Windows on indulgence in the credit crunch (Issue 03)

WINDOWS on indulgence in the credit crunch

indulging to survive the crunch

The bigger picture shopping trends Loyalty gets questioned What is the impact on ethical shopping?

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Welcome to a new edition of ‘Windows’ from shopper research specialists Shoppercentric.

CONTENTS Indulging to survive the crunch

page 4

Current winners and losers

page 6

Changes to grocery shopping behaviour

page 10

Are ethical concerns an indulgence in a recession?

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In each issue we pick a hot topic of relevance to retailers and manufacturers and research the issues. This time we look at the impact of the credit crunch on consumer and shopper habits.

The constantly evolving roller-coaster of the economic landscape is unfolding before our eyes, but what are shoppers really feeling and doing to cope with the “worst economic outlook since the 30’s”? Will we see a reversion to real lean living, or are today’s consumers and shoppers fighting to keep the indulgences they have grown accustomed to?

Through in-depth interviews with shoppers, as well as desk research and conversations with consultants we aim to provide a clear perspective on the impact of the credit crunch on shopper behaviour now and in the future, and how this might affect your business.

This ezine is designed to give you some of the overall themes and insights from our study. If you would like further information, please call or email:

creditcrunch@shoppercentric.com

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indulging

to survive the crunch Everyone is talking about the credit crunch. Once carefree consumer conversation has turned into a fashionable pastime of ‘cost saving technique comparisons’... exacerbated by media hype: “…it’s constantly rammed down your throat in the news” commented one of our participants.

The fight to keep treats

The impact on shopper behaviour is not clear cut and short term trends and events confuse the statistics. Shoppers continue to exhibit faddish behaviour even in the face of relative adversity. The Olympics, for example, helped produce an unexpected (but probably short-term) rise in overall high street sales in August as shoppers flocked to buy the latest sportswear and equipment1.

The interpretation of, and expectation for indulgence has shifted dramatically in a generation; the idea of saving for something that you want has turned into a desire for immediate gratification, with easy access to finance fuelling this. Our research suggests that this perspective will take a good while to change: within the context of their own individual financial situations,

What is clear is that the variable performance across different retailers (both high street and grocery) paints a picture of a shopper base which is, to varying degrees, trying to manage expenditure actively in order to cope with the pressures.

many shoppers are fighting hard to maintain indulgences at the expense of the basics or necessities.

“I wouldn’t cut out clothes but would cut down on lunch costs - sandwiches are expensive, in fact most things you buy for lunch are; you are just paying for convenience. I would buy tins of soup instead.” Or “I still want to keep having my hair done, it costs £85 but it is worth it. I am reluctant to go anywhere else.”

What was also consistent across all the shoppers we spoke to was the desire to maintain, as far as possible, their indulgences in the face of adversity.

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Furthermore, many shoppers are using extreme excuses to defend their maintenance of indulgence. This interesting example of justification was offered by one of our participants: “Eating out is our downfall really, though we are cutting back a little bit - I would never cut it out completely as we think it is important that the boys learn how to behave in a restaurant.”

Within this, we are seeing a variety of money-saving strategies depending on where shoppers have scope, desire or need to adjust: at a macro level (e.g. store choice), and at a micro level (e.g. brand switching, promotions hunting etc.).

Our later article on grocery shopping behaviour covers this in more detail.

To conclude, the simple truth is that cutbacks are more likely to be made where it matters least emotionally... and life’s indulgences are, after all, amongst the things that sustain us emotionally!

Though the proportion of our overall net income spent on food & grocery has reduced by half in the last 50 years2, it has for some time held the highest share of mind when shoppers talk about where their money goes. It is therefore not surprising that this is one of the first areas in which shoppers are looking to make savings, and whilst there is little doubt that this is partially driven by a desire to counteract inflating prices - a key driver for many is also to maintain, where possible, their ability to keep the ‘indulgent’ treats and pleasures: “It’s about sacrificing the little things so we can still do the big things to an extent, I suppose” says one participant. “We’ll free up cash in other ways to have a holiday you have to have something to look forward to”, comments another.

“You’ve got to keep some luxuries going - otherwise you’d just crack up.”

However - whilst we have little reason to believe that this principle will change significantly over time, its application may well change based on what does and does not remain emotionally sustainable.

1BBC News (http://news.bbc.co.uk/1/hi/business/7592600.stm) 2ONS Family Expenditure Survey - 1957 the total household

spend on food accounted for a third (33%) of monthly outgoings, now total food bills account for an average of 15% of all household outgoings.

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Current

winners and losers

So, what are the implications of this desire to maintain indulgence? Our research suggests some broad themes that will help us identify how spending is likely to change.

Theme 2: Looking out for the kids

Theme 1: Save the pennies, and the pounds will look after themselves

Amongst those that had children within our sample, there was an overwhelming desire to limit the impact of the crisis on their children. For example, one respondent commented: “I didn’t buy anything for myself to go on holiday, but the boys got new shorts and t-shirts.” “I’ll look out for the promotions so that I can still buy the Capri-Sun my daughter likes in her lunch-box”, added another. And “The kids always want expensive things these days - my son wants an Xbox and my daughter wants a DS… but we’ll manage.”

As we have seen, shoppers are looking to save on their everyday expenditure so that they can keep more of the income they have available for the finer things in life. Currently, they are looking to achieve this primarily through making changes in grocery and household shopping. “I have started to cut back on meats - I don’t have much now - chicken is becoming a treat.”

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Mothers especially seem to be satisfying their own desires to maintain the emotional gratification of indulging their kids, so we imagine that categories and brands which target this audience will be more resilient to the impact of the credit crunch.

J. Sainsbury’s (see box): “The boys will have packed lunches now, it’s much cheaper than school meals.”

Mothers are also using a trial and error approach to substituting their kids’ favourite foods for cheaper alternatives, but recognise that it’s a false economy if those alternatives are not accepted.

“I’ve found that they’ll eat reformed ham in their sandwiches, but I bought some own label cereal and it’s still in the cupboard - I’ll have to go back to Kelloggs” commented one.

The principle of cutting back where it matters least emotionally still stands however. Parents are cutting back where they believe they can get away with it in order to protect the truly indulgent parental pound. For example several reported their disinclination to continue with their kids’ school meals, a fact which is supported by recent sales figures from

Of course, this approach to cost saving is not unique to children’s categories.

But it does emphasise the importance of proprietary brands actually delivering a superior product in order to avoid the risk of being substituted permanently.

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Theme 3: Experience over material

The Lunchbox Phenomenon Recent sales figures from Sainsbury have shown an increase in the use of Tupperware, with plastic sandwich box sales up by 35% and plastic sandwich bags up by 25% compared to last year (Which? News, August 2008). In addition, a recent study commissioned by ALDI indicated that over the past 6 months, 45% of people were starting to take packed lunches to work rather than buying ready made food (Financial section, Guardian, 5th September 2008).

capitalise on this trend in order to compensate for losses elsewhere.

There is also a warning signal for food service businesses and high street convenience outlets as they will have to fight harder and more intelligently for the lunchtime pound in coming months.

“I buy my lunchtime sandwich from the petrol station and think to myself, this seems an unnecessary waste of money - I should be making my own.”

With kids and adults alike munching on home made sandwiches rather than a bought meal at lunchtime, there is room for retailers and brand owners to

“I am actually taking lunch in now, so that I avoid going out shopping at lunchtime and being tempted to buy something more than just lunch.”

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I have had to stop putting myself in situations where I might buy.” said one, and another commented: “Buying clothes is now a treat but it didn’t used to be, I’d spend £200-£300 on a suit for a special occasion, I just wouldn’t do it now.

I want trousers and tops that are good enough quality to last for ages.” On the other hand people fight to retain their indulgent experiences… “Eating out is something special to me and my partner, it is living for the moment if you like, we will still go out - even if it means bread and jam for a week.” And people will make minor adjustments to retain this short-term pleasure: “We enjoying going out for curries together, we now have water rather than beer, it halves the bill, moving the cost from £40 to £20.”

Several social and psychological theories suggest we require more experiential moments in our life. This is supported by a number of instances in our research where shoppers expressed greater keenness to protect their ability to indulge in experiences rather than in possessions.

If the time comes when trade-offs have to be made in terms of sacrificing, rather than merely limiting indulgence -

these shoppers would forego the material before they would forego the experiential.

So, we are already seeing sharp declines in the fortunes of many high street retailers - clothing and shoe retailers amongst them. And these are categories where many of our female shoppers in particular indicated that they were already limiting their fashion passion: “I always used to go out shopping [for clothes] every Saturday with my sister, now we hardly go out at all.

If people are protecting their spending on experiences rather than on products there are implications for brands to take advantage of experience-led promotional activity such as free entry vouchers for family experiences like theme parks or family friendly restaurants.

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Changes to

shopping behaviour

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grocery We are seeing a variety of approaches adopted by grocery shoppers in response to the credit crunch which we have grouped into three core strategies that shoppers employ to limit their spend. The degree to which these strategies are used independently or in conjunction with each other depends on the individual shopper’s circumstances, but overall they show a strong challenge to brand and retailer loyalty.

1. Store Switching • Avoiding temptation “I’ll drive across town to go to Morrisons now ‘cos it’s just too tempting to have a quick look in George when I’m in ASDA.”

This is the most disruptive change, when shoppers are making a majority or total switch of main grocery store in order to curb spending. This is usually, but not always augmented by further economising within the new environment.

• Higher potential for online Online may benefit both due to improved price comparison and because shoppers believe that online allows better control.

Key highlights from our research include: • Price over convenience “I don’t shop in JS any more. I thought it was cheaper to try another store and have found it to be much cheaper than before.”

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2. Economising This is when shoppers mainly stick with their ‘usual’ shopping environment, but may store hop/cherry pick where there are known benefits. Shoppers deploy a number of tactics to limit their overall outlay - each being used selectively across different categories according to their level of emotional involvement with the category and its brands. Key highlights from our research include:

Morrison’s, Sainsbury’s… wherever really, just to look for offers.”

• Comparing prices (both across stores, and within category) “I am much more price conscious than I was, say six months ago.”

• Non-promotional bulk buying “I’ve started to buy things like tea and loo roll and laundry tablets in bigger packs now - you get more for your money that way… and you don’t have to buy them as often, so you don’t get that sinking feeling when you’ve added household stuff to your grocery bill so often.”

• Switching from Brand to Own Label “I’m cutting down in Tesco by buying own label instead of branded on things like baked beans, tinned fruit, cereals, washing tablets, fabric conditioners, baby wipes, san-pro, basic medicines. I now always compare own label versus brand on price.”

• Promotion hunting “Food shopping has got so much more expensive, I’ve started to shop around, I used to go to just Tesco, but now go to

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Planned or unplanned?

Changing shopping patterns

3. Prudence The ‘waste not, want not’ mentality. This strategy has the least impact on actual shopping behaviour with practitioners being more likely to start at the point of re-evaluating their consumption… reducing wastage by being more resourceful in using what they have.

Over and above these strategies, there are early indications that grocery shopping patterns are being challenged by the economic situation. We could be on the verge of a reversal in the trend toward smaller, less planned shopping trips. Some of our shoppers reported that they are becoming more planned in their approach to grocery shopping, creating more lists and doing fewer (bigger) shopping trips - even if these trips involved a visit to more than one store to take advantage of offers. They mentioned their intentions to reduce temptation to over-buy and impulse buy as a rationale for this: “I always used to pop for a loaf of bread and come back with £20 pounds worth of shopping”, or “I now make a list and I stick to it!”

This strategy, if used, can also lead shoppers to question any reliance they might have on ‘modern’/time saving products such as ready meals whilst still eschewing fresh in favour of frozen in order to reduce wastage.

In shopping terms, this means a reduction in volumes bought (especially on perishables), as well as for some, a reduction in the proportion of prepared foods bought, which will inevitably lead to a reduction in long term customer value: “We have tried to be more selective, cut down on the amount of food that we buy.

We have bought less fresh food so not as much goes to waste.”

If this pattern develops then retailers and manufacturers will need to re-think how they engage with more planned shoppers across all formats.

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Loyalty in question For certain categories, the credit crunch is forcing shoppers to challenge their brand loyalty with an active re-evaluation of the rationale behind that loyalty. If this is found to be wanting in emotional terms, then there is a good chance that a switch to a cheaper brand or an own label alternative will happen. Categories mentioned by our shoppers which are under threat include household cleaning/detergents, staples such as bread/ cereals, pasta and rice. For these types of categories, leading brands may be at serious risk of losing share - though a retailer is unlikely to lose custom as a result.

On the other hand there are those categories with which shoppers have stronger emotional ties and a bond strong enough to warrant another tactic. Shoppers may start store hopping in order to find the best deal for their preferred brand. Some of the categories mentioned by our shoppers were personal care (for them), spirits and as we have seen, children’s products. Unless they can be competitive in these types of categories, retailers are more at risk of losing share as shoppers may transfer their whole shop to another store which offers the best prices or promotions.

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Are ethical concerns an

indulgence in a recession?

The one key difference between this economic crisis and previous recessions is that it hits consumers & shoppers just at the time when the environmental agenda and the related, nostalgia-tinged trend towards a desire for a simpler, more wholesome lifestyle are in the ascendance. So, what impact is the credit crunch having on shoppers’ desire to ‘go green’, and how might this evolve over time?

On the one hand, the sharp sales decline recently reported for organic products might indicate that ‘being green’ is off the agenda for many shoppers these days.

Shoppercentric’s recent study on ethical shopping found that

a full 76% of main grocery shoppers would be more inclined to shop green if prices matched standard products.

Recent figures from TNS indicated that organic food sales had fallen more than at any time in the last decade - from a peak of £100m a month earlier this year to £81m in the 4 weeks to 10 August.

In fact, some industry commentators predict that shoppers’ wishes may come true sooner than they think, as retailers price war themselves into a situation whereby organic (amongst other) products are retailed at prices which are more reflective of their true cost.

This may well be influenced by the strong tendency amongst the majority of shoppers to respond unfavourably to spending on products with price premiums that cannot be rationally or emotionally justified.

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The declining fortunes of organic products most certainly does not mean a wholesale move away from ethically & environmentally influenced shopping.

“Being more careful about how you use gas and electric is much better for the environment as well - we should be doing it anyway”; and: “I think we are more mindful of the need to spend wisely.

I love all of these ideas coming out of supermarkets about how to make the most of your food, you know, cook a roast on a Sunday , use the left overs to make a cottage pie on the Monday. It’s all the old housekeeping tips being recycled, so it’s actually quite fun.”

Some shoppers are simply cherry picking their causes: “We saw the chicken programme some weeks ago on the television, and how cruel it was with these battery chickens. So we buy free-range chicken and eggs… but organic is just not worth it for us.”

Furthermore, July’s figures from the SMMT (Society of Motor Vehicle Manufacturers & Traders) showed that alternative-fuelled vehicles are bucking the declining trend in UK car sales. Sales of energy saving light bulbs are also increasing.

Set this in the context of an age when self-actualization through consumerism is potentially becoming less and less fashionable, we may well see a greater mass of consumers adopting a more prudent approach to consumption and (hence) shopping. If this new perspective gains a long-term stronghold in the consumer-shopper mindset - it is by no means a certainty that they will revert to previous spending patterns when we return to more affluent times.

Our research indicates that for some shoppers, their desire or need to curb everyday expenditure is both helping their quest to become more environmentally friendly, and allowing them to indulge their nostalgia for the simpler, more wholesome life:

The environment may well be the long term winner.

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This ezine contains just some of the themes that have come out of our new research on indulgence in the credit crunch.

We have more insights and implications available via a presentation. To arrange a meeting to see this presentation, please email us at:

creditcrunch@shoppercentric.com

Contact: Alice Woodcock

Marketing and operations manager, Shoppercentric: alice.woodcock@shoppercentric.com mobile: + 44 7977 579 076 email: creditcrunch@shoppercentric.com or visit our web site at:

www.shoppercentric.com Designed and produced by Keen As Mustard Marketing Ltd.

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