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.

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