Analysis: Cost-conscious consumption is here to stay

Retail Week takes a look at the trends that are here to stay among shoppers, regardless of their level of disposable income.

Own-brand

Shoppers have been switching to own-brand across retail since the onset of the downturn. Research firm Key Note calculated that own-brand sales soared by 51.7% between 2007 and 2011 to £118.13bn. It estimates that nearly 40% of total retail sales in the UK are now own-label goods.

The growth has been driven in part by retailers investing heavily in more sophisticated own-brand product ranges, which have wooed customers who are trying to reign in spend.

All of the big four grocers have invested heavily, with Tesco relaunching its Finest range just this week, on the back of its Tesco Value rebrand to Everyday Value last year.

Rival Sainsbury’s revealed when updating on its second quarter last week that its own-brand offer continues to grow at twice the rate of branded goods.

Morrisons kicked off a two-year own-brand strategy to boost its volumes in store. It launched the 10,000 SKU M Savers range in January 2012. Chief executive Dalton Philips has since pinpointed it as a strong point of difference and claims it is the fastest growing value own-label in the market.

The growth of own-label has led to wider expansion into more categories. Morrisons has launched its own-brand clothing line Nutmeg and Tesco has launched its own budget Hudl tablet, which is expected to be a big seller this Christmas.

It is not just the grocers that are witnessing the consumer appetite for own-brand. Department store chains House of Fraser and Debenhams have experienced huge growth in private label, with gross profit up 18% in own-brand during House of Fraser’s first half.

Discounters

Some of the biggest winners from the downturn have been value retailers, which have boomed on the back of the rise of the price-conscious consumer.

High street favourite and single price-point retailer Poundland has recorded consistently surging pre-tax profits, which have more than tripled from £10m in 2008 to £32m in 2012, at a time when some retailers have struggled to break even.

And Poundland is not alone. Multi-price retailer B&M Bargains’ pre-tax profit rocketed from £14m in 2008 to £90.6m in 2012. Such stratospheric growth attracted a raft of private equity investors last year. Eventually, CD&R acquired a “significant stake” in a deal understood to be worth £965m, making it one of the biggest retail transactions in recent years.

This growth and deal activity has transformed people’s views of value retailers, with landlords regarding them as footfall drivers, while big-hitting executives have been attracted to their boards. For instance, former Tesco finance director Andrew Higginson joined Poundland as its chairman while B&M Bargains lured former Tesco boss Sir Terry Leahy as its chairman.

The retailers are confident further growth can be achieved. Last week Poundland, which operates 458 shops, outlined plans to more than double its UK store count.

Discount grocers have also enjoyed exceptional growth at a time when supermarket giant Tesco has underperformed.

Aldi last week revealed it won more than 1 million customers from the big four, while sales surged 40.6% to £3.9bn in the year to December 31.

Meanwhile, value fashion retailer Primark has outshone rivals and last month analyst Panmure Gordon raised its EBITDA profit expectations from £473m to £505m.

It is not just consumers on low incomes that love to bag a bargain either. The value retailers have noticed a rise in shoppers from higher socioeconomic groups.

“People are going into pound shops for a couple of hero products, often in dental or haircare, and are spending
£6 to £8,” says Shelley Watson, head of shopper and retail at research firm Spa Future Thinking.

“There was big growth in the number of people using discounters tactically last year and we’re expecting that to grow this year.”

Vouchers/price matching

The rise in the use of vouchers came to a crunch point in January 2012 when Tesco issued a shock profit warning after losing out to rivals’ coupons over Christmas. Their prevalence has since continued unabated as shoppers returned to a habit that defined 1970s shopping, when loyalty scheme Green Shield Stamps enchanted thrifty consumers.

Catherine Shuttleworth, chief executive of grocery marketing specialist Savvy Marketing, says: “Groupon and voucher sites became popular because businesses could sell off extra capacity at hotels and days out. Consumer expectations have changed. It’s now cool to get money off and be cautious about saving money. There’s smartness about being the person who has got something at the lowest price.

“There’s a shift in the way vouchers are delivered, now people receive them on their smartphones.

“If you pay full price to eat at Pizza Express you have made a mistake because you can, on their in-store wi-fi, download a voucher and show it to your waiter before you finish your meal.”

Data from IGD shows 50% of shoppers say they plan to use coupons and vouchers more in the coming months.

Price matching has also been a key theme of the recession and the major grocers have attributed their success to promotions. Sainsbury’s Brand Match, Asda’s Price Guarantee, Tesco’s Price Promise and Waitrose’s Brand Price Match have all used variations of the same mechanism to assure shoppers they will not be beaten on price.

With shoppers able to compare prices themselves online, transparency on price is likely to continue to be key.

Top-up shops

Smaller and more frequent shops have been a key shift in grocery shopping since the onset of the economic downturn.

A number of factors have driven the trend as consumers move from religiously stacking a large trolley of goods each week to nipping in to their local store for a few items each day.

A key element in the shift was a drop in car ownership across the UK - a long-term trend exacerbated by the downturn. At the height of the recession in 2010, car club membership rose from 64,679 to 112,928, according to the Department for Transport, as consumers gave up their vehicles in the face of rising fuel costs.

As such, a local top-up shop became more appealing, either as a replacement for a main weekly shop or a complement to less frequent large shops. An IGD survey showed 61% of shoppers said they had used three or more different types of shops for their grocery purchases in the last month.

“There are several factors: we have less time so convenience stores make sense; we are buying for tonight’s meal as we don’t want to spend £100 at the start of the week,” says Catherine Shuttleworth, chief executive of grocery marketing specialist Savvy Marketing.

“There have also been improvements in the standard of convenience shops with the growth of brands we know and trust. Because the price of fuel has risen, driving to a Tesco Extra rather than the Tesco Express on the corner makes little sense.”

Moreover, the recession has created a new hybrid breed of consumers who shop online for bulky goods - and are able to keep a handle on their exact spending in their digital basket - and top-up with fresh items from a local store.

Looking online for the best prices

Online retail has experienced phenomenal growth over the past few years, driven in part by shoppers searching for the best deal.

Online players have long had a reputation for offering bargains. Auction site eBay was one of the first large-scale etailers in the UK and consequently helped foster this reputation.

This popularity has since been cemented by retail giant Amazon, where the model is based on choice and knock-down prices. The two sites still remain the UK’s most popular.

Showrooming - searching on the web for the best deal while in a store - has become rife. Some 83% of UK shoppers admitted that they had searched for cheaper prices online while in shops, according to consultancy Accenture’s Seamless Retail study.

However, 88% of shoppers said they had participated in “webrooming” - browsing for items first on the internet then buying in store - suggesting that the trend to scour for the best prices online may benefit the high street.

Shelley Watson, head of shopper and retail at research firm Spa Future Thinking,says the trend of looking online for the best prices is here to stay. “Shoppers do not take the first price offered anymore. Online allows shoppers to control their budgets with ease.”

Reducing Food waste

As the recession bit and household budgets were put under pressure, consumers started cutting down on food waste to save money.

Shoppers have increasingly turned to frozen food in a bid to cut waste. In July, The Co-operative said sales of frozen food in the past year had surged 14% as shoppers were trying to save money and cut waste.

Specialists have enjoyed their moment in the sun too, with Iceland, Farmfoods and Heron Foods all reporting rising sales in recent years.

The consumer desire to reduce waste can be seen in other areas too. Shoppers are increasingly shunning BOGOFs.

In reaction to this, Tesco piloted an innovative Buy One Get One Free Later initiative in 2010 that allowed shoppers to postpone getting their free second promotional product until a later shopping trip.

“There’s a creeping cynicism on deals and customers are pushing back on BOGOFs,” says Shelley Watson, head of shopper and retail at research firm Spa Future Thinking.

“They only want multi-deals on products they’re going to use, not stuff they are trying out or not going to use that much.”

Elsewhere, Tesco is in the midst of reviewing best before dates while retailers are supporting the Government-backed Love Food Hate Waste campaign, including Sainsbury’s with its Live Well For Less initiative.

Catherine Shuttleworth, chief executive of grocery marketing specialist Savvy Marketing, says: “Wasting less food is here to stay. There’s a general feeling that less waste is a good thing, but it also makes financial sense. It’s cool to be frugal. The age of mass consumption is over and there’s a generation of shoppers who will never go back.”