Marcus Leroux, Retail Correspondent
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Six out of ten shoppers have traded down to cheaper goods since the recession tightened its grip, according to a report by PricewaterhouseCoopers, creating an ongoing spending pattern shift that poses a new challenge to retailers.
Travel and groceries were the areas most significantly affected and about two thirds of consumers who had traded down in these sectors said the change would be long-lasting.
Mark Hudson, PwC’s retail and consumer leader, said that the shift would squeeze the mid-market as the retail and leisure industry became more price-sensitive. “There has been a long-term shift,” he said. “A high proportion of grocery shoppers changed their spending through down-trading and switching, and for a significant number the switch is permanent.”
He added that in the grocery market, where single-digit percentage point changes were pored over, such a shift could bring huge changes.
The leading supermarkets have proved adept at ensuring that nervous customers could trade down without having to go to discounters, Mr Hudson said. Last year Tesco marketed itself as “Britain’s biggest discounter”, while Asda, the No 2 in the market, positioned itself as “Britain’s biggest poundstore”.
However, the “flight to value” has not been straightforward, according to PwC’s research. One in six premium supermarket shoppers also regularly buys clothes at discount stores, while 11 per cent of shoppers who go to value or mid-market grocers buy designer clothes. Mr Hudson said that midmarket retailers would find it increasingly difficult to find a niche between price-driven, low-margin operators and premium retailers and producers.
He said that strategies such as “unbundling” products would become more commonplace, with companies trying to extract premiums from customers willing to pay for them. Ikea, for instance, can charge highly variable prices: the shopper can pay extra to have flatpack furniture delivered and assembled. Similarly, budget airlines charge extra for food, baggage and seating priorities.
“For any company trying to claim the mid-market, the question will be how do you justify to customers why they should pay more? You have got to find a way of giving them the opportunity to pay more,” Mr Hudson said.
He added that more upmarket operators would not face the same challenges: “Premium companies will not unbundle because the whole experience is part of the brand.”
Paul Adams, chief executive of British American Tobacco, said: “Once the recession is over, I think consumers will continue to up-trade again ... consumers go back to their historic purchasing behaviour.”
Alan Parker, chief executive of Whitbread, the owner of Costa Coffee and Premier Inn, said: “I think once people discover value for money they will stay with it, and why shouldn’t they?”
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