UK consumers will move from thrift to ‘trading down’ and ‘cutting out’ in the next six months

Half of UK consumers plan to further cut back spending over the next six months
63% have already reduced spend and 51% plan to make further cuts
Changes in buying behaviour present opportunities for retailers and manufacturers

London, 24 March 2009—UK consumers have already changed their outlook and spending as a result of the recession. But now that the easy economies have been made, what more will consumers do as the recession deepens? How can retailers, manufacturers and marketers respond?

A survey by Booz & Company of 1800 UK consumers, The Morning After the Night Before: UK Consumers in the Recession, has revealed that 59% of people think the recession will get worse over the next six months. Sixty-three percent have already reduced spending and 51% plan to make further cuts – this is a matter of confidence, not income, as only 36% expect a reduction in income over the next six months.

“UK consumers believe that savings measures need to be introduced just to stay on top of everyday prices and to insure against an uncertain future. They are concerned by media coverage of the continued financial turmoil as well as lack of clarity and confidence in how and when the economy will recover,” commented Richard Rawlinson, partner at Booz & Company in London.

The survey revealed that consumers’ views on inflationary pressures (high inflation) diverge widely with official forecasts (low inflation), which colours what UK consumers are most concerned about:

  • the inflation of everyday items such as food (73%), utilities (80%) and petrol (53%);
  • a potential fall in income (56% concerned) or unemployment (47%) and
  • the decreasing value of their houses (38%) and savings (57%).

However, the recession has meant that consumers have completely changed their attitude to credit; access to credit to finance new purchases only concerned 19% of respondents. Consumers seem to be unwilling to continue to fund their lifestyles based on credit.

Consumers have already cut back on spending
Many have reduced non-essential spending, with 57% having cut back on eating out, 55% on buying new clothes, 48% on holidays, and 47% on beauty and personal care. This has created great opportunities for many retailers; for example, M&S and Tesco offer deals aimed at recreating the restaurant experience at home. Many have also saved money by switching utility suppliers (45%) or bundling their media services such as phones, broadband and TV subscriptions (36%).

Over the next six months, many consumers plan to further reduce spending
In terms of the daily or weekly food shopping, 28% expect to decrease spending, yet 25% believe they will need to increase spending in this area due to perceived inflation and to cutting down on eating out. Thirty-eight percent plan to buy less prepared and more fresh food in the next six months; however the organic food sector has proved less durable with 25% of current organic consumers planning to buy fewer organic products.

“Consumers are becoming increasingly price-sensitive and are making a greater effort to search for value. More than ever, retailers and manufacturers must respond and collaborate in building more sophisticated pricing capabilities,” commented Richard Rawlinson. “The consumers we surveyed said they appreciated price promotions on selected items even more than across the board low-pricing. For retailers, ‘hi-lo’ pricing strategies will be particularly effective compared to everyday low pricing.”

Short-term opportunities for retailers and manufacturers
Over the next six months consumers are likely to begin switching retail channels. Forty-six percent will visit convenience stores less often and 47% plan to do more shopping in-store rather than online to take advantage of in-store deals and promotions. Forty-five percent plan to increase the amount they spend at hard discount stores like Aldi or Lidl. Historically, consumers in London and the South East have paid less attention to hard discounters. For example, ADSA in London competes with other supermarkets, whereas in a region such as the North West its main competition is hard discounters. With 48% of Londoners claiming they will increase their spend at hard discounters, these types of retailers will need to put greater emphasis on developing their store networks to make them more accessible.

Despite the crisis, many consumers will continue to buy branded goods
Many consumers still plan to buy branded products, or at least switch to cheaper branded products within the category. Brand loyalty is higher for tea and coffee (with 63% refusing to “trade down”, alcohol (56%) and baby food (61%). But for products where emotional involvement is lower, and where retailers have proven that they can match the quality of branded products consumer are much more likely to trade down to less costly alternatives: confectionery and snacks (51% willing to “trade down”), non-alcoholic drinks and juices (52%) and household products (61%).

To win and keep loyalty, brands will need to offer stronger value propositions, and invest in their emotional or functional advantages. In the face of a prolonged recession, companies will need to critically review and rebalance their brand portfolios. Retailers such as Tesco and Waitrose have already started responding with brand portfolio extensions at the lower end designed to track their customers’ spending and pre-emptively address competition from discounters such as Aldi and Lidl.

Using the recession to increase marketing effectiveness
Together with pricing, marketing remains critical to winning consumer loyalty and share of wallet. Many savings measures identified in the survey are still only plans, and it is up to retailers and manufacturers to influence consumers’ actual future behaviours.

“The more successful retailers and manufacturers will combine their market segmentation, pricing and communication to create greater empathy and help ‘lead the consumer’ through the recession,” commented Richard Rawlinson. “The retailers and manufacturers that face up to these challenges and develop or exploit their capabilities in tune with changing consumer behaviour will be the winners for consumers.”


Survey Methodology
Booz & Company surveyed 1800 UK consumers (chosen across regions, income groups and age to be representative of the UK population) between 17-24 February 2009. The survey focused on their sentiment and perceptions regarding the UK economy; changes in spending that consumers have already made over the last six months; and additional changes they are considering making as the economy continues to falter. The survey investigated specific actions and lifestyle changes that consumers have made or are planning to make in major categories, including groceries, appliances and electronics, clothing, housing, public and private transport.