulse. Yes, we could see an occasional rise in premium food buying, probably connected to an event like Mothers Day or Easter. There might be a rev up in sales of value ranges, off their current very small base, and there will be a further rise in buying own brand goods.

But all the signs are that 2011 will see another drop in the amount of food bought as consumers once again deal with shrinking purses and growing uncertainty.