© IGD 2012
RECESSION AND SOCIAL CHANGEIMPLICATIONS FOR CO-OPERATIVE ORGANISATIONS
CO-OPERATIVES UK NATIONAL RETAIL CONSUMER CONFERENCEHOLIDAY INN, STRATFORD-UPON-AVON
25TH FEBRUARY 2012Follow me on Twitter ... @jameswalton_IGD
James WaltonChief Economist
© IGD 2012
Depression And War – Some Long Term Legacies
Images: www.thinkstockphotos.com, February 2011
Universal view of human rights
Modern feminism
Socialised healthcare
New global institutions
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Euro Area Sovereign Debt
Source: Table 78, Statistical Annex Of European Economy (November 2011), EU Commission
Data is EU Commission estimates for full year 2011
SGP legal limit on
government debt
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Where The Money Goes
Source: Eurostat / IGD Research, February 2012 (data is for 2009, latest consistent data available)
“Paternal” functions are: defence and protection
“Maternal” functions are: education, health, pensions and welfare
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What Next?If a Euro Area member defaults on sovereign debt:
• Banks that have supported that member lose their shirts
• Lenders panic, “contagion” spreads across the world
• Business is paralysed, confidence plummets
• Nations that have contributed to bailouts lose money
• Stored “paper” wealth is annihilated on a vast scale
• New Credit Crunch for governments and businesses, as lenders flee from risk
• Social unrest as wages and benefits go unpaid
• Inflation, as QE is used to erode the value of debt
• The value of the Euro crashes
• Rampaging trolls descend from hills
• Recession – a really bad one this time
If disaster is averted:
• Same, only less so (ie: fewer trolls, with smaller clubs)
© IGD 2012
A Phenomenal Personal Record
Source: US Treasury, February 2012
Images: www.thinkstockphotos.com, February 2012
Debt issued by first 43 presidents:
US$10.6 trillion (in 220 years)
Debt issued by 44th president :
US$4.7 trillion (in 3 years)
© IGD 2012
Global Commodity Price Trends
Source: IMF, February 2012
Indices rebased by IGD
Volatility indicates supply shortfalls across multiple
items
Slight falls in price in late 2011 reflect weakening demand in
major economies
As costs rise, so the cost of waste goes up – processing, packaging and logistics become more critical
© IGD 2012
Implications 11. The future remains extremely uncertain
a. Businesses must stay alert – is your information good enough?
b. Plans must remain flexible – how often do you review yours?
c. Speedy decision making is vital – how fast are your procedures?
2. The banking sector is exposed to serious sovereign debt risk (therefore we all are)
a. Do not expect the credit situation to ease – it may worsen
b. Capital will remain scarce – luckily, grocery businesses are often cash rich
c. Expect businesses to hoard cash – payment terms will be hotly contested
3. Currency / commodity values may fluctuate wildly
a. Hedging may protect businesses from price volatility
b. Currency change may create unexpected trading / acquisition opportunities
c. Watch the situation in the Persian Gulf carefully
© IGD 2012
UK GDP Performance
Source: ONS, February 2012
Data is seasonally adjusted
Letter codes refer to specific ONS measures, dotted line shows November OBR forecast
Revised data shows that UK recession was more severe than initially thought, but
growth in run-up to recession was stronger
Recovery has been weak and patchy
Danger of a double dip has risen in the last week
© IGD 2012
Household Spending – Top Level
Source: ONS / IGD Research, February 2012
Data is based on ONS measure abjq, adjusted using an estimated GDP deflator
Trend is continuation of average q-on-q growth rate for Q1 2000 to Q4 2007
Gaps show permanent impact of recession on
demand
Even before the recession, inflation was driving market
growth
In volume terms, household spending is still below pre-
recession levels
© IGD 2012
Household Spending – Per Capita
Source: ONS / IGD Research, February 2012
Data is based on ONS measure abjq, adjusted using an estimated GDP deflator
Trend is continuation of average q-on-q growth rate for Q2 2000 to Q4 2007, per capita data based on population measure dyay
“True” demand is roughly 2006 level
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Volume Demand
Source: Short Term Business Statistics and Population & Social Conditions, Eurostat, February 2012
Shows measure tovv for g47_food, data is seasonally adjusted, indices rebased by IGD
There has been no real volume growth in European
grocery since 2008
This is in spite of population growth of +1% (EU) and +2% (UK) over the same
period
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Trends In Nutrition
Source: Family Food 2010, DEFRA, December 2011 (latest data available)
Limited historical data is available for out-of-home consumption
Dept of Health aims to reduce consumption by a further 100 cals /
person / day
UK average at-home energy consumption has fallen 5% in 10
years
UK average out-of-home consumption has fallen by 15%
over the same time
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Shopper Mood Is At An All-Time Low
Source: Nationwide, February 2012
Base: 1,000 UK respondents, balanced sample
Indices show consumer confidence compared with May 2004, the base period – data is seasonally adjusted
Initially, shoppers expected a quick recovery from recession
Later on, expectations were revised downwards
© IGD 2012
Shoppers Expect To Be Poorer In Future
Source: ShopperVista, IGD, February 2012
Base: 1,000 UK main shoppers per month, balanced sample
Personal economic expectations over next 12 months
Some signs of an improvement in
sentiment in recent months
Do shoppers think that things are as bad as they
can get?
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Growth In Real Wealth Is At A Standstill
Source: ONS, February 2012
Shows annual change in household disposable income, adjusted for the effect of taxes, benefits and inflation
Data for 2011 onwards is OBR estimates
Av annual change 1980-2000: + 3.0% Av annual change 2001-2010: + 1.9%Av annual change 2011-2016: + 0.6%
© IGD 2012
Implications 2
4. A return to recession is still possible
a. Businesses may wish to maintain a defensive posture
b. Shoppers are also likely to stay cautious, unwilling to expose themselves
5. Volume sales for many businesses – including grocery – have been sluggish for years
a. Achieving scale economies may be difficult – can process innovation help?
b. In a static market, growth means taking share – expect savage competition
c. Still, compared with other businesses, grocery still looks like a good bet!
6. Weak retail performance may impact the value of commercial property
a. Far-sighted retailers may snap up sites with a view to eventual retail recovery
b. Independents planning to exit the market may be affected by low prices
c. Will town centre sites suffer if shoppers shop less?
© IGD 2012
The Growth Of The Maternal State
Source: www.ukpublicspending.co.uk / IGD Research, February 2012
“Paternal” functions are: defence and protection
“Maternal” functions are: education, health, pensions and welfare
Current austerity plan is controversial, but modest
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The Scale Of Austerity – Top Level
Source: Table 4.1, Public Expenditure Statistical Analysis and Autumn Statement 2011, HM Treasury / IGD Research, February 2012
Forecasts are based on Autumn Statement document published November 2011
Trend is based on average annual growth for 1980-2010
The austerity currently envisaged is far short of what has been seen elsewhere in Europe but will still mean a significant deviation from
the historical trend
© IGD 2012
The Scale Of Austerity – Per Capita
Source: Table 4.1, Public Expenditure Statistical Analysis and Autumn Statement 2011, HM Treasury / IGD Research, February 2012
Forecasts are based on Autumn Statement document published November 2011
Trend is based on average annual growth for 1980-2010, per capita data is based on population measure dyay
© IGD 2012
Real Pain Still To Come
Source: Fiscal Sustainability Report, Office For Budget Responsibility, July 2011
Current austerity programme will interrupt expansion of debt, but not
for long
Debt not expected to return to pre-recession levels
© IGD 2012
Reliance On State Support
Source: Table 2.1, Family Resources Survey 2009-10, Dept Of Work & Pensions, February 2012 (latest data available)
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Reliance On Public Sector Employment
Source: Public Sector Employment, ONS, February 2012 (data is for Q1 2011)
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Impact On Families
Source: The Impact Of Austerity Measures On Households With Children, IFS and FPI, January 2012
Most affected ... • Households with 3 or more children• Households with younger children• Households in rented accommodation• Non-white households• Lone parents not currently in work• Carers
© IGD 2012
Economic / Social Variation By Neighbourhood
Sources: Local Alcohol Profiles For England / Nomis / ONS / UpMyStreet , February 2012
Crime rates show offences per 1,000 / year, for 2010-11
GCSE results show share of pupils attaining 5 or more A*- C grades, for nearest state secondary school for 2010
Employment data is for 2010, prevalence of binge drinking is estimate for 2007-08 from LAPE
MeasureThe Swan
W’hampsteadAL4
Nationalaverage
The SwanM’chester
M40
Social
Domestic burglary 7.4 9.6 17.2
Sex crime 0.4 1.0 1.7
Vehicle crime 6.3 8.2 13.8
Violent crime 7.5 14.8 22.3
GCSE pass rate 84% 51% 38%
Work
Av gross weekly earnings, FT £525 £500 £439
Economic inactivity rate 23% 24% 32%
Soc 2000 major group 1-3 65% 45% 44%
Soc 2000 major group 8-9 9% 18% 14%
HealthLife exp at birth, male 80.9 77.9 75.9
Binge drinking 21.1% 20.0% 25.1%
© IGD 2012
Ink Blot Protests
Images: Private collection, all taken at St Paul’s, London, November 2011
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Public Health Responsibility Deal
• Launched March 2011
• Businesses and other organisations are invited to sign up to pledges
• There are 19 pledges, covering:
• Alcohol (7)
• Food (3)
• Health at work (4)
• Physical activity (5)
• Pledges are made public via Dept of Health website
• Businesses are expected to report on progress
• 273 companies signed up in the first six months (including co-ops)
• New pledge under discussion – reduce food consumption by 100 cals / person / day
© IGD 2012
Implications 3
7. Poor economic performance may lead government to adjust its tax / spending plans
a. The impact of austerity will vary widely by location, age, job etc
b. Businesses will need to be sensitive to these variations
c. Even if plans stay the same, austerity will create revolutionary change
d. Austerity impacts will aggravate existing harms caused by recession
8. Social / economic / political change will influence how people interact with businesses
a. Any business not creating clear social benefits may be seen as “fair game”
b. Small businesses cannot survive unscathed if the host community weakens
c. Some products (eg: BWS, sugar) may be targeted for special tax increases
d. Plan for further legal intervention in marketing, advertising etc
e. Plan for further reductions in food volumes
© IGD 2012
Source: ONS, February 2012
Data is seasonally adjusted, values are given at market prices
Letter codes refer to specific ONS measures
Inflation May Have PeakedVAT increases begin to
annualise from Jan 2012
© IGD 2012
Source: ONS, February 2012
Data is seasonally adjusted, values are given at market prices
Letter codes refer to specific ONS measures
Food Price Inflation Is Also Easing
What happens if food price inflation halts or reverses?
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Shoppers Anticipate Further Inflation
Source: ShopperVista, IGD Research, February 2012
Base: all main shoppers
Shopper expectations for retail food prices over the next 12 months
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Focus On Saving Money
Source: ShopperVista, IGD Research, February 2012
Base: all main shoppers
Shopper focus on quality rather than price, next 12 months
Quality will become …
… than saving money
Lowest level of interest in quality recorded Dec-
11
© IGD 2012
How Shoppers Intend To AdaptIntended to change in grocery shopping behaviour, next 6 months
Source: ShopperVista, IGD Research, February 2012
Base: all main shoppers
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Expected Change To Purchasing Of PL Products
Source: ShopperVista, IGD Research, February 2012
Base: all main shoppers
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Retailer Shares & Growth
Source: Worldpanel, Kantar, February 2012
Asda includes Netto for 2010 and 2011, Co-operative includes Somerfield for all dates
Data is value market share over a 12 week period, white trend data is Kantar growth measure, red trend is retailer LFL
+ 2.1% YOY- 1.3% YOY Xmas
+ 8.2% YOY+ 1.3% YOY Q3
+ 5.0% YOY+ 2.1% YOY Xmas
+ 3.7% YOY+ 0.7% YOY Xmas
- 1.1% YOY+3.1% YOY Xmas
+ 7.2% YOY+ 3.8% Xmas
+ 11.3% YOY
© IGD 2012
Current Retailer Concerns
Key areas• Shopper marketing • Shopper insight• Loyalty activity• Mission-based approachKey areas
• Purchasing optimisation• Inventory reduction• Cost saving programmes• Improved logistics
Key areas• Driving like-for-like growth • Format innovation• Private label expansion • Improving the shopping experience
© IGD 2012
Grocery Channel Forecasts To 2016
2011 Value (£bn)
2016Value (£bn)
Change in Value %2011-2016
Superstores and hypermarkets
70.3 75.7 + 7.7%
Supermarkets 34.1 38.2 + 12.1%
Convenience 33.6 42.2 + 25.7%
Discounters 7.0 11.4 + 61.9%
Online 5.9 11.2 + 89.7%
Traditional retailing 5.9 5.3 - 9.8%
Total 156.8 184.0 + 17.4%
Source: IGD Research, February 2012
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Asda – A Sample Netto Conversion
Images: Retail Analysis, IGD Research, February 2012
From visit to South Harrow store, August 2011
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Little Waitrose – Emphasising Healthy, Premium Food
Images: Retail Analysis, IGD Research, February 2012
From visit to Watford store, October 2011
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Online – A Period Of Explosive Development
• Online retailing, for groceries and non-groceries is growing rapidly across Europe
• The UK is perhaps the most advanced European market but, even so, still offers lots of headroom for further growth
• The migration of trade to the online environment increases market transparency and thus price competition
• The growth of online may, in time, change the character of town centres
• If shoppers switch, say, 10% of their trips to online, what would the footfall impact for traditional retailers be?
Online – Potential to change the nature of relationships between shoppers and businesses
Image: www.thinkstockphotos.com, February 2012
© IGD 2012
The New Digital Battleground
• The technological base for a digital retail revolution have been in place for a while
• However, the smartphone may prove to be the “killer” technology
• Smartphones combine the power of the Internet with the freedom of a mobile
• In particular, the smartphone is a “personal” technology unlike, say, a desktop PC
• Retailers are investing heavily in this technology but are only scratching the surface
• Given the pace of change, 2012 could be the year the smartphone comes of age
• Next step … “augmented reality”?
• Currently, digital media is being used primarily as “remote control” for consumption
• Long term, the bigger prize may be the opportunity to build relationships / community
• Consider – businesses now ask shoppers to “be their Friends” on Facebook
• Being “friends” means that businesses can build personal dialogues with customers
• However, new technologies also offer pitfalls
• Increased market transparency pushes the pace of price competition
• If technology allows shoppers to be more agile, the penalty for loss of trust is higher
Image: www.thinkstockphotos.com, February 2012
© IGD 2012
Reasons For Using Multiple Channels
Source: Shoppers’ Evolving Channel Mix, IGD Research, April 2011
Base: 4,438 main grocery shoppers (France 915, Germany 882, Netherlands 877 Spain 880, UK 884 – balanced samples)
Coloured text indicates significant difference from study average (green = more likely, red = less likely)
Rank Reason Average France Germany Nlands Spain UK
1 Promotions 49% 42% 51% 57% 49% 48%
2 Save money 37% 37% 42% 36% 37% 33%
3 Better range 37% 37% 48% 41% 28% 29%
4 Right balance 31% 33% 31% 30% 31% 31%
5 Convenience 26% 24% 18% 16% 33% 39%
6 Product quality 21% 23% 24% 16% 25% 15%
7 More interesting 13% 22% 13% 11% 7% 13%
8 Non-food items 12% 19% 13% 10% 11% 8%
9 Opening hours 7% 5% 6% 9% 10% 7%
10 Ethical products 6% 8% 9% 5% 4% 7%
11 Use services 4% 3% 4% 6% 2% 4%
12 Other 2% 2% 2% 2% 3% 3%
© IGD 2012
Implications 4 9. Inflation may be easing
a. Perceptions of inflation may differ from reality
b. Even with inflation slowing, real incomes will be under severe pressure
10. Deconsumerisation
a. So far, shoppers have responded to pressure by finding was to buy for less
b. What happens when this stops working – will shoppers simply buy less?
c. Will shoppers go further and abandon grosser elements of consumerism?
11. Retail change
a. How will co-ops be impacted by ongoing development in convenience retail?
b. Are co-ops leveraging digital technology to the highest degree?
c. Are co-ops getting the best pay-off from funds invested in promotion?
d. Are co-op PL ranges still competitive with best-in-class?