The impact of consumer spending cutbacks on food retail

Posted by Daniel Palmer on 17th February 2009

Evidently, the daily dose of bad news has been unsettling consumers but private households have so far shown uncharacteristic composure compared with frantic activity by the public sector. Nevertheless, it is important to take into account the different social groups to which consumers belong, according to new research by German-based GfK AG.

The financial situation of consumers is also decisive when it comes to assessing personal income prospects and the propensity to buy. While previously, people tightened their belts, the willingness to spend has been rising steadily for months. And spending has related mainly to “minor luxuries”, rather than major investments. Consumers primarily turn to food retailing for these small extras, GfK advised.

While spending on non-food items, such as products in the electrical and electronics, textile and durables sectors, has been on a downward trend for years, spending on fast moving consumer goods is steadily rising. According to Wolfgang Twardawa, Division Manager Strategic Marketing at GfK Panel Services Germany, consumers’ current approach is best summarised as: “If there is no money to buy a new refrigerator, at least I can fill up my old one.”

However, consumers will be feeling the impact of the crisis far more over the coming months and will have to adjust their daily habits and attitudes accordingly. There are already clear signs pointing in this direction, which are not necessarily detrimental to food retail. In times of economic crisis, the cocooning effect tends to emerge and this involves consumers focusing increasingly on activities within their own homes. For example, they will go out less in favor of enjoying evenings in. This behaviour will impact primarily on the restaurant industry, with the lack of consumption outside the home made up for by the purchase of food products to be eaten at home, the research group noted – something which has already been seen in a number of countries.

The extent to which individual households will be affected by the crisis depends on their job situation and their scope in financial terms. GfK has determined that one fifth of households are at high risk from the crisis. When it comes to shopping, the wallet is all that counts. For a third of households, the crisis has already meant that, although still following their preferences, they now shop more “smartly”.

Almost 50% of all households show resilience to the crisis. They continue to look for quality, and buy (premium) brands.

Although only around half of consumers will actually be affected by the crisis, the situation will have a major impact on food retail. The various sectors, industries and retail will all be affected by the economic crisis to varying degrees. There will be losers, but also winners in this downturn.

Discount stores and cheap brands will certainly be among the winners. However, the premium segment and brands which boast high levels of customer loyalty will also survive the crisis better than others and emerge from it stronger. The demand for chocolate, ready meals, convenience products and soft drinks is set to rise due to the ‘cocooning effect’. Conversely, consumers are likely to save when it comes to products such as wine, spirits, coffee, butter, margarine and cosmetics. And they will save in two ways, by consuming less and by choosing more favourably priced products with the same product features.