Reality check for shoppers as they enter 2014

Alastair Lockhart

Thu 16th Jan 2014

While Christmas trading did not collapse, in many sectors –particularly grocery – conditions were extremely tough. And, despite improving economic news and rising consumer confidence, 2014 looks set to be another challenging year for retailers.

Savvy’s research shows that only 28% of shoppers say they are more optimistic about the economy in 2014, compared to 2013. In perspective, when asked the same question in November 2012, 38% were more optimistic.

There are two reasons in particular which underpin the apparent disparity between this finding and the improving economic picture.

First, the recovery is neither geographically nor, to a lesser extent, demographically balanced. Regional analysis of Savvy’s research highlights that shoppers who live in London and the south east are more likely to be optimistic than those living in the rest of the UK. The findings also suggest younger shoppers (the group that have been worst affected by the downturn) are more optimistic than their older counterparts.

Second, improving confidence and rising overall expenditure is not benefiting all sectors equally.

High ticket sectors such as new cars and home improvements are doing well, fuelled in large part by rising consumer debt. Seemingly more positive economic news is giving shoppers a feeling of greater job security and, as result, in their willingness to take out loans.

However, rising confidence is not translating into spending on lower ticket items – with sectors like food and grocery under particular pressure. Crucially inflation continues to outstrip wage growth, so shoppers feel – and indeed are – less well off in real terms. We know ultimately that shoppers judge their day-to-day expenditure on the contents of their purses, not what they hear on the news, and so they are cutting back where they can.

So why is food and grocery in particular under so much pressure? Well, while shoppers perceive household expenditures such as energy, transport and taxes as largely outside of their control, they see food as an area where they can cutback spending, without needing to compromise significantly on quality. We see this exemplified by increasing shopping around between grocers, rising use of coupons, growing own label penetration and market share advances among discounters.

We expect limited growth in the overall food and grocery sector in 2014. All of the big four will have to work hard to fight for their share of what growth there is in the market, as discounters continue to bolster their estates with new store openings. Also, while space growth has slowed from previous peaks, it is still growing nevertheless. This, alongside online developments, can only mean that like-for-like sales growth will be very hard to come by for grocers in 2014.