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.

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.

Food Inflation + Recession Worries = Less Food Bought

DEFRA’s recently published Family Food Survey compares 2009 with 2006 and shows that people coped with rising prices and recession pessimism by buying less food. They did not, as might have been thought, buy the same quantities as before but pay less by searching out good deals, moving to value ranges, switching to own label products, or flocking to discount supermarkets.

So, in volume terms, 2009 saw grocery shoppers buying 11% less red meat than in 2006, 7% less fish, and even 4% less poultry which is usually the fall back protein when prices rise. Sales of vegetables have fallen by 3%, potatoes by 6%, fresh fruit by 11%, fresh milk by 3%, and butter and spreads by 2%. Even bread sales have fallen by 5%.

The only fresh foods bucking the downward trend are eggs, up 6%, cheese and yogurts which are level with 2006, and, bizarrely, cream where sales are up by 5%.

By contrast, flour sales are up 8% which could mean that people are baking more. Confectionery, which usually holds up when times are tough has seen purchase grow by 9%, and cereals are up 3%.

Overall, when food inflation soars shoppers seem to work to a budget, and accept that they will get less for their money.

The cutback does not mean that people are necessarily eating less. They could be reducing the amount of food they throw away. A DEFRA study published in July 2010 estimated that 15% of food is wasted, with bread waste reaching a shocking 40%.

As far as the catering sector is concerned, the DEFRA figures show that the amount of food eaten outside of the home in 2009 was 9% less than 2006, although expenditure, excluding alcoholic drinks was up by 3%.

Short term, the DEFRA figures show signs of growth in grocery food buying 2009 compared with 2008, and, given anecdotal evidence about a return to premium food purchasing and the excellent performance of more up market retailers, it would seem that 2010 saw a further increase. What consumers will do in 2011 though, is difficult to project. Food inflation is ramping up again, and signs of depressed consumer confidence are re-emerging.

So, how can profits grow if volumes are shrinking?

Food inflation can help when prices rise ahead of costs. Currently food inflation is running at about 4.6%, compared with wages at about 2%. Those businesses with clout will negotiate lower costs from suppliers.

Another strategy is to develop premium products so that maximum revenue is extracted from a smaller volume.

The third, albeit often costly avenue is to grow market share, stealing volume from competitors.

Examples of all three will no doubt be seen this year.

Appy Talk – Will Apps Change how Consumers Look at Food and Farming?

Apps, (defined as computer programmes for a mobile phone, customised for the phone user) get acres of media coverage, and there are hundreds of thousands available to download. Are they another technology gimmick falling into the category of interesting but ultimately useless, or could they have a lasting impact on the way consumers buy food and on the way that food is produced?

To make real changes apps have to be widely available, which is not the case now. The vast majority of apps can only be accessed by users of Apple products such as the Iphone or Ipad, of whom there are not many. Other smartphone manufacturers will catch up but it will take time.

Let’s assume though that apps are available to every mobile phone owning consumer. Which in the UK means nearly 60million people. Are there any apps around which might change food buying habits?

Like any other product, an app will only succeed if it fulfils a consumer need. An app which makes food related life more convenient, or offers information quickly and clearly could well be taken up and used regularly. And here the potential for apps becomes quite exciting.

Supermarkets are well away on developing apps to make shopping more convenient. Tesco recently launched an app which allows shoppers to scan a product wherever they are and add it to their online shopping list. All by pressing a few buttons on a phone.

The apps with most power to change consumer food buying behaviour are those providing instant information.

Here are examples already up and running in America.

Seafood Watch allows shoppers to see at a glance which fish to buy if they want to support sustainability. The app provides three options – best choice, good alternatives, or avoid.

The Center for Food Safety, an organisation that supports organic farming has an app to help shoppers avoid GM containing foods. “Safe” foods are highlighted in green, and GM containing foods in red. The information is based on what manufacturers say, and also on general advice such as avoiding American corn and soy on the grounds, they claim, that most is genetically modified.

The Environmental Working Group has a guide to fruit and vegetables with the least and most pesticide residue, based on data collected by American regulatory bodies.

There is an app in development designed to support local sourcing. AUG/Living Goods allows shoppers to scan a barcode and get details of how far the product has travelled to reach the shop, the identity of the primary producer, and whether the ingredients are in season.

Several apps allow users to input the type of foods they want to eat or avoid, including allergens, and be warned if a product does not meet these requirements.

As the IGD points out there are obstacles to successful app take up. How for example to ensure accurate timely data. Who has the legal responsibility for inaccurate data? How do manufacturers complain if the data misrepresents them.

However the IGD concludes that the day of app impact is coming. And they are right.

Consumers are demanding ever more knowledge about what is in their food and how it was produced, all the way from farm to shop. As talk of gmo's and cloned animals gets louder in Europe, as more publicity surrrounds "mega farms", and more horror stories emerge about hunger or extreme weather, so increasing numbers of people will seek information about exactly what they are putting into their mouths. And the app developers will make it easy for them to get hold of the information.

Premium Food Sales Growing Despite Economic Gloom

Despite the gloomy economic news, and reports of plummeting consumer confidence, people still seem ready to spend on premium quality food.

Kantar Worldpanel, the market data company, tells us that overall grocery sales grew by 5% in the 12 weeks to 26th December 2010, but that sales of premium own label across the 4 big supermarkets grew by 11%, over twice as fast. The Kantar data also shows us that the so called upmarket grocers are doing best, with Sainsbury, Waitrose and Marks and Spencer gaining share whilst low priced ASDA and Morrisons lost share and Tesco only managed to stand still.

Reporting on their performance Sainsbury, who spent nearly £1 billion revamping their premium Taste the Difference Range, said sales of higher priced and ethically sourced products were growing fast, citing free range turkey sales up 30% and smoked salmon up 16%.

Marks and Spencer also mentioned booming sales of turkeys and smoked salmon, whilst Tesco confirmed the trend towards premium food, with sales of “Finest” ham on the bone up 50%, “Finest” party foods up 90% and “Finest” wines up 100%.

Less spectacular, but nevertheless welcome, beef sales in the 12 weeks to end December grew by 4% in both volume and value after months of virtually static sales.

Undoubtedly there will be a Christmas effect in these numbers. Shoppers traditionally splash out during the festive season. But these are comparable figures with Christmas last year, and presumably people were feeling festive then, so the big growth in premium sales does seem to be a trend rather than a one off.

Whether the trend will continue is another question, as the effects of government cuts put further pressure on disposable incomes.

The difference between now and a couple of years ago when the credit crunch first happened and shoppers flocked to discount supermarkets and grocery value ranges is that then, the worry of economic hardship was greater than the reality. The reality now is that money will become tighter, and we may yet see down trading in food. On the other hand it could be that people have tried the value route and it does not meet their needs, at least all of the time.

The Institute of Grocery Distribution is of the view that shoppers will not trade down if it means compromising on quality or values. Rather, people will be more careful about how they shop and prepare food. 36% of us are already trying to reduce food and packaging waste, say the IGD, and 22% are going back to a simpler diet, cooking uncomplicated meals and cutting out unnecessary add ons. This perhaps means higher sales of top quality staple foods.

One high priced staple that shows no sign of growing is lamb. In the 12 weeks to end December 2010, lamb consumption dropped by 17% in volume and 6% in value. It is no good arguing that Christmas is not a big lamb eating time. The point is that these figures are compared with the same period in 2009, The only conclusion to be drawn is that the lamb eating experience does not justify its high price, and that lamb is becoming less and less relevant to the meat eating public.

£1.8m to be spent on advertising organic food - will it make any difference?

The Organic Trade Board, a body representing over 90 companies, is spending nearly £2m to promote the benefits of organic food. Half of the money was put up by the companies involved and the other half came from the EU.In the OTB's words, they want to "democratise" organics, and to this end adverts will appear in magazines like OK and Heat.

Will it stop the drop in organic sales?

The organic optimist would say yes. All that is needed is a bit of consumer education. Hugh Bowles, chairman of the OTB says “The term organic is widely misunderstood, and through this campaign we want to help consumers to discover exactly what it means and why it is worth it.”

The organic sceptic might respond that it is wrong to blame the sales drop on confused consumers. They might point to the acres of newsprint and hours of television given over to supporting purchase of organic food but which has not helped maintain sales. They could argue that, despite much research, no consistent evidence has been found to prove that organic foods are better for you, and that those worried about animal welfare or environmental standards could buy local foods from a trusted farmer or even from one of the supermarkets with a good reputation for caring about such things. And so, why would consumers pay a hefty premium for organic, especially in a difficult financial climate.

But, there are consumers who like the idea of organic, and, regardless of logic, advertising is as much about appealing to the heart as to the head.

So has the new advertising got the “wow” factor that might persuade people to re-evaluate and think about spending a bit more to buy organic food?

Probably not.

The problem is this... The OTB has not come up with a strong, compelling and easy to understand reason to buy organic. Instead, they are trying to be all things to all people. One advertisement shows a father and son saying they like organic because “we care about animals”, a second shows a painter/decorator saying he loves organic because “it feels right for my family”. The special website developed to back up the adverts show several more reasons – “Better for nature”, “More natural”, and “Great tasting”.

This might not matter if the amount of money being spent was huge, but £1.8million spread over three years, whilst it sounds colossal, is small in terms of the amount of impact it will have on consumers.

As with all these generic campaigns which advertise a broad sector rather than a specific brand, we will never know whether the advertising worked. Should organic sales rise then the adverts will be claimed a success. But the fact is that growth is much more likely to be a result of big retailers promoting organics to bring the price closer to conventional products, or innovation in the way organics are sold, like Waitrose’s expansion of the Duchy Originals range.

Should sales not grow then the claim will probably be that things could have been much worse had the advertising not happened.

What cannot be faulted is the organic movement’s commitment to its cause. It is no mean feat to bring 90 stakeholders together and persuade them to part with hard cash for a speculative venture.

The Demanding Consumer - Wanting it All and Wanting it Now

Consumers are fickle creatures. What they want changes all the time.

The Institute of Grocery Distribution signalled a change in consumer behaviour when they found that exemplary ethics are increasingly expected as the normal way of doing business. No longer, they say, are value seekers and ethical consumers two different groups. Rather, there is an increasing overlap between the two. Consumers are “seeking value for their values” and are not prepared to pay a big premium for high ethical standards.

Another example of change comes from consultants OC&C. They suggest that the days have gone of retailers being known for one particular attribute, like low prices, or great service, or widest choice. Instead, they say, consumers are no longer prepared to make tradeoffs, like swapping price for service, or service for choice, or sacrificing all for the cheapest price.

These changes are not limited to a few consumers. The demanding consumer is everywhere, and we see evidence of retailers rushing to satisfy these demands in store right now.

Waitrose is a great example. Known primarily for its good quality and service, but considered expensive, it has now matched Tesco’s price on 1000 lines, and regularly price promotes its products.

Sainsbury also listens hard to consumers. It too price promotes heavily, it has developed its own Sainsbury brand range to provide cheaper alternatives to major national brands, but it offers a premium range for quality seekers.

ASDA has recently said its food is not of good enough quality, and upped its game with the introduction of “Chosen by You”.

As to why consumers have become even fussier, OC&C reckon that the internet has been a factor, for, at the click of a mouse, consumers see huge choice, at the best possible price, backed by great service, like next day delivery and no hassle returns.

The economic downturn will have played a part too, with consumers understandably wanting to get the best possible value for money, meaning they will search for the combination of price, choice, quality and service that best suits their particular needs.

Probably the major reason for consumers wanting it all and wanting it now is the nature of UK retailing. Grocers in particular are intensely competitive. They are obsessed with not allowing rivals to steal market share and so are highly attuned to the slightest nuance of consumer behaviour change. Their eagerness to respond before their rivals means that even slight hints of consumer change are put into action, to make sure shoppers stay with them as opposed to taking their custom elsewhere. And so consumers get used to having their demands met and understandably keep pushing for more.

Whatever the reasons, we can expect the bar of consumer demand to get ever higher.