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Managing Food Costs - UK - December 2009

This report looks at the fluctuations in food prices and the impact of these and other recent economic changes on consumers’ grocery shopping behaviour, as well as the ways in which retailers and brands have responded to these changes.

  • Brands helping shoppers cut costs while continuing to enjoy their favourite foods should win favour. Although most shoppers (86%) have changed how they shop, only one in six have switched to more inexpensive foods and fewer than one in ten to frozen or tinned varieties.
  • Premium at-home ready meals have a sizeable market opportunity as a substitute for eating out. While 17m people have cut back on how often they eat out, only 4m treat themselves to more premium foods instead.
  • Premium foods can also find unexpected demand among the 16-24-year-olds. More than four in five in this age group were eating premium foods before the recession, but only one in five has cut back, suggesting a pool of more than 4m continuing to splash out on the category.
  • Despite the recession, nearly 2m over-54-year-olds, 18% of the age group, have not changed their grocery shopping habits. Only one in three have switched from branded to own label foods, making them a particularly lucrative target for brands.
  • The simple step of introducing smaller pack sizes could help brands win favour with the nearly 3m smaller-sized households of 1-2 people that have not changed their grocery shopping habits in the recession.
  • More than a quarter (27%) of people have seen their grocery shopping little changed by the economic downturn. These people have altered their shopping in just one way, typically looking for more bargains, or not at all.

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Table of contents

  1. Issues in the Market

      • Key themes
        • Definitions
          • Abbreviations
          • Future Opportunities

            • Combating scepticism with transparency
              • Opening up
                • Spelling it out
                  • Targeting the recession-resistant seniors
                    • Rebelling against economising?
                    • Market in Brief

                      • Food inflation moderates
                        • Economic climate improving in 2009 – but clouds ahead
                          • Small food sectors resilient, big ones lose ground in 2008/09
                            • Retailers leverage price cuts and loyalty cards
                              • Smaller packs and heritage for brands
                                • Home energy has most influence on households
                                  • Food budgets tighten in autumn 2009
                                    • Cutting back, but keeping it familiar
                                    • Food Inflation in Context

                                      • Key points
                                        • Overall inflation
                                          • Figure 1: Consumer Prices Index comparison of the 12 month percentage change to September 2008 and to September 2009
                                          • Figure 2: Retail Prices Index and Average Earnings Index, January 2007-September 2009
                                        • Food prices – the rise and fall
                                          • Demand side
                                            • Supply side
                                              • Impact on different food categories
                                                • Figure 3: UK: Consumer Price Index: Meat, fish, dairy and oils, January 2007-September 2009
                                                • Figure 4: UK: Consumer Prices Index: Fruit, vegetables, bread, sugar, January 2007-September 2009
                                                • Figure 5: RPI percentage change over 12 months to September 2008 of selected food items
                                                • Figure 6: RPI percentage change over 12 months to September 2009 of selected food items
                                            • Economic Climate

                                              • Key points
                                                • Consumer confidence
                                                  • Figure 7: UK: Nationwide Consumer Confidence Index, 2004-09
                                                  • Figure 8: How respondents describe their financial situation, September 2009
                                                  • Figure 9: Change in how respondents describe their financial situation, February-September 2009
                                                  • Figure 10: Proportion of consumers concerned about their finances, 2008-09
                                                • Unemployment
                                                  • Figure 11: Number of unemployed, July 2007-August 2009
                                                • Interest rates
                                                  • Energy prices
                                                    • Impact on households
                                                      • Energy bills
                                                        • Petrol
                                                            • Figure 12: RPI petrol prices, January 2006-September 2009
                                                        • Winners and Losers

                                                          • Key points
                                                            • Which foods do people spend on?
                                                                • Figure 13: Consumer spending on food and non-alcoholic drinks, by type, Q2 2009
                                                                • Figure 14: Percentage point change in share in consumer spending on food and non-alcoholic drinks, by type, Q3 2008-Q2 2009
                                                              • Specialist foods
                                                                • Organic food
                                                                  • Fairtrade food
                                                                    • Winners and losers – H2 2008 and H1 2009
                                                                      • Figure 15: Year-on-year change in consumer spending on, and consumer prices of various foods, H1 2009
                                                                    • Losers in H1 2009
                                                                      • Fruit and vegetables
                                                                        • Meat, fish, poultry
                                                                          • Winners in H1 2009
                                                                            • Hot beverages – from coffee shops to coffee pods
                                                                              • Sugar and sweet products – small = resilient?
                                                                                • Milk, cheese, eggs – essentials or small treats?
                                                                                  • Winners in H2 2008 – but losing in 2009
                                                                                    • Figure 16: Year-on-year change in consumer spending on, and consumer prices of various foods, H2 2008
                                                                                  • Oils and fats
                                                                                    • Bread and cereals
                                                                                    • How Have Retailers Responded?

                                                                                      • Key points
                                                                                        • Figure 17: Major retailers’ competitive strategies mid-2008-Autumn 2009
                                                                                      • Dine in/meal offers
                                                                                        • Loyalty schemes
                                                                                          • Own-label
                                                                                            • Multi-buys
                                                                                              • £1 and under
                                                                                                • Hard discounters
                                                                                                  • Price comparisons
                                                                                                  • How Have Brands Responded?

                                                                                                    • Key points
                                                                                                      • Smaller packs
                                                                                                        • Nostalgia
                                                                                                          • Offers and promotions
                                                                                                            • Streamlining to cut costs
                                                                                                              • New product development
                                                                                                                • Figure 18: NPD activity, top 16 claims within the UK food market, October 2008-September 2009
                                                                                                                • Figure 19: Change in share in total NPD activity, top 16 claims within the UK food market, October 2008-September 2009 compared to October 2007-September 2008
                                                                                                            • Consumer – Factors Influencing Household Budget Restrictions

                                                                                                              • Key points
                                                                                                                • Home energy is top concern
                                                                                                                    • Figure 20: Factors that had a negative impact on financial situation over the last 12 months, October 2009
                                                                                                                  • 45-54s and families the most affected
                                                                                                                    • Figure 21: Factors that had a negative impact on financial situation over the last 12 months, by age group, October 2009
                                                                                                                  • Food costs affect families
                                                                                                                    • Figure 22: Propensity to be affected by cost of food, by gender, age group, household size and Household income, October 2009
                                                                                                                • The Consumer – Trends in Changing Shopping Habits in 2009

                                                                                                                  • Key points
                                                                                                                    • Changing grocery shopping habits-trends in 2009
                                                                                                                        • Figure 23: Percentage of people that agree with the statement: “I have not changed my shopping habits in any way”, January-October 2009
                                                                                                                        • Figure 24: Change in grocery shopping habits, percentage point change in response levels, January-June 2009 and June-October 2009
                                                                                                                      • Changing grocery shopping – number of changes made by consumers
                                                                                                                          • Figure 25: Repertoire of number of changes in grocery shopping habits, October 2009
                                                                                                                          • Figure 26: No change in grocery shopping habits, by gender, age group and household size, October 2009
                                                                                                                          • Figure 27: Six or more changes in grocery shopping habits, by gender, age group and number of children in household, October 2009
                                                                                                                      • How Have Grocery Shopping Habits Changed?

                                                                                                                        • Key points
                                                                                                                          • Finding ways to manage the food budget
                                                                                                                            • Figure 28: Change in grocery shopping habits, October 2009
                                                                                                                          • A nation of bargain-hunters
                                                                                                                            • Own-labels gain ground
                                                                                                                              • The downturn boosts discounters
                                                                                                                                • Small boost to cheaper foods, but organics lose out
                                                                                                                                  • Changes to shopping habits by age
                                                                                                                                    • 16-24s – splash and skimp
                                                                                                                                      • 25-34s – cutting back any way possible
                                                                                                                                        • 35-44s – opportunistic savers
                                                                                                                                          • 45-54s – concerned, not focused
                                                                                                                                            • Over-55s – promiscuous
                                                                                                                                            • Target Groups

                                                                                                                                              • Key points
                                                                                                                                                • Four target groups
                                                                                                                                                  • Figure 29: Marketing targets based on changes in grocery shopping habits, October 2009
                                                                                                                                                • Unchanged – 39%
                                                                                                                                                  • Anti-impulse – 14%
                                                                                                                                                    • Easy-swaps – 22%
                                                                                                                                                      • Cut backs – 25%
                                                                                                                                                      • Appendix – The Consumer – Factors Influencing Household Budget Restrictions

                                                                                                                                                          • Figure 30: Factors that had a negative impact on financial situation over the last 12 months, by demographics, October 2009
                                                                                                                                                      • Appendix – The Consumer – Trends in Changing Shopping Habits

                                                                                                                                                        • Trends in changing in grocery shopping habits
                                                                                                                                                          • Figure 31: Trends in change in grocery shopping habits, January-October 2009
                                                                                                                                                        • Repertoire of changes in grocery habits
                                                                                                                                                          • Figure 32: Repertoire of number of changes in grocery shopping habits, October 2009
                                                                                                                                                          • Figure 33: Repertoire of number of changes in grocery shopping habits, by demographics, October 2009
                                                                                                                                                          • Figure 34: Factors that had a negative impact on financial situation over the last 12 months, by repertoire of number of changes in grocery shopping habits, October 2009
                                                                                                                                                          • Figure 35: Change in grocery shopping habits by repertoire of number of changes in grocery shopping habits, October 2009
                                                                                                                                                      • Appendix – The Consumer – How Have Grocery Shopping Habits Changed?

                                                                                                                                                        • Changes in grocery shopping habits by demographics
                                                                                                                                                          • Figure 36: Most popular change in grocery shopping habits, by demographics, October 2009
                                                                                                                                                          • Figure 37: Next most popular change in grocery shopping habits, by demographics, October 2009
                                                                                                                                                          • Figure 38: Other changes in grocery shopping habits, by demographics, October 2009
                                                                                                                                                      • Appendix – Target Groups

                                                                                                                                                          • Figure 39: Target groups, by demographics, October 2009
                                                                                                                                                          • Figure 40: Factors that had a negative impact on financial situation over the last 12 months, by target groups, October 2009
                                                                                                                                                          • Figure 41: Change in grocery shopping habits, by target groups, October 2009

                                                                                                                                                      Companies Covered

                                                                                                                                                      • Advertising Standards Authority
                                                                                                                                                      • Aldi Stores Ltd (UK & Ireland)
                                                                                                                                                      • Asda Group Ltd
                                                                                                                                                      • Bank of England
                                                                                                                                                      • Bernard Matthews Plc
                                                                                                                                                      • Birds Eye Foods
                                                                                                                                                      • British Market Research Bureau (BMRB)
                                                                                                                                                      • British Sky Broadcasting Group plc (BSkyB)
                                                                                                                                                      • Co-operative Group
                                                                                                                                                      • Costcutter Supermarkets Group
                                                                                                                                                      • J. Sainsbury
                                                                                                                                                      • Kellogg Company of GB Limited
                                                                                                                                                      • Lidl (UK)
                                                                                                                                                      • Marks & Spencer
                                                                                                                                                      • Nestlé UK Ltd
                                                                                                                                                      • Office for National Statistics
                                                                                                                                                      • Soil Association
                                                                                                                                                      • Tesco Plc
                                                                                                                                                      • Unilever Bestfoods UK Ltd
                                                                                                                                                      • Virgin Media Ltd
                                                                                                                                                      • Waitrose
                                                                                                                                                      • Wm Morrison Supermarkets

                                                                                                                                                      Managing Food Costs - UK - December 2009

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