One of the big headlines from George Osborne’s Budget yesterday is that economic growth is forecast at just 0.6% this year. This is half the 1.2% predicted in his Autumn Statement.

Continued bad news about the nation's finances helps to explain why a radical change in people’s chief concerns has taken place. Ten years ago, people's concerns revolved around the NHS and Defence. Today they are about the economy and unemployment.

Dig deeper though, and you will find that people’s worries are much closer to home: how much money they have in their wallets and purses and what they have got to spend it on. This is because whilst household disposable income continued to rise until the middle of 2009, it has since declined.

This decline is due largely to average earnings growing at less than inflation. The Consumer Prices Index has almost consistently been above total pay since late 2007, which effectively means people have been steadily getting worse and worse off for six years. Between 2007 and 2012 cost of food rose by 32% (Defra 2012).

It therefore makes sense that more people want to live conservatively and within their means. Since 2008 there has been a 11% fall in people treating themselves to things they feel they don't really need, and 21% increase in people saying they budget for every penny (TGI).

In particular, people are going out and entertaining at home less frequently. This includes going to pubs and clubbing, and the proportion of adults going to eat a restaurant at least once a month has declined by third since 2008.

Fewer people entertaining at home is part of a larger impact around shopping behaviours. People are now shopping more often, with just under half of people shopping 2-3 times a week, compared with a third in 2004. This means a significant rise in the average number of shops per year, rising from 127 in 2004 to 187 in 2012.

This increase in shopping frequency is largely down to top up shopping. On its own, this is a sign of people wanting to shop more carefully and minimise waste. Added to this is a significant rise in people who keenly budget when shopping. Since 2008 there has been a 19% rise in shoppers using vouchers, and a 9% fall in people who believe well known brands are better than supermarkets’ own brands (TGI).

How supermarkets have been responding

Pricing is the chief way supermarkets have reacted to shoppers' changing circumstances and behaviours

• Tesco launched Price Promise last week - the UK’s first price comparison voucher. Covering own-label as well as branded products, Price Promise looks at the overall cost of a basket of branded, own-label and fresh food. If found to be cheaper, Tesco customers receive a voucher for the difference, up to a maximum of £10.
• Price Promise has the potential for helping Tesco improve its financial results. Sainsbury’s similar Brand Match voucher scheme (which does not cover own-label) contributed to an increase in its half year results, published last November.

Although price is clearly important to customers, competitiveness is about far more than just this. Other factors include meeting needs beyond price, store design, shopping experience, service and quality.

Tesco and Morrisons have made significant investments in store redesign, customer training and improving own brand ranges and quality. Some are also experimenting with new technology to facilitate customers.

• Tesco is piloting an augmented reality mirror and digital mannequin in several of its stores. Asda employs “hybrid” checkouts that switch from human operated checkouts to self-serving. These reduce queues and waiting time by around 85%.
• Tesco also has a ‘click and collect’ service that allows customers to collect their shopping at a time of their choosing, with the Tesco assistant placing the shopping goods in the customer’s vehicle whilst they wait.

Supermarkets’ 'eat in at home' experiences take advantage of the increased amount of time people spend at home and can encourage additional footfall and in-store spend.

• At ASDA, families can make their own pizzas for a Friday night in, and Sainsbury's runs a big night in promotion that combines food deals with cheap DVDs.
• Marks and Spencer’s ‘Dine in For Two’, which it extends to Mother's Day and Valentine's Day, promotes price with quality and a sense of occasion.

Supermarkets are innovating outside of the immediate shopping experience.

• Waitrose has started giving its Waitrose loyalty card holders a free coffee every day, and Tesco has just launched Tesco TV, which is free to Tesco Clubcard holders.
• Tesco TV will of course be of interest to advertisers because it will give them greater access to viewing habits of Tesco shoppers and better targeting.

An ongoing challenge to some of the supermarkets is to translate pleasurable elements into their media experiences.

• Waitrose and Marks and Spencer are often held as exemplars, but some of Tesco’s more recent ads are humorous. Even ads from Aldi that focus on price can be entertaining.
• When supermarkets provide entertaining experiences, they are likely to be more effective at driving consideration, stickiness and brand equity.
• Given people are likely to talk about and share relevant and impactful content and experiences, supermarkets are also able to encourage positive talk and recommendation to friends and family.

Asda mums most worried about rising household bills

ASDA reports that Britain’s mums are concerned most about the rising cost of household bills.

In a survey of 5,500 Asda-shopping mums, 70% highlighted utilities bills as an area that has become less manageable over the past year.

The mums surveyed in the Asda Mumdex rated the cost of living as the most pressing issue in the UK, three times more important than youth unemployment and four times as pressing as violent crime. Eight in 10 mums also claimed to have higher outgoings than last year.

Seven out of 10 mums said they are budgeting more now than they did a year ago and three quarters are regularly comparing product prices in supermarkets. Source

Asda's next-day delivery format proves popular

In other news from ASDA, Asda’s Collect+ scheme is growing at about 50% week-on-week, according to Asda’s head of online shopping, Jon Wragg.

The service allows Asda shoppers to buy George and Asda Direct items online and collect and return them the next day at more than 5,000 convenience stores, such as Costcutter and Londis, and 450 petrol stations - all for £4.50. Source

UK’s Costcutter and Palmer & Harvey challenge supermarkets

Costcutter is to take over 800 Mace, Supershop and Your Store outlets from P&H, forming UK’s second biggest group of independent convenience retailers. Source

MPs to investigate government handling of the Portas Review

We reported on the Mary Portas Review over a year ago. Now, the all-party Business, Innovation and Skills Committee, chaired by Labour MP Adrian Bailey, will examine the support given to the retail industry as it struggles with the shift to online shopping and soaring operating costs.

The review was welcomed by business leaders who have slammed the government for failing to tackle issues raised by the Portas Review, including rates, parking and planning regulations, while achieving little progress in the so-called Portas pilot projects. Source

Sainsbury’s non-food now accounts for more than 10% of overall sales at the supermarket, according to Roger Burnley, Sainsbury’s managing director of general merchandise, clothing and logistics.

This impressive statistic is the outcome of a concerted effort to put design, quality and a pleasurable shopping experience at the core of much of its non-food customer offering, especially in its larger stores.

This is particularly important for mums. In an interview with Retail Week, James Brown, business unit director for Tu clothing, explains that Sainsbury’s customers often enter its clothing areas “for a bit of R & R before they leave, so Sainsbury’s needs to design for that.”

According to Kantar, this design and quality makes some parts of Sainsbury’s “more John Lewis than a supermarket.” This means uncluttered shelving and floor space, and visible signals such as arches that indicate to shoppers they are moving into a different part of the store.

Sainsbury’s is in a good position to move in on John Lewis territory. Analysis from our experience planning application ‘SpaceID’ shows that pleasurable in-store experiences are especially important to John Lewis shoppers.

Sainsbury’s is clearly delivering on these when it comes to some of its non-food offerings. However, given the degree to which pleasurable experiences are important to John Lewis shoppers, the supermarket needs to make sure it is also delivering pleasure through other in-store experiences and especially through its media in order to attract John Lewis shoppers who shop elsewhere.

Value scales of regular John Lewis shoppers Source: SpaceID, SMG

Less than two years after its launch, Argos is set to close its television shopping channel. Reasons are two-fold. Firstly, the difficult environment for home shopping as discretionary purchases slow. Secondly, a change in direction for the high street brand, to move more upmarket.

In 2012, John Walden, managing director of Argos, outlined plans to target the more affluent John Lewis customers base with more upmarket products and marketing. Importantly, this will involve digital media and a corresponding move away from Argos’s traditional and outmoded printed catalogue.

How does Argos need to reorient its marketing and in-store experiences?

Using our experience planning application spaceID, we are able to interrogate the values of people who shop at each of the stores. Distinct differences exist between them. Whilst values of John Lewis’ customers tend to lean toward ‘culture’ (warming around words such as ‘theatre’, ‘elegance’, ‘fashion’, ‘sublime’ and ‘art’), values of Argos’ shoppers tend to lean toward ‘social’ and ‘community’ (finding words such as ‘loyalty’, ‘friendship’ and ‘together’ more appealing).

Argos will need to orient its media and in-store experiences to include these and other values of John Lewis shoppers we have identified. In addition, Argos will need to deal with digital carefully, partly because of an older customer profile. We believe Argos does need to do digital, but it needs to take different online behaviours into account, that older people are more likely to do, as well as the passions of John Lewis’ customers that spaceID uncovers, such as ethical purchasing, design, art, culture and the environment.

Annual sales of general merchandise at Sainsbury’s has hit £1 billion for the first time, the supermarket announced yesterday.

Sales of items such as homeware, cooking goods and domestic appliances have grown at three times the rate of its food range.

The data illustrates how brand owners are often able to successfully extend their brands to items and services previously not part of their repertoire, but only providing this extension is credible to the target market of those brands. Examples include Porsche designing kettles and toasters, and Audi designing clothing, watches and bags.

Opportunities for supermarkets to successfully extend their brands are wide ranging. We have previously looked at fashion and we have just finished a project about whom supermarkets should include in their financial service targeting. Opportunities are greatest for Waitrose and Sainsbury’s, with these supermarkets over indexing the most on people likely to buy financial services from supermarkets. Our forthcoming data shows that these supermarkets should look to target customers from Nationwide, M&S Credit Card, and Barclaycard.

In a recent trade briefing, Sainsbury’s told suppliers that it plans to scale back on its promotions. According to the supermarket, up to 90% of sales in some categories were for products on promotion*.

In planning this scale back, Sainsbury’s wants shoppers’ to refocus their attention back upon the Sainsbury’s brand, but also create greater distance between it and the discounters. As other research SMG Research has conducted shows, there is definite scope for the supermarket to do this.

However, customer insight reveals that the supermarket needs to negotiate this shift very carefully. The proportion of regular Sainsbury’s shoppers who claim they shop around to take advantage of special offers has risen by nearly 20% in two years, from 58% in 2008, to 68% in 2012 (Touchpoints). On top of this, 35% of regular Sainsbury’s shoppers claims that price is the most important factor when choosing a product.

*The Grocer, 1 Feb 2013

Late in 2011, we released a study which showed that in an economic downturn, pleasurable experiences would become especially important to customers in 2012. In order to poach customers from their nearest rivals, supermarkets would need to deliver on these.

Given our forecast, it was interesting to read this week that sales of Champagne and sparkling wine over the Christmas period at ASDA rose by 23% year-on-year. According to Asda's wine buyer, Lynsey Grace, “In times of austerity, shoppers look for ways to treat themselves on a budget, and this is never more true than at Christmas."

As shoppers continue to experience pressure on their finances into 2013, it is vital that supermarkets continue to make shopping, media and product experiences pleasurable to their customers.