During the 2008 financial crisis, the giant financial institutions and banks had collapsed. The shortfall in the US financial system and the crisis of the US sub-prime mortgage market had a ripple effect to other industrialised economies around the world. The crisis caused disturbances to powerful European and Asian economies putting them on the brink of deep recession.
The then, new financial circumstances increased panic and uncertainty among consumers, increasing fears related to their financial and material safety. All somewhat similar to what we are experiencing today in 2023.
One research study conducted in 2010, confirmed that the after global economic crisis shoppers tended to become more economical, more responsible and more demanding. Research conducted in different countries showed that the recession had both a strong economic and social impact on consumers (Kar, 2010).Back then the crisis caused shoppers to worry about their jobs and to not enjoy spending their money anymore. They postponed or reduced purchases related to leisure and entertainment. Shoppers also started buying less quantities, switched brands, and focused on price rather, and they also started to intensify their search for added value.
As I’ve already mentioned, the situation today is very similar to the period post 2008 crash. So what can we learn from research conducted back then that is relevant to what will happen today, just a few years later?
A shift to more effortful shopping
The first insight is that the habitually based Grab & Go shopping (typically 60% of all grocery shopping activity) drops & Considered shopping increases as shoppers apply more mental effort to their grocery shopping. In other words, during times of economic hardship, shoppers mentally move away from System 1, based shopping and more towards to System 2 decision making.
Just to recap Kahneman’s model that divides the mind’s processes into two distinct systems:
System 1 “is the brain’s fast, automatic, intuitive approach”. Aspects of Grab & Go shopping, become more System 1 (fast and automatic) through prolonged practice.
System 2 is “the mind’s slower, analytical mode, where reason dominates”. In relation to shopping this may involve comparing prices, value or considering different brands options.
In summary, households change their behaviour in such a way as to reduce the average price paid per calorie during times of economic hardship. They achieve this by increasing their shopping effort (to search out better deals), by switching between non-nutritional characteristics (for example, from branded to generic products) and by substituting away from more expensive foods and nutrients (such as alcohol and protein) towards cheaper ones.
From an evolutionary perspective, more effort is put into hunting, when there is less prey around.
Another interesting insight is that the perceived cost of time reduces in a recession. Households increase both the time spent shopping and in home meal production. This results in the decline in consumption being substantially less than the decline in food expenditure. In some sections of society, nutrition and health might improve as economic conditions worsen. But for a lot of consumers, diets become less healthy, and obesity increases when the economic situation improves.
More shopper needs in a recession
During times of economic strain, shoppers seek simplicity. Based on research conducted during and post the 2008 crisis, shoppers tended to simplify their demand. And after the crisis they continued to buy simpler offerings with greatest value.
The next finding is that there was what is termed ‘Discretionary thrift’. In other words, even the rich people economised, although they didn’t have to. They revealed their dissatisfaction with excess consumption. They started to recycle, bought used goods and taught their children simple and traditional values.
The next insight is that today’s shoppers partake in ‘Mercurial consumption’: They are ‘agile’ and they act fast in response to price change. They know they have the ability to switch brands, looking for the lowest price while perhaps sacrificing quality and loyalty.
What happens to sustainability or green consumerism during a recession? Based on evidence from the last economic downturn, this trend slowed because people were not willing to pay more for products that had close substitutes available at a cheaper price. Although the demand for green, environment friendly products declined, it soon recovered after the recession.
The same is true of ethical consumerism: people were less donating for charity, animal welfare etc, because they were focusing on their families' welfare. This trend again recovered after the recession., albeit somewhat slowly.
System 2 shopping generates a new frugality.
During recession, shoppers show a strong awareness of the value that dictates compromises in terms of price, brand, and comfort, and this becomes the dominant mentality among shoppers. In summary, they prefer to buy at low prices at the expense of comfort shopping, focusing on saving, at the expense of convenience and other ‘nice to haves’.
When System 2 shoppers do continue to buy the products at different prices, they tend to need more reasons to justify the purchase, regardless of price segment of which the product belongs. In other words, they refuse to buy at higher price unless they clearly perceive a product advantage (quality for example). If they are loyal to some brands, they prefer to wait for a price drop or added-value promotion.
Shopper decision-making in a recession
During the last recession, most shoppers surveyed changed their consumption behaviour by adopting a logical standby or a replacement. So, before being interested in the price of products, shoppers asked themselves questions about their usefulness:
- 64% of respondents considered whether they really needed and item.
- 60% would only buy if the product could not find a lower price elsewhere.
- 59% would only buy if they could afford to acquire the item.
In the context of crisis, perhaps contrary to many, quality is what comes first for some shoppers before any lower price. Consumers surveyed defined quality as:
Another finding from the previous recession is that shoppers traded time for money. For example, the shopper would decide how much time to spend comparing prices and searching for good deals on a shopping trip. The more time she spends comparing prices the less she is likely to pay per calorie for a grocery basket with a given set of characteristics.
Price paid per calorie lowers in a recession.
Although real expenditure declined markedly during the previous recession, the number of calories that households purchased remained relatively stable. And although households adjusted the relative composition of nutrients and food groups in their baskets, they did so in such a way as to maintain the average level of nutritional quality in the basket.
Before the last recession, the average nominal price was £1.56 per 1000 calories. By 2010-2012 this had increased by 30p to £1.86. The average price per calorie households paid increased by more than 19% between 2005-2007 and 2010-2012.
Between 2005-2007 and 2010-2012 households switched to buying a larger share of their calories from generic own label products. In addition, shoppers switched towards carbohydrates (sugar and non-sugar) and unsaturated fat and away from calories from protein and saturated fat.
Had households not changed their shopping behaviour the average price per calorie would have increased by 22.5%. Changes in shopper behaviour actually resulted in a 3.1% reduction in price paid per calorie.
It was by lowering the average price per calorie of their shopping baskets that shoppers were able to smooth their calorie purchases over this period. They did this by increasing their shopping effort, switching to generic products and substituting across nutrients, which, although reducing their utility from consumption, did not adversely impact the nutritional quality of their grocery basket.
The share of calories purchased on special offer increased substantially from 25% before the last recession to just under 34% in 2010-2012. The share of calories available on sale also increased, but by less: From 17% in 2005-2007 to 23% in 2010-2012
The overall conclusion is that households are better able to weather economic turbulence than is suggested by merely looking at their aggregate food expenditure.
Summary - 5 to drive in a recession
1. The need for simplicity: During recession consumers are accustomed to limited offers and tend to simplify their demands, so that after the crisis is expected that they will continue to accept simple offers, but with greater utility.
2. Temperance: Even rich people save, although they are not required to do so. This is one way they show their dissatisfaction on excessive consumption. They began to recycle and to teach children traditional values.
3. Smart consumption: Consumers today are ‘agile’ and act quickly to price changes, with the ability to change brands looking for the lowest price, sacrificing the quality and loyalty.
4. Green consumerism: This trend slowed during the recession because people were not willing to pay more for certain products that can be substituted with others with cheaper price. The demand for environmentally friendly products declined during the economic crisis but recovered after the recession.
5. Ethical consumerism: People are less willing to charity actions because they are more concerned about the welfare of their families.
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