Return to premium? Too early to call

Posted by Josette Dunn on 5th May 2010

It really is too early to call either way. No, not the UK General Election, but whether consumer confidence is finally returning.Have British consumers shaken off the recession? After 18 months of belt-tightening, are they focusing less on price and embracing premium products once again? Or are consumers, aware of the parlous state of public finances in many developed countries, holding firm and preparing for the pain yet to come?

Last week, retail analysts at Kantar Worldpanel raised eyebrows when they claimed they were seeing a “sustained return” to “premium buying behaviour” in the UK. Given the gloomy rhetoric of the General Election campaign, when many of the debates have focused on how to reduce the UK’s public-sector deficit, Kantar’s statement was a surprise.

However, the prevailing tone among UK business leaders, not least in our sector, remains cautious. Last week, Paul Polman, chief executive of Unilever, urged investors and analysts not to get too carried away with the company’s strong performance in the first three months of 2010.

“As they say in Dutch, don’t smoke too much pot. Stay realistic,” Polman said, as he tried to rein in expectations. Polman said the economic climate remained challenging, particularly in developed markets like the UK where public sector and personal debt remain high.

“In the UK, I use the phrase ‘green sprouts’ as I’m not convinced there are ‘green shoots’,” Polman said. “We continue to believe that the recovery will be long and drawn out.”

A few hours later, across the Atlantic, Polman’s counterpart at Kellogg also offered a cautious assessment on the economy and on consumer behaviour for 2010. Kellogg’s first-quarter sales rose by almost 5% but were buoyed by its performance overseas and boosted by the impact of foreign exchange.

In North America, Kellogg said it was still facing pressure from consumers looking for value; for instance, president and CEO David Mackay said Kellogg’s “base” was “hurt by consumers buying more on deal”.

What is clear is that price remains central to consumers’ considerations when they shop. Take a look at Asda’s latest ad campaign in the UK. The Wal-Mart arm has launched the Asda Price Guarantee, which will see the retailer refund the difference – plus a penny – if consumers find they could have paid less at rivals Tesco, Sainsbury’s or Morrisons.

The campaign comes as Asda attempts to battle back from a period when the company admits it has fallen below its expectations. The price guarantee is Asda’s latest attempt to win customers from its rivals – one of whom, Morrisons, dismissed the announcement as a “stunt” – and some may argue that shoppers will not have the time to go through their receipts and work out whether their shopping would have been cheaper at the retailer.

Above all, though, Asda’s strategy seems to be an attempt to build at least the perception in consumers’ minds that it is the place to go to save money.

And among the largest food manufacturers and retailers (and those eyeing investment in the sector, for all the protestations of the new owners of UK discount retailer Poundland) there is still the belief that consumers will remain conservative (with a small ‘c’) for a while yet.

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