Will pressure on disposable income hit premium food prospects?

The media seems full of gloomy news affecting consumers willingness to spend on luxury goods, what with high interest rates, falling house prices, and petrol at over £1 a gallon. Many food prices are also on the rise, for reasons well known to farmers. So the question is whether the trend towards buying premium food will falter as consumers face pressure on disposable income, and become more cost conscious.

Justin King of Sainsbury does not think so. In his view, consumers needing to cut back on bigger ticket items treat themselves by spending more on inexpensive luxuries such as food. He is backing this view with advertisements stressing Sainsbury quality food, and Waitrose and Marks and Spencer are also majoring on quality. Possibly more surprisingly, Morrisons attributed good third quarter results to a boom in their premium "The Best" range and they are advertising this range in the run up to Christmas. Tesco too are advertising top of the range products including one poultry advert for goose, pheasant and duck.

Yes, there will always be a proportion of consumers who have to work to a budget, but according to Tesco, only 16% of people are in this position. Even if difficult times mean that this number doubles, it still leaves 68% prepared to spend more on products they really feel are worth it.

The Institute of Grocery Distribution estimates that the Premium sector will be worth £14.6 billion in 2007, about 9% of the total market, and is growing at 7% versus the total market at 4%. It defines premium as local foods, supermarkets own brand expensive ranges, fair trade, organic, and brands sold with top quality indulgent ingredients. It suggests that the two sectors with most growth potential are locally sourced foods and organics, the former because they reassure about where the food comes from, down to a particular farm or field, and the latter because of media attention.