Consumer mindset changed forever by recession
The recession has radically changed consumer purchasing behaviour and altered the dynamics of grocery retailing for the foreseeable future.
This is according to a new report, Time for Dessert? Ten Emerging Trends in the Food & Drink Sector and How to Respond, launched by Barclays Corporate and Verdict Research.
The report finds the growing difficulty of converting visitors to shoppers, increased customer frugality, the ascendancy of price as the main driver of loyalty and the significant growth in shopping around, both in store and online, have become the ‘new normal’ and it is now up to food and drink retailers, members of the supply chain and affiliated industries to adapt to this more austere consumer profile.
These findings form the central tenet of the report which examines the impact the recession has had on the sector in the UK and Ireland, what key sector trends are emerging for 2010 and how retailers can hope to drive growth.
Commenting on the report’s results, Richard Lowe, Head of Retail and Wholesale at Barclays Corporate, said: “The recession has caused a major shift in how, where and when UK consumers do their grocery shopping. While price will remain the defining issue for retailers, the sector is innovating in response to rapid change, embracing trends such as M-commerce (mobile phone retailing), the prioritisation of the convenience store format and the growth of online shopping and home delivery as new avenues for profit and growth.”
Daniel Lucht, from Verdict Consulting, commented: “While remaining high, we see price sensitivity retreating again from the heights of last year. This means that it will become increasingly important for grocers to offer a compelling price plus proposition from private label ranges to their online operations. What will matter most for grocers in 2010 is providing value to customers.”
The study identified four major changes in the grocery sector as a result of the recession:
· Price sensitivity at a historic high: Verdict’s Consumer Satisfaction Index data shows that until 2009 price as a driver of consumer loyalty was on a clear downward trajectory. However, the impact of the recession in 2009 is remarkable, with price sensitivity spiking at 48.2% (up from 42% in 2008).
· Price not convenience drives loyalty: Convenience as a driver for loyalty nosedived in 2009 (from 48% down to 42%), as customers were prepared to travel in pursuit of value. This trend has partially reversed in 2010 and recovered much ground, but it is still below 2008 levels.
· Visitors not Shoppers: Conversion rates from footfall (customers visiting stores) to loyal and regular shopping plummeted in grocery in 2009 to 28.6% from 34.5% in 2008 and have now begun to recover somewhat to 30.7% but they remain below 2006 levels though.
· Price Comparison: The picture is completed by data on shopping around, which shot up from 1.9 stores used beside the main shop for grocery in 2008 to 2.5 in 2009 and has since receded back to 2.3 in 2010 – remaining above the historic average.
The report also identified ten critical trends which point the way to how retailers can drive growth in these changed circumstances:
· Private Label: The extension of private label lines across the entire grocery universe will intensify and these will be professionally marketed, packaged and displayed in an attempt to create brands in their own right and push out established national brands from their categories.
· Diversification:Grocers will use their strong brand names and brand confidence to forge diversification into additional services particularly Financial Services to drive growth.
· Location:Gaining footfall becomes more difficult as online shopping increases, so store location is paramount and stores now need to be carefully targeted to their catchment area. The slight recovery in commercial property prices also means that retailers will have the opportunity to trial and fine tune new store concepts.
· Store Design: Self checkouts (SCO) will come to the fore in 2010 especially in convenience format stores. They offer benefits in terms of staffing costs, freeing up staff for other in-store services and reducing human error in cash handling. They also reduce queuing time and have high levels of consumer acceptance once they are over the initial barrier.
· Shop in Shop: We will see more shop in shop formats developing and concessions granted to outside players e.g. Starbucks in Sainsburys that entice shoppers to spend longer on site. Branded FMCG players will also colonise shelf displays and aggressively visual merchandise and grocers will further segment their own branded goods and tailor ranges to catchment areas.
· Internet:Grocers will become increasingly better at adapting their business models and delivering what customers really want- a seamless shopping experience across the whole channel spectrum.
· M-commerce:Mobile phone Applications will revolutionise how grocers engage with their customers, drive the uptake of online grocery shopping and help retailers better manage loyalty programmes and see a rise in the use of online and discount voucher codes.
· Environment:Environmental responsibility will continue to preoccupy retailers and ethical credentials will continue to matter to consumers even in cash strapped times. In 2009, major retailers have undertaken huge efforts to green their supply chains and store design, and develop product innovations such as carbon footprint labels and reduced packaging and in 2010 even more environmental efficiency gains are likely.
· Categories:The return of organics and premium ranges will be marked when the economy rebounds and the trends towards healthy eating, local provenance and carbon footprint monitoring will not disappear. However consumers need to feel financially confident before they will begin spending freely on these categories. The same applies to big ticket items and those grocers that diversified into non food such as Tesco and Asda will have to work hard to drive growth in these areas.
· Inflation: Once inflation returns the incentive to trade down will return and the shopping format that targets the cash strapped consumer will thrive. New and better stores in the right locations are key if retailers want to be successful as is developing a more up market offer that maintains and emphasis on value for money.
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