Recession: How 2020 differs from 2008 - The UK economic, retail and shopper perspective - IGD ...
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Recession:
How 2020 differs from 2008
The UK economic, retail and shopper perspective
May 2020
© IGD 2020
Introduction Laura Jacobson
Head of UK Retail Insight
James Walton
Chief Economist
Laura.Jacobson@igd.com James.Walton@igd.com
Triggered by the global banking crisis, the
UK’s GDP fell by 1.5% in the fourth quarter of Economic indicators
2008 as the country fell into a recession that
extended throughout 2009. Whilst the media
moved on from credit crunch headlines, the
impact continued to shape the UK’s economy
well beyond this period.
Retail landscape
With the UK once again on the brink of
recession, this report draws on a collection
of data sources to demonstrate how the
state of the nation has shifted in the last 12
years. These explore economic, retail and
shopper perspectives. Shopper impact
We summarise with key considerations for
suppliers.
Implications
© IGD 2020
State of the
nation in 2008
Economy: credit crunch Shoppers: savvy behaviours
• Record oil price levels • Shopping around to save money
Some phrases such as discount growth, • High levels of unemployment • Cooking from scratch and reducing
margin squeeze and savvy shopping food waste
continue to be highly relevant in 2020. • Struggling housing market
• However, growth of value-orientated
However, the following slides will highlight • Food price inflation peaked year to
leisure and travel wasn’t hindered in
some structural and behavioral shifts that August 2008 at 13% (ONS)
the mid-term (Ryanair, Domino’s
make the grocery retailing landscape of • Reduced disposable incomes Pizza)
2020 a very different environment to 2008.
Retailers: double digit discount growth Suppliers: margin squeeze
• Aldi & Lidl leading growth. ASDA, IGD’s supplier engagement survey
Morrisons, Iceland outperform market revealed the top three concerns as:
• Value: entry point private label and • Competitive pressure on price cuts
price cuts were key focuses & promotions
• Online, international operations, non- • Rising input prices
food and services unlocking long-term
• Currency volatility
growth
© IGD 2020 Source: IGD Research Page 3
Economic indicators
Deeper This chart shows the economic growth path for the UK, based on the latest forecast
market
from the Office for Budget Responsibility.
The amplitude of the downturn is expected to exceed anything seen in the last
century, and is significantly greater than in 2008.
decline While it is not forecast to last very long, the effect will be severe.
20
15
GDP growth, annual (%)
10
5
0
-5
-10
-15
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
© IGD 2020 Source: Economic and Fiscal Outlook, OBR, April 2020 Page 4
Economic indicators
Inflationary
In 2008 we witnessed high inflation in key commodities like oil and food; it was this
inflation that drove value growth in the market.
outlook With a biological rather than banking crisis at the epicentre in 2020, there is no
corresponding spike in inflation anticipated at an “all items” level. However, the
unclear
ONS does not forecast food & drink inflation. With global disruption to commodity
supply and increased running costs for many businesses, as well as significant profit
challenges, the reality is likely to be mixed.
10.0
8.0
6.0
CPI inflation, all items (%)
4.0
2.0
0.0
-2.0
-4.0
All items (D7G7) Food and Drink (D7G8)
© IGD 2020 Source: Economic & Fiscal Outlook, OBR and ONS April 2020 Note: Data for 2020 to 2024 is OBR estimates Page 5
Economic indicators
Sharper shock Unemployment is expected to rise sharply in H2 2020. The current forecast is
that it will reach 10%, which would mean more than doubled in a year and reach its
on
highest level since the 1990s. This is not expected to return to its previous level until
2025.
employment This contrasts with what we saw in the Credit Crunch. At that time, businesses held
on to labour.
12
10
8
UK unemployment (%)
6
4
2
0
2004 Q1
2005 Q1
2006 Q1
2007 Q1
2008 Q1
2009 Q1
2010 Q1
2011 Q1
2012 Q1
2013 Q1
2014 Q1
2015 Q1
2016 Q1
2017 Q1
2018 Q1
2019 Q1
2020 Q1
2021 Q1
UK unemployment April 2020 forecast
© IGD 2020 Source: Economic and Fiscal Outlook, OBR, April 2020 Page 6
Economic indicators
A decade of In the lead up to the 2008 recession, real incomes had risen 27% over a 10 year
period.
low income In 2020, real incomes have risen just 5% in the last decade.
growth
© IGD 2020 Source: Households Below Average Income, ONS, April 2020 Page 7
Economic indicators
Household Households have not shown evidence of developing their financial resources
or resilience since the credit crunch.
saving hasn’t If anything, saving has fallen, especially amongst the least well off.
improved
This might be due to low interest rates over that period, or perhaps due to that fact
that rising living costs leave people with nothing to save.
40
35
30
Share of households (%)
25
20
15
10
5
0
None < £1,500 £1,500 - £2999 £3,000 - £7,999 £8,000 - £9,999 £10,000 - £15,999 £16,000 - £19,999 > £20,000
Savings 2007/8 Savings 2017/18
© IGD 2020 Source: Family Resources Survey, DWP, April 2020 Note: New data is due any time now, for 2018 - 19 Page 8
Retail landscape
Multiple factors have changed the retail landscape since 2008, including M&A
Big Four: lower activity, increasing popularity of discount and online resulting in some market
position leapfrogging. While the Big Four remain unchanged, they have lost a
share, but combined share of -9ppts over the period, with Tesco experiencing the sharpest
decline (-4.3ppt) Investment in online and convenience has slowed share decline.
channel breadth Food discounters have recorded rapid growth (however this has not been linear from
the recession onwards). Combined Aldi and Lidl have grown their combined market
share by an impressive 9ppts.
12wks to 20th April 2008
35.0%
12wks to 19th April 2020
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Tesco Sainsbury's Asda Morrisons Aldi Co-op Lidl Waitrose Iceland Ocado Somerfield Netto
© IGD 2020 Source: TNS / Kantar Worldpanel Page 9
Retail landscape
Double the
The discounters’ rapid growth has been fueled by new store openings, with
stores becoming easier to access for more shoppers. While the 2008 recession is
often haled as a watershed moment for Aldi and Lidl, the pace of estate expansion
number of Aldi has been significantly higher in the last six years than the six preceding. With
Netto pulling out of the market in 2010, food discount became a two-horse race.
& Lidl stores With discounters now viewed simply as supermarkets by shoppers, expectations of
value and the ease of switching also blur. Their limited range makes shopping quick
and easy, but choice is vital to shoppers during this revival of “big shop” shopping.
2,000 Lidl Aldi
1,800
1,600
1,400
1,200
Store numbers
1,000
800
600
400
200
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
© IGD 2020 Source: IGD Research Page 10Retail landscape
Online growth
In 2008, IGD estimated that online sales accounted for 2.3% of the total grocery
market. While Ocado notched up its first £1bn in sales, there were fewer players,
no C&C and no mobile apps. While still the UK’s fastest growing grocery channel,
slowed to online has matured significantly, with retailers shifting from customer acquisition
to profit-focus. Those not yet shopping the channel may be harder to convert .
focus on profit 2020’s huge upsurge in interest in, and capacity of online shopping is unique to
the conditions of COVID-19, and would not have been replicable 12 years ago.
8%
2019
7%
% online channel market share
6% £11.6bn
5%
4%
3% 2008
£3.3bn
2%
1%
0%
0% 5% 10% 15% 20% 25% 30%
Online grocery channel growth YoY
© IGD 2020 Source: IGD Research Page 11Retail landscape
Different
Despite recession, many casual dining, coffee and food-to-go chains continued to
grow strongly in 2008/09, in some instances competing with grocers for “share of
stomach”.
dynamics out This is in stark contrast to the conditions brought about by COVID-19, where
of home
leading operators closed their doors, and the population has been instructed to stay
home. With plans for re-opening underway, how quickly and to what extent
demand returns is a hot topic of discussion.
FY2008 FY2018
UK turnover: £224m UK turnover: £710m
Growth yoy: +10% Growth yoy: +12%
UK Stores: 193 UK Stores: 389
New UK stores: 24 New UK stores: 29
FY2008 FY2017*
UK revenue: £286m UK revenue: £1.1bn
Growth yoy: +32% Growth yoy: +7.3%
UK Stores: 881 UK Stores: 2,422
New UK stores: 186 New UK stores: 243
© IGD 2020 Source: IGD Research, Companies House *last available pre sale to Coco-Cola Page 12Retail landscape
Lower profits While the past few years have seen a recovery in profit for three of the Big Four,
this remain significantly behind their peak in this time period.
the new norm This provides less room to maneuver in a market of lower margins, increased costs
and ongoing pressure to invest in competitive prices. Retailers will be more reliant
than ever on their long-term strategic investments to unlock cost savings.
£6,000
£5,000
£4,000
£3,000
£2,000
£1,000
£0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
-£1,000
Tesco Sainsbury's Asda Morrisons
Source: Companies, IGD Research. Operating profits/losses pre-exceptionals. Tesco = UK & Ireland from 2014; UK only previously; excludes Tesco Bank. Sainsbury’s = Underlying retail op Page 13
© IGD 2020
profit. Morrisons = Statutory operating profit. Asda = operating profit from Companies HouseRetail landscape
Communicating
value in 2008
2008 sowed the seeds for pricing and
promotional campaigns for years to
come, as well as a surge in activity in
private label ranges across the price
spectrum.
Sainsbury’s Feed your Family for a Fiver 500 SKUs in the “Discount brands at
encouraged value scratch cooking Tesco” range, with 30% shoppers buying
Waitrose began price matching Sainsbury’s on Roll-backs, round pound and the “pocket Morrisons cut 21,000 prices in 08/09, and
300 products, later rolling out to include Tesco. tap” emphasised value at ASDA ran its Pay Day Price Crunch campaign
© IGD 2020 Source: IGD research, images: Marketing Society, Tesco, Waitrose, IGD, www.janettalewin.com NB not all images from 2008 Page 14Shopper impact
Shopper While the 2008 recession precedes IGD’s ShopperVista tracking data, we were
monitoring shoppers’ behaviours and strategies for coping with the recession.
similarities 2008 While in many ways the different circumstances of 2020 are putting different
strains on shoppers, some aspects of behaviour are similar.
vs 2020 For in-depth insight on savvy shopping and changing behaviours in response to
coronavirus, visit ShopperVista
Nutrition remained The “big shop” Reducing food Increased interest in
an important factor mission came into waste helped save cooking from
focus money scratch
In 2008, 84% of
shoppers claimed to This was particularly Better food planning As responded to with
do at least something prevalent amongst and using leftovers Sainsbury’s “Feed
in order to promote a supermarket were popular your family for a fiver”
healthy lifestyle in shoppers techniques… campaign in 2008,
2008 (vs 89% in and recent activity
2020) we’re tracking
© IGD 2020 Source: IGD ShopperVista Page 15Shopper impact
Shopper Changes in the UK retailing market over the last 12 years, such as shifts in
promotional strategy, have contributed to different shopper behaviour. Social
differences distancing and short-term product shortages have also had impact.
2008 vs 2020 For in-depth insight on savvy shopping and changing behaviours in response to
coronavirus, visit ShopperVista
Price is less Promotional Less shopping Little change in
important as a store prominence reduced around interest in ethics
choice driver Local sourcing,
In 2020 “every day Shoppers are using
In 2008 rising fuel low pricing” is better fewer stores and Fairtrade and animal
prices and food prices established across channels in 2020, welfare all saw a
contributed to an the market, reducing switching channels so boost of interest in
increased focus on levels of promotion on they spend less time 2008 which has not
price offer choosing products. yet been reflected in
Speed and ease of 2020
shop are more
important
© IGD 2020 Source: IGD ShopperVista Page 16Implications Different causes of recession mean a bigger impact on businesses
In many ways it was “business as usual” for grocery in 2008. In contrast, we’re
seeing structural and societal shifts resulting from the pandemic. For example
drop-off in wholesale and foodservice – profitable channels for many
businesses – will have significant financial implications.
Harder times ahead for households
Forecasts point to a deeper dip than in 2008, with households no better
financially prepared cope. This is likely to result in them more tightly reigning in
non-essential spending and become increasingly budget-sensitive.
Channel mix challenges
New space remained a growth-driver in 2008 onwards, with a boom in
convenience stores, coffee outlets and food discount stores. Now, online
seems even better positioned for growth acceleration, but with relatively high
retail cost to serve, this may be profit-dilutive.
Savvy shopping might not look quite the same
Shopping behaviours developed in 2008 and retailer responses continue to
shape the market now. But amid different circumstances there are more
differences than similarities in shopping behaviour so far…
Opportunity to hold on to higher spend?
Shopping habits evolving over the last decade and have been turned on their
head, with the return of bigger, weekly shopping and reduced out of home
consumption. The longevity of these behaviours, and impact on shopper
loyalty, is not yet understood, but presents a possibility worth exploring.
© IGD 2020 Source: IGD Research Page 17Additional resources
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