7 minute read 27 Aug 2020
Man and woman in a living room, working on expenses, looking at receipts and using a laptop

Future Consumer Index: Recovering amid increased UK consumer economic worries

Authors
Mona Bitar

UK&I Consumer Leader, Ernst & Young LLP

Experienced business advisor for over 25 years. Amateur poet and historian. Brings multi-cultural perspectives as a proud Palestinian Brit.

Silvia Rindone

EY UK&I Retail Leader

Strategic mind with a pragmatic spin. Intellectually curious. Mother of two. Passion for art, food and travel.

7 minute read 27 Aug 2020

As affordability and value become increasingly important in the wake of COVID-19, new private label opportunities are emerging for UK retailers. 

Consumer anxiety has been a key feature during and post-lockdown in the UK. But as life returns to a degree of normality, anxiety is continuing to ease, in the short term at least. Operational changes adopted by retailers both online and instore are reassuring customers that it is safe to shop. As a result, UK consumers feel more comfortable shopping and show a greater willingness to return to ‘normal’ behaviours. 

But that does not mean their worries are over. Our fourth EY Future Consumer Index shows that short-term fears may be easing as consumers get more comfortable returning to old environments. However, over the long term, they are becoming increasingly worried about the economic implications of the pandemic. As a result, consumers are starting to change their buying behaviours, with an increased focus on value and price - more than two-thirds of UK consumers now say they have an interest in private label packaged food, for example.

As well as continuing operational measures to ensure UK consumers feel safe and comfortable when shopping, what opportunities and tactics should retailers now consider?

Feeling more comfortable about the ‘new normal’

Consumer behaviour has changed since April. UK consumers expect to shop less frequently but spend more when they do (56%), are mindful of store hygiene and sanitation (69%) and make informed decisions around the risks involved in everyday activities. This trend is illustrated and discussed in our previous indicies.

But they strive to return to ‘normal life’. The number of UK consumers now in the ‘get to normal’ consumer category (identified in our inaugural EY Future Consumer Index) has continued to rise. In July, it was up to almost half (49%) of consumers, compared with 28% in May.  

Consumers are increasingly confident doing things they did pre-COVID-19. From only 1 in 10 (10%) of UK consumers feeling comfortable going to a hairdressing salon or spa in May, the figure has now almost quadrupled to 38%. Similarly, while only 8% of UK consumers were previously comfortable with the idea of going to a bar or pub, that figure has now risen to 23%.

Within retail specifically, comfort with traditional shopping behaviours such as going to a mall (now 36% of UK consumers) and trying on clothes (now 19%) have both more than doubled since May. Similarly, in May, 25% of UK consumers said they felt comfortable shopping in a grocery store. In July, that figure rose to 56%. 

UK consumers comfortable undertaking daily activities as COVID-19 restrictions ease

% of respondents

Future Consumer Index: Percentage of UK consumers comfortable undertaking daily activities as COVID-19 restrictions ease

Although there is a general trend for UK consumers looking to adapt their behaviour to consolidate shopping trips, the numbers are falling on a month-by-month basis as confidence returns, down from an average of 64% in May to 56% in July. 

The easing of lockdown has no doubt played a significant role in this growing confidence. As consumers have witnessed the successful reopening of stores and other areas of business, they have become more comfortable with the idea of life returning to something more akin to ‘normal’. 

But retailers must also be given credit for the active role that they have played. The number of UK consumers who will be more aware and cautious of hygiene and sanitation when shopping in person in the longer term has risen, up from 57% in May to 69% in July. Retailers have to continue to work hard on such measures as this is key to reducing consumer anxiety about returning.

But economic worries are starting to bite

Anxiety in the short term may be easing, but long term, it is a different story as consumers become increasingly aware of the present and future economic impact of COVID-19. In fact, 52% of UK consumers are extremely concerned about the impact of the pandemic on the country’s economy. Similarly, 60% are concerned about the impact on their job. 

Incomes have decreased for more than a third (35%) of UK consumers, while 9% have lost income completely. 16% of UK consumers are reliant on government help. This includes supportive financial measures such as the furlough scheme which will end at the end of October. It is no surprise that worries about future finances are coming to the fore. 

The picture is particularly bleak for those in the ‘keep cutting’ consumer segment who are making deep spending cuts. For these UK consumers, nearly two-thirds (61%) have seen a decrease in income and nearly a third (31%) are reliant on the government for financial help. 

UK consumers

72%

are concerned about the impact of COVID-19 on their finances.

UK consumer incomes have decreased

The financial impact of COVID-19 on UK consumers, by consumer segment

Future Consumer Index: Incomes are decreasing

When it comes to the financial outlook over the next 12 months, UK consumers feel more pessimistic about their financial position next year versus this year, with 24% expecting to be worse off a year from now.

Such concerns mean that UK consumers are taking greater responsibility for their future finances. Nearly two-thirds (63%) of UK consumers claim to be thinking more carefully about what they spend their money on and 54% are trying to save more money than in the past. Once again, this figure is higher amongst the ‘keep cutting’ consumer segment.

UK consumers have been more considerate about how they spend their money

The financial impact of COVID-19 on UK consumers, by consumer segment

Future Consumer Index: Consumers are thinking more carefully about what they spend money on

Affordability and the shift to private label will be key

Consumers have a strong focus on affordability. This quest for value has also been evident in our previous indices, but we now see it translating into new behaviour. Price has returned as a key purchase criterion for UK consumers, with 50% citing it as of increased importance versus last month. And this has translated into an increased willingness for UK consumers to consider private label brands.

The scope for retailers to experiment and grow their private label offer in the UK is significant. More than two-thirds (67%) of UK consumers would consider buying private label goods in the packaged foods category. Yet here, private label currently accounts for only 37% market share, according to Euromonitor International. 

This hunger for private label packaged food is higher than globally, where an average of 51% say they would be willing to purchase private label equivalent products. In the UK, 62% of consumers would consider private label home and household care products, compared with 49% globally. Within beauty and personal care, this figure is 43% (UK consumers), compared with 41% globally. Brand preference is highest in alcoholic beverages where only 37% of UK consumers say they are willing to purchase private label products. However, this is significantly higher than the global average of 22%.

It is not just the most value-conscious consumers, such as those in the ‘keep cutting’ consumer segment, who are looking to try private label (versus branded goods) to save money. The ‘get to normal’ consumer segment, comprising of 49% of UK consumers, are becoming value-conscious; three-quarters (75%) say they are willing to purchase private label packaged food products.

How should retailers respond?

While affordability plays a role, it is possible there may also be other factors influencing consumer behaviours. Consumers may have switched to, or sampled, private label alternatives during COVID-19 lockdown when availability of some products was limited. This may have convinced them that own brand labels can meet or beat the branded experience. Price has returned as a key purchase criterion for UK consumers, with 50% now citing it as of increased importance versus last month.

Such factors create a unique opportunity for retailers to test, experiment and grow private label penetration. Three key tactics need to be embraced:

  1. Give more thought to the brands stocked - focus on the right range architecture to cater for a new ‘age of affordability’
  2. Reallocate resources behind priority categories and drive penetration on higher-margin goods
  3. Improve tracking and understanding of consumers' price elasticity and attitudes to value for money to better target promotional activity
  • Methodology

    We surveyed 13,519 consumers across the US, Canada, Brazil, the UK, France, Germany, Denmark, Sweden, Finland, Norway, India, the UAE, Saudi Arabia, China, Indonesia, Japan, Australia and New Zealand during the week of 20 July 2020. Of those, this article focuses on 1,007 UK respondents. The survey questionnaire covered current behaviours, sentiment and intent.

Summary

Retailers have ensured that UK consumers feel more comfortable returning to shop with them. Now it is time to embrace the opportunities that consumers’ shifting preferences around private label allows, and in turn, helping to ease consumers’ financial concerns for the future.

About this article

Authors
Mona Bitar

UK&I Consumer Leader, Ernst & Young LLP

Experienced business advisor for over 25 years. Amateur poet and historian. Brings multi-cultural perspectives as a proud Palestinian Brit.

Silvia Rindone

EY UK&I Retail Leader

Strategic mind with a pragmatic spin. Intellectually curious. Mother of two. Passion for art, food and travel.