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Consumers are splashing the cash and the feelgood factor has returned, the FT reported earlier this month. Immediately next to its headline it published a chart under the headline “But retailers have not benefited”.
The chart shows that retail volume sales are in growth but value sales, because of widespread discounting, have been negative for most of 2015. If you are competing on price, then your money is having to work very hard to generate growth.
The big picture is about the rise in real wages after six years of almost uninterrupted falls. UBS, a bank, says that the average UK household has 9% more cash to spend than at this time last year. This is calculated after spending on housing, energy and food!
local retailers need to look to the other side of the shoppers’ wallet, the one where they are doing the discretionary spending on treats.
Looking forward to 2016 and 2017, the FT projects growth in discretionary spending of more than 4% each year. So who is winning all this business? Data from Visa shows it is hotels and bars and theatres that are benefiting. Spending at restaurants is up 8%, compared to 1.5% for food and drink so far this year.
The little picture in the grocery retail trade is one of price pressure. Tesco has ramped up the pressure with its Brand Guarantee.
It claims shoppers are missing out on hundreds of millions of pound of savings a year because vouchers are so fiddly. Now it will give immediate discounts if the brand is cheaper in Asda, Morrisons and Sainsbury’s.
Some economists reckon this type of promotion is a confidence trick as the four big supermarkets get to set an artificial floor. If you sell the brand cheaper, you will get little credit from shoppers who won’t take the time to work out what is going on.
“Shoppers tell us vouchers are a pain,” says Tesco UK & Ireland boss Matt Davies. “It can be stressful and awkward when you have to rummage through your wallet to find a price match voucher.”
If that quote is about la-la land, his next one is worth taking notice of. “We’re working hard to make the shopping trip that little bit easier for customers with simple, affordable prices you can trust.”
In other words the food market is going to be all about price for as long as it takes. This suggests that local retailers need to look to the other side of the shoppers’ wallet, the one where they are doing the discretionary spending on treats. This is where the trends towards fresh and chilled and food-to-go and slush machines really need to be analysed.
Remarkably, at the same time as Tesco made its move, Morrisons unveiled its Milk for Farmers initiative, with 10p a litre going directly back to dairy farmers. Its research found that half of shoppers were willing to pay more for milk in order to support dairy farmers.
In-store shoppers can choose between four pints for 89p or four pints for £1.12. “The sales will show whether customers in our supermarkets are prepared to pay more,” said Martyn Jones, a Morrisons director.
It is a positive move, away from price. Your average customer has a bit more cash in her pocket. How are you going to grab it?
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