Food market will be least hit by recessionary consumers, new report

Related tags Consumers Economics Datamonitor

A new report investigating the shopping habits of consumers across
Europe finds that while eating out is still seen as a luxury, and
will be affected by recessionary consumers, food purchasing is the
last area to be included in an economy drive.

A new report, "Recessionary consumers"​ , that investigated the shopping habits of consumers across Europe, found that while eating out is still seen as a luxury, food purchasing is the last area to be included in an economy drive.

With growth in the European economy expected to decrease to just above zero in 2002, leading to a dip in consumer spending, a new Datamonitor report aimed to reveal how consumers' lifestyle priorities determined which areas of expenditure would be chosen for budgeting. The areas of consumer expenditure most at risk are electronic goods, eating out and beauty treatments - four-fifths of all consumers who currently spend money in these areas would economise on them first.

"The consumer spending priorities revealed by our research are a reflection of the effect of each area of expenditure on quality of life. While eating out is a pleasure for consumers, it is rarely central to their lives, and its absence will not be so greatly noticed. On the other hand, should consumers start to buy vin de table instead of Burgundy, or fish fingers rather than salmon steaks, they would feel a much bigger reduction in quality of life,"​ commented Andrew Russell, author of the report.

While the report found that no market is entirely safe and that under economic pressure consumers will start economising on domestic purchases too, food was deemed the market sector least likely to suffer cutbacks. Drinks are more at risk, and personal care is most likely to be the victim of consumer economy drives. Quality of life issues are the key driver behind these trends.

"The importance of quality of life means that value for money is not everything to consumers. Datamonitor's surveys and studies show that when required to cut back, consumers place as much importance on value for time and value for experience - the benefits offered by the product."

Datamonitor's research showed that the majority of products dropped from consumers' shopping lists were not "Luxury" or "Premium" but "Superfluous" - they conferred no real benefit to consumers. Forty-seven per cent of all food purchases dropped from researchers' shopping lists were "Superfluous", as were 42 per cent of drink purchases and 46 per cent of personal care purchases.

By contrast, consumers frequently would keep "Luxury" or "Premium" products in the list, because, while more expensive, they made a much bigger difference to quality of life.

Only three per cent of all drinks purchases dropped from budget shopping lists were "Premium". Private label and budget private label, which might seem to be natural products for consumers on a budget to choose, were selected by only 17 per cent and eight per cent of consumers respectively as likely targets for budget spending, which demonstrates how unwilling consumers are to change their eating habits.

"In times of economic downturn, manufacturers whose products are already held in high regard by consumers should not consider a change in price-point as the first resort,"​ advised Andrew Russell. "Instead, they should focus their efforts on reinforcing the brand image to remind consumers of the quality of life issues at stake,"​ he added.He said that consumers will find the money for products that they value sufficiently highly. In order to take advantage of this, manufacturers must understand exactly how consumers relate to their products and what precisely the valuable products are offering to consumers.

"The positioning of existing products should be refined to drive them further up the quality and luxury value ladder. New products should be developed with this goal in mind. If possible, weaker products should be reworked to include these values in their offering. If not, they will be more vulnerable in times of economic uncertainty, "​ Russell said.

When competing for the budget market, perception was found to often be as important as price - consumers in the Datamonitor study research would occasionally replace a product with a more expensive one, under the impression that it would be cheaper.

This highlighted how important perception is to consumer purchasing choices. If the decision is made to lower the price of a product, this must be emphasized in the marketing and the packaging; the image of the product must be adjusted to fit the traditional image of budget goods.

The report pointed to one noticeable budgeting trend - consumers often try to make a virtue out of necessity when forced to cut back, by saving on products that they feel to be bad for them. Half of all consumers said they would cut back on snacks and confectionery if required to budget. In the drinks market, alcohol was by far the biggest target for savings, with 58 per cent of all consumers volunteering to reduce alcohol consumption altogether in the event of the need to cut expenditure.

Healthy and ethical consumption are also at risk however, as 33 per cent of consumers would cut back on organic food if money were tight.

Furthermore, it was found that when consumers reduce their expenditure in one area it does not necessarily mean that this money will be taken out of circulation. Either deliberately or carelessly, consumers may spend some or all of that money in other areas, either to maintain pre-budgeting levels of expenditure, or by way of compensation for the activities which have been cut back.

The Datamonitor research found that the majority of consumers would expect to spend in other areas the money they had saved elsewhere, such as on higher priority areas of spending, notably holidays.

The report concluded that consumer spending, unlike in previous economic downturns, has remained high, fuelled by low interest rates, low increases in unemployment and continuing high consumer confidence.

Three separate scenarios for economic growth across western Europe, ranging from best to worst were examined. The middle scenario finds that, following the recent slowdown in the economy, growth will be muted but will stay positive. In this scenario, western European growth will average only 1.1 per cent, although there will be variations across the region - the UK and Spain will be least affected. Across western Europe, food spending will fall by 0.1 per cent, drinks spending by 0.6 per cent and personal care spending by 0.4 per cent.

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