The start of 2017 saw rising inflation as oil prices increased and the pound continued to fall. Consumers have started to feel the pinch, with disposable incomes down and spending power weakened. Impacted shoppers have one of three options; to trade down, buy less or borrow more.

On average, the UK consumer has a disposable income of £17,700 per annum, however this varies considerably by demographic group. Whilst Wealthy and Healthy Families are likely to have a disposable income 75% higher than average, Cost-conscious Pensioners have an average disposable income of just over £7,200 – nearly 60% below the UK average.

In the face of macro-economic pressures, what challenges will retailers experience as disposable incomes become more squeezed?

THREE KEY CHALLENGES FACING GROCERS AS CONSUMER SPENDING POWER FALLS

THREE KEY THEMES IN GROCERY & CONVENIENCE RIGHT NOW

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A growing number of consumers are demanding time-efficient meal options, which is fuelling the growth of recipe-box meal solutions and a new wave of snacking.  Around 14% of UK consumers feel they do not have time to spend preparing and cooking food and 26% often eat snacks while on the move rather than eating a proper meal (source: TGI).

As shown by Figure 1, Busy Young Couples and Families, Price-led Convenience and Families on a Budget are three of the key shopper types most likely to eat snacks rather than preparing and cooking food. Annual disposable income for these shopper types varies considerably from £18,900 to £9,100. The trend towards time-efficient meal and snacking options still represents a big opportunity, but tailoring price points and ranges based on the local catchment and their disposable income is key to capitalising on this trend. 

© Source: CACI’s Acorn and TGI

2. AFFORDABLE, TIME-EFFICIENT MEAL SOLUTIONS

3. HOW LOW CAN YOU GO?

Already, over one third of UK consumers usually purchase the lowest-priced products when shopping (source: TGI). Families on a Budget, Price-led Convenience and Cost-conscious Pensioners are some of the most price-sensitive shoppers, who will be most aware of and most impacted by price increases. Figure 2 shows the proportion of each supermarket retailer’s shopper population that belongs to one of the lower affluence, more price-driven shopper types. Those retailers with the higher proportions need to be particularly mindful of which price rises they pass on to consumers, particularly in the face of the continued expansion of discounter stores.

The significance of the challenges associated with reduced consumer spending power and squeezed disposable incomes will vary considerably by retailer. It is crucially important for retailers to understand the demographic skew and shopper behaviours of their customers to determine the extent of the challenges they face. Retailers’ who evolve with their consumers are likely to be successful in protecting their market share and overcoming the imminent challenges.


1. PRICE OVER CONVENIENCE

Increasingly, convenience has become the top priority for a growing proportion of consumers. Retailers have put a lot of effort into creating a convenient experience, in-store and online. Yet, as price starts to regain sensitivity due to declining disposable income, retailers face the difficult challenge of successfully balancing both price and convenience.

In the past two years, there has been an increase of 11% in consumers budgeting for every penny when doing the household shopping (source: TGI). This is set to increase further, as consumers’ willingness to ‘pay for convenience’ declines due to their decreased spending power. Although likely to affect all grocery retailers, this poses a greater challenge to convenience operators, who will need to provide value options in their ranges where they have particularly price sensitive catchments. Retailers with a sound understanding of who their consumers are and how they shop can rise to the challenge, as inevitably some consumers will continue to pay a premium for certain product lines and on specific shopping missions.

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USING DISPOSABLE INCOME TO TAILOR RANGES

RETAILER CATCHMENTS MADE UP OF PRICE SENSITIVE SHOPPERS

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Disposable income figures have been taken from Paycheck Disposable Income. Paycheck Disposable Income is CACI’s product that calculates average household disposable income at a postcode level. Disposable income in this sense equates to a household’s net income minus the cost of essential outgoings. These essential outgoings include mortgage/rent payments, essential food and clothing costs, pension, student loan and childcare costs, utility and household bills as well as travel expenses.

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Graph demonstrates % of price sensitive shoppers likely to shop at retailers' stores. Source: CACI's supermarket catchment model, ProVision

Written by 

INFOGRAPHIC

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HOLLY KLIMEK

Senior Consultant

Location Strategy & Analytics

Price sensitive shoppers include: Families on a Budget, Price-led Convenience and Cost-conscious Pensioners

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