Why customers are still willing to splash the cash

11 July, 2008

It's tough fighting the economic downturn, but Laura Clark finds consumers are still prepared to spend, given the right incentives

Soaring food, rising utility and fuel prices are making it increasingly hard for retailers to persuade cash-strapped shoppers to part with their money.

The tough times show no sign of abating as rising inflation and a stagnating property market

conspire

to make UK consumer s even less likely to

splash out on non-essential items

such as alcohol.

This year's Drinksummit conference, organised by the Federation of Wholesale Distributors, debated how retailers can take action to combat the credit crunch , kick ing off with a sobering look at the UK's bleak economic climate by Nielsen's Peter Reynolds.

"Consumer confidence has fallen dramatically in the UK, with

fewer than 40% of people feeling positive about the state of their personal finances. The consumer confidence measure we have used has dropped from 94 in 2007 to 79 in 2008. One in five households state they have no spare cash, and this measure is increasing," Reynolds told the audience.

Consumer confidence

Using research from its State Of The Nation shopper report, obtained through a panel of 15,000 households who scan their shopping, and an online global consumer confidence survey, Nielsen has been able to capture critical consumer attitudes and behaviour towards retailers, drinks brands and promotions. The results reveal that lack of ready cash is forcing shoppers to re appraise their buying habits and cut back on luxury items.

"Nearly 40% of households admit to buying less indulgent products - that bottle of wine, that imported beer, examples that may affect all of us

in this room," Reynolds said.

With the squeeze on consumer

finances leading to more aggressive tactics from the grocery multiples, he warned that the off-trade would be caught in the crossfire.

But there are ways for independents to compete without having to resort to price wars, Reynolds told delegates. These include stocking a locally-produced premium bottled ale to "stimulate consumer s' interest and ultimately,

their spending", and having a comprehensive range of bottled premium lager multipacks, which ha ve grown sales by £4 million year on year.

Reynolds described light wine as a "fragmented category" and said ranging and merchandising "has never been so important ". He urged retailers to merchandise red, white and rosť wines separately because "the consumer's first purchasing decision is by colour" and added that retailers should also block countries together, block brands together and stock the brand leader. "Recognised and successful brands provide reassurance to customers and offer a safe and easy purchase decision," he said.

Stocking sub-brands "helps maximise rate of sale and, most importantly, offers the opportunity for trading up to more expensive wine" .

Reynolds added that there is still big demand in the £5-£6, £6-£7 and £7-plus price brackets, with the best- performing

countries at these prices

being France, the US

and New Zealand.

Reynolds sees rosť wine as the

biggest area of opportunity

for independents to boost sales. "Rosť continues to enjoy a fantastic performance, with the total GB off-trade in growth by 25%," he said, identifying Chile, Australia and Italy as countries that offer the best opportunity to further increase rosť sales .

In-store offers

With

consumers

increasingly likely to look out for in-store offers, Reynolds advised retailers to have "flagship promotions" in place because "nearly one third of households are actively searching out promotions".

He also encouraged drinks shops to get behind smaller, less well-known wines, to source wines direct from producers and to run tastings.

To survive in a tough trading climate, independents must work alongside the wholesale sector to get products on shelf before the multiples, according to Steve Roper, Booker's trading director for alcohol and tobacco.

"There's a clear downturn in consumer spending and consumers want more value from the product. Independent retailers need to be on trend

and to understand what products consumers want ahead of the multiples," he told the audience.

Retailers that stock genuinely innovative products can persuade shoppers to loosen their purse strings, according to Roper. "It's crucial that consumers embrace NPD

- this is the lifeblood of the category," he said. Roper praised those manufacturers that have got behind innovations, singling out Scottish & Newcastle

with its new lager widget in cans of Foster's and Kronenberg 1664.

Roper also sees price-marked packs as "crucial" to bringing value back into the supply chain. He told suppliers to invest more in price-marked packs for the independent sector because they reassure consumers that they're not spending too much on a product. Pint-sized cans can also offer independents an "ideal opportunity" to compete with the multiples, Roper said, and he expects to see sales double in the next year in Booker depots.

Footfall driver

In -store giveaways such as prize draws and on-pack promotions are a "great footfall driver" for retailers, and they also help suppliers "create interest in the category and get their product out to the consumer ", according to Steve Fox, Booker's director of retail and Premier development. He added that, in a "struggling economy", packs that offer "a percentage of the product free" are vital in growing retail sales.

Fox's belief that "the great British consumer loves something for free" was echoed by Mandeep Singh, owner of Singh's Premier in Sheffield, who said gift packs "drive loyalty and are the best way to get consumers trading up". Singh highlighted free glass giveaways as great for stimulating sales, adding: "The best promotions are those that add value rather than simply reducing price."

Tom Maclennan, Coors Brewers' channel director for wholesale, said that while independents couldn't be blamed for getting "depressed" by the current economic downturn, growth is possible for retailers with the right mindset. "The progressive independent is resilient," he

said. But he warned that suppliers and wholesalers must have good relationships with independents if they were to stand any chance of getting consumers back into the shops and spending cash on alcohol.

"Retailers hunger for information and advice. We must work together to share best practice, giving time and resources," Maclennan added.




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