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.