Convenience retailers could face increasingly budget-conscious shoppers in the run-up to Christmas, with new IGD research revealing that 42% of UK consumers plan to spend more on basic groceries over the coming months, while 38% expect to cut back on premium grocery purchases.
Although fears over immediate price rises have eased, household finances remain under pressure, with 39% expecting to be worse off in six months and 40% saying Budget announcements have made them more pessimistic about their financial future.
The findings point to continued pressure on grocery spending, with shoppers prioritising essentials, cutting back on premium products and becoming increasingly cautious about festive spending.
Yet beneath this pessimism, there are some signs that immediate concerns about rising prices have eased. The proportion expecting food and grocery prices to rise over the next few months has fallen 14%pts since May.
Expectations of rising energy and fuel costs have also fallen. However, that needs to be kept in perspective. 7 in 10 (71%) still expect food and grocery prices to rise, so this is an easing of concern rather than a return to optimism.
How is this translating into shoppers’ spending plans?
While expectations of price increases have eased, financial caution remains. Shoppers continue to expect to spend more on necessities while cutting back on discretionary spending.
More say they will spend more on basic groceries over the next few months (42% in October vs 36% in May), while the proportion planning to spend less on premium groceries has risen (38% vs 33%).
With Christmas approaching, the challenge for retailers and manufacturers will be convincing shoppers that trading up is worth it. Promotions on premium products could play an important role in allowing shoppers to celebrate the occasion without losing sight of their budgets.
The squeeze on finances is particularly acute among family households. 6 in 10 households with children say they have already made as many cutbacks as possible, compared with 46% of households without children. Yet families are also more likely to expect to spend more on both basic and premium groceries.
Christmas could intensify this pressure, with 6 in 10 households with children saying they are worried about the cost of Christmas celebrations. This suggests many face a difficult balance between protecting Christmas spending and managing already-stretched household budgets, potentially leaving them with a very challenging January.
Another matter for retailers and manufacturers to consider this Christmas, is how shopping patterns could be impacted by the government’s ‘Be Ready’ campaign, which is already seeing households stock up on cupboard staples. One third (33%) of UK adults agreed that they are going to follow the Government advice and create a stockpile of food, water and emergency supplies at home. Whilst these may not be seasonal-specific items, it could lead to disruption in supply chains having a knock-on effect on supplies of other grocery items.
Whilst shoppers may be less fearful of immediate price rises than they were earlier in the year, that does not mean household finances feel healthier. Demonstrating value, especially to households with more mouths to feed, will remain critical. At the same time, retailers and suppliers will need to work harder to give shoppers reasons to trade up, particularly around occasions such as Christmas.