Shopper spending in an economic downturn… it’s not all doom and gloom.
With inflation accelerating through 9%, energy price caps set to rise again later this year, and the biggest one-day rise in fuel prices on record earlier in June, it’s no surprise that shopper confidence is very low. Younger shoppers are most exposed to the cost of living increase, as are families with children. The Economist recently forecast that single parents with children will see their real-term income decrease by almost 6% in 2022-23, whilst pensioners will see a slightly more palatable but still potentially problematic decrease of between 3 and 4%.1 A recent report2 shows that four out of ten UK households have little or no savings, and even people on higher incomes or who do have savings are looking to save money where they can.
Shopper confidence matters. A subtle change in the way people think about their shopping can have a significant impact on what they actually buy. And there’s good news here, because financial worries don’t necessarily lead to shoppers spending less, and certainly not necessarily to trading down to cheaper products. In many cases, it can actually drive people to trade up!
For example, some shoppers are economising by seeking multifunctionality – products that do more than one job. Trading up to a ‘2-in-1’ or ‘3-in-1’ product can be seen as good value. Another trend is ‘investing in the future’, in which personal care shoppers are buying premium products because keeping themselves healthier and having younger-looking skin is a valuable investment. There are also shoppers who are happy buying more expensive, quality products, simply because they see them as better value. In categories such as personal care appliances (electric toothbrushes, epilators, hair dryers etc.), shoppers often prioritise quality and longevity over cheap and throw-away, and this carries over into consumable products too3. Shoppers don’t necessarily want to trade down, risk getting a product that doesn’t work, and have to go back and buy the original one anyway. If it’s essential and it’s worth buying, it’s worth doing properly.
There’s also the consideration of what trading down means in real life. For some, it means trading out of an out-of-home experience and bringing it into the home instead. These shoppers are buying premium products (what would be considered ‘trade-up’ products as far as retailers are concerned) because it’s cheaper than what they were originally planning.
A further thought is on affordable luxuries. This links closely to the who are shoppers trading down from salon experiences and buying premium products for in-home use. It also covers those buying more air care products and fabric conditioners, to make their homes more pleasant and bring small, affordable moments of joy into their lives, especially given people are still spending more time at home than they were before the pandemic.
It's worth noting that trading up isn’t just for those on higher incomes. Shoppers who claim they are ‘revenge spending’ – making up for lost time – are equally split between those on high and low incomes. Those with lower disposable income are taking advantage of the increasing number of ‘buy now, pay later’ options joining the market recently.3
Of course, many grocery shoppers are still looking to save money, and they can do so in four key ways. They can actively search for, and stock up on, price promotions. They can switch to cheaper stores. They can trade down to cheaper products. And they can simply buy less.
The latter – buying less – does not tend to apply in essential household and personal care categories. Shoppers continue to use the same amount and therefore replenish their stock when they run out. And the former – buying on promotion – is an option, but promotions are in long-term decline driven in part by a move towards EDLP. So that leaves shopping in cheaper stores and trading down to cheaper products, both of which we are seeing evidence of in the market.
However, brand loyalty is still high, especially in the household category. At the start of the pandemic, shoppers put trust in the leading brands to get the job done, especially in household cleaning and disinfectants. That brand loyalty has continued – we are not seeing shoppers switching out of brands in the same way as some other categories. Personal care shoppers are trading down more, but remember that many shoppers are trading up too.
So what does this all mean? In short, it’s not all about trading down to cheaper products. Retailers need to stock a full range, from entry through to premium, to cover as many different shoppers as possible. People are making fewer trips and have learned to plan in advance, so they will often prefer to visit a store that they know can offer them everything they’re looking for, rather than having to go somewhere else as well… even if it costs them a few pence more to do so (…many shoppers are taking into account the travel costs as well).
So… stock a full range and you’ll grow your sales!
1: The Economist, Real incomes, by household type in the UK, 2022-23 forecast, % decrease on a year earlier.
2: Family Resources Survey Financial Year 2020-2021, GOV.UK, 31 March 2022.
3: Streetbees Cost of Living Monitor, June 2022