Consumer behaviour: A new era of frugal living
Asda chief executive Andy Bond gave a stark warning last week: the halcyon days of endless consumer spending are over, replaced by a new era of frugality, and retailers will have to face up to changed conditions. He said that the downturn will produce a generation of shoppers focused on low prices and limiting waste, in a throwback to wartime prudence. There are signs that this army of thrifty shoppers already exists – fearful at the scale of economic woe, shocked by the ineptitude of the banks and remorseful about their own conspicuous consumption during the boom years. Chastened, they are changing their buying habits. Canny consumers are snapping up cheap cuts of meat such as pigs' cheeks and trotters and beef skirt. And in an effort to reduce waste, stale bread, wrinkly fruit and food past the sell-by date are also on the menu. Hair dye is selling well too as shoppers swap the salon for home colouring – Asda has reported a 27 per cent increase in sales. Trips to charity shops are also surging; Oxfam's store sales have been running 3.5 per cent up on last year and the charity expects retail profits of £21 million in 2008. But it is not just a case of shoppers trading down. In this new age of austerity, individuals are increasingly putting off purchases altogether. Instead, they are stepping out in last year's winter coat rather than forking out for a new one. As many as one in four adults are embracing a thriftier way of living, according to a recent study by Mintel. It revealed that 16 per cent of Brits are trying to be more self-sufficient by growing their own vegetables or making their own clothes. B&Q has recorded a threefold increase in the sales of chicken coops, suggesting more people are keeping the birds to produce their own eggs. "A potential return to 1970s-style economic conditions is prompting some Brits to resort to the values of this era and to simply making do," says Mintel head of research services James McCoy. It seems that the term "value" is beginning to be used in its real sense after years of being a substitute for "cheap" and "throwaway". Now, more discerning consumers are seeking affordable products – whether it's food, fashion or furniture – that will last. Future Laboratory strategy and insight director Tom Savigar says: "There's been a re-evaluation of what value stands for – quality and meaning. Next year there will be a tightening of belts. People will take a step back and ask themselves 'do I really need another shirt?' There will be a sense of austerity and a slightly reserved approach to consumption. Value will be the deal-maker, so brands will be developing a value package." Waitrose is doing exactly that. In order to cash in on the new frugality, the grocer has been promoting traditional cheap cuts of meat such as hocks and shanks. Sales have rocketed. Ox cheek sales, for instance, have climbed 80 per cent since September. Even established lines of cheaper cuts are "flying off the shelves" according to Waitrose. Sales of lamb shoulder shanks, which cost a fraction of the price of prime lamb shanks, have risen as much as 200 per cent compared with 2007. Waitrose meat buyer Anna Lloyd says: "The credit crunch is transforming the way in which Britons shop and cook. Customers are much more open to trying alternative cuts than they were even compared with six months ago." Such initiatives dovetail with the fact that shoppers are now more willing to cook their own meals in order to save cash. Frozen foods have also been making the tills ring. The British Frozen Food Federation says that sales of frozen fish have risen 10 per cent over the past year and vegetables by 9 per cent.
Ready or not Asda's sales of ready meals are "significantly down", Bond observed, but sales of core ingredients are up 43 per cent. The Mintel study reflects the trend, recording that one in three people are now dining at home more rather than eating out. Waitrose's stablemate, department store group John Lewis, has seen the trend reflected in an uplift in sales of items such as saucepans and Christmas table linen. "More people are entertaining at home this Christmas and new year rather than going to the pub," says John Lewis director of selling and operations Nat Wakely. The department store has recorded a 10 per cent year-on-year increase in coffee machine sales, while its haberdashery department has had two record weeks in the past fortnight. Sales of sewing machines are doing "really well" and wool sales are up 6 per cent. "People are mending clothes, learning to knit again and making their own curtains," says Wakely. DIY giant B&Q has experienced a 30 per cent uplift in sales of its DIY handbooks and DVDs on last year, while its web site Diy.com, which features home improvement tips, has pulled in more than 1 million visitors – a record high. Sales of basic tools have increased, with screwdrivers and pliers up 12 per cent and tool boxes up 9 per cent. A B&Q spokesperson says: "As purse strings tighten the obvious way for people to save pennies is to start doing more things for themselves." Frugality is a dynamic that could benefit entertainment specialists too, according to an HMV spokesman. "There are some grounds for optimism," he says. "People go out less so home entertainment becomes more important." More than 3 million copies of the DVD Mamma Mia! were sold in its first week, making it the fastest selling release in UK history. "But all this weighs against the fact people are spending less," the HMV spokesman warns. "The sector is not immune to what's going on." Fashion retailers have seen the effects of the new mindset. People are "thinking twice" before buying luxury brands, according to Retail Knowledge Bank senior partner Robert Clark. While Bond heralded the end of conspicuous consumption, e-tailer Net-A-Porter has picked up on the trend from a different angle. Customers of the online luxury brand can now get their shopping delivered in brown paper bags to disguise the fact that they have been splashing out. And for those that are not hiding their expensive purchases, it is possible they have stopped making them altogether. In its update last week, luxury fashion brand Mulberry noted: "It is clear that the economic climate is having an adverse impact on the buying behaviour of our customers." Mulberry revealed its UK retail like-for-likes plummeted 12 per cent in the first 10 weeks of its second half. But Wakely believes there is still a demand for upmarket fashion. The retailer has just introduced new high-end ranges in ladies' shoes and watches. "Entry price-point is more important than ever but our new upmarket offerings are doing really well," Wakely says. "In fashion, people are buying less but they are buying things that last – cashmere garments are up 9 per cent, for example." So will fast-fashion groups such as Primark continue to prosper even though consumers are seeking out products made to last? Savigar thinks so. "Primark is going to do really well," he says. However, he warns that even Primark will be under pressure to show it offers real value and not just cheapness. The mood of austerity will provide opportunities for retailers, but Bond points out that many will have to change their business models to survive. He says retailers will need to demonstrate everyday, transparent value rather than rely on promotions. Clark says: "Retailers will have to think hard about their positioning and marketing. The Burberrys of this world won't disappear overnight but management will have to think carefully. "While entertainment will do well, we're not talking about people suddenly not going out so it won't be a sudden bonanza for these retailers. Value formats will do well, while the mass middle market will get squeezed." However, Ernst & Young head of retail Gavin George believes retailers should not throw the baby out with the value bath water. "If you're absolutely mass market, like Tesco or Boots, you could maybe slant on a slightly more value message," he says. "But it's easier if you are a retailer with multiple formats. Gap should be pushing its Old Navy format for example, while Signet should push H Samuel." Opinion is divided on how long the era of frugality could last and whether it is a temporary or permanent shift. Some are hopeful consumers will quickly begin spending again once the recession eases. George says: "Consumers will be tightening their belts temporarily, but in about four years' time consumption will be back to the same levels as a few years ago. Humans are sociable beings, we enjoy shopping." In that context, he argues, retailers need to carry on developing their businesses, whether it be multichannel expansion, internationalisation or mergers and acquisitions. Wakely agrees. "There's no reason to believe consumers won't return to the shopping habits of a year ago," he says. But Bond sees things differently. "I don't see this as being a short-term response to the recession but a fundamental shift that will see the emergence of a new breed of customer," he maintains. "Anyone holding their breath waiting for things to go back to the way they were is mad." www.retail-week.com