Following a series of grim global events leading to rampant inflation, a rise in fuel and grain prices and stagnating wages – and with a recession on the horizon – people around the world are concerned about how they’re going to afford to go on.
As the wave of a recession crests above us, willing to drown people imminently (the Bank of England predicted a recession before the end of the year today), consumers have already begun to discuss radical actions. In the UK, for example, some are already proposing a ‘consumer strike’ on energy bills. With rising fuel costs threatening to force people into choosing between feeding their families and paying for utilities, the ‘Don’t Pay’ campaign is demanding a reduction of bills to an affordable level, calling on people to cancel their direct debits to gas and electricity providers from October 1st if they are ignored. And with support from both left- and right-wing voices, it needs to be taken seriously.
In that context, how can food retailers and FMCG brands use creativity, clever communication and customer-centric thinking to help squeezed consumers navigate the pressure on their pocket? LBB asked a selection of agencies with an expertise in retail and commerce to share insights and examples that they think are particularly effective.
EVP of global strategy
Despite all the ominous reports in the media, a real recession has not yet begun. However, the unique combination of social, economic, and political tensions has already led to sky-high inflation and, above all, fear of the recession, which is already manifesting itself in changing purchasing behaviour among consumers. It is always a bit dangerous for marketers to simply dust off the old recession recipe book to find the right approach. Yet, just about all recessions have a few things in common:
- We think the recession du jour is going to be worse than the previous one
- It will be over before the crisis plans have been properly implemented
- There will always be winners and losers
In the past 50 years, recessions have lasted 11 months on average and the periods of growth that followed lasted about a decade on average. These figures suggest that the big growth drivers are those brands that not only aim for short-term impact during the crisis, but also make decisions that can reap benefits in the years after.
Specific to the situation today is the explosive rise in prices and the supply problem of basic products and raw materials. Oils and grains in particular ensure that almost no food product can maintain its price. This leads to people going out to restaurants less frequently, but it also leads to home cooking — popular in lockdown times — becoming more expensive. This can be an opportunity for grocery retailers, through the concept of ghost kitchens, to provide inexpensive hot meals for their customers. Among others, Kroger and Walmart have integrated ghost kitchens in their omnichannel offerings in the United States, and in Europe, some retailers are also testing the concept.
Retailers and FMCG brands need creative measures to keep their sales up in a timely manner, but it would be a missed opportunity not to think about how these measures can also bear fruit in a timeless way once the storm passes.”
With UK inflation hitting a 40-year high, rising food prices join a tsunami of cost increases. However, worryingly, some fresh fruit and vegetables have increased on average by 37% versus the same period last year.
A charitable organisation VegPower (vegpower.org.uk) claims that 49% of families with a HH income under £30K pa are buying less fresh vegetables as the cost of shopping basket rises and they struggle to make ends meet.
Meanwhile the food standards agency has found that 53% of respondents now feel priced out of buying healthy foods.
We are seeing brands and retailers revert back to the innovative playbooks of the great recession in 2008. In the US, one of the biggest things today is the Buy-Now-Pay-Later schemes like Klarna and Sezzle to help shoppers level their payments. Younger consumers are making use of tools on shopping apps before selecting stores. Retail loyalty programmes are hot, with brands leaning into those with content and exclusivity.
Take Tesco’s brilliant Clubcard programme here in the UK. Holders of the group's loyalty Clubcard pay up to a half less than non-holders across some 3,000 products both in-store and online. The scheme is so popular with consumers that Amazon Fresh, which delivers groceries to Amazon Prime members, will match its process to Tesco Clubcard deals on everyday items including meat and fish. Why is Amazon matching prices to Tesco ?
When Clubcard Prices are taken into account, Tesco increasingly features as the cheapest of Britain's big four supermarkets in The Grocer's widely-followed weekly pricing survey.
Facing the toughest economic conditions in decades, Britain's food retailers are monitoring each others' prices more than ever.
Crucially, as energy costs continue to increase, families will be making decisions on whether to top up the meter or eat cold dinners. Retailers will undoubtedly continue to help families be creative with meals so as not to rely on the oven as much and move to own brands as opposed to ‘more luxury brands’.
Head of strategic planning, shopper
Retailers dealing with inflation and the increase of food prices don’t have a lot of leeway in how to respond to the situation. Selling groceries is a low margin business and our market in France is already hyper competitive on prices.
In the current context of the high cost of living that we are going through, retailers need to add value through their communication because the general effect on prices will definitely be limited.
For example, Lidl in France is being inventive with their current operation. Customers are able to get some money back on their groceries shopping and receive 5% of their bills. Once you read the fine print, you understand that the offer is available only once a month and for at least 50 euros spent.
On the contrary, retailer E. Leclerc is mixing their commercial efforts into a more social cause by creating the anti-inflation shield that blocks from any increase the price of 120 essential products.
In both examples, it benefits the consumer and fits into retailers overall strategies. Lidl’s approach is meant to increase the average basket, while E. Leclerc aims to stay the leader on low-cost and consumer issues.
On the other side of the spectrum in the market, Carrefour and Systeme U, have strayed away from low cost and are finding difficulties to react in this environment.
Sarah Evans & Ella Jenkins
Consultant, business transformation & consultant, behavioural science
Businesses need to act like they care about the cost-of-living crisis or risk putting their long-term sustainability and brand equity at risk.
During the pandemic it seemed every business jumped into the fray for the public good. H&M made PPE, LVMH switched from fragrances to hand sanitiser and Rolls Royce joined the heavy-industry ventilator initiative. It seemed in the moment like brands felt a genuine duty of care for the public good and they acted on it in meaningful ways that consumers will remember for years to come.
So what happened?
Now seems like a long time since the first lockdown, but the UK public is significantly worse off than it was back then – with persistent supply chain meltdowns, record inflation, wage stagnation, and climbing interest rates, for many families quality of life is deteriorating. There are large swathes of the population who have existential fears about the future.
Anyone who thought that inflation was a transitory post-covid phase that would sort itself out lost that bet. Inflation and a slew of other macroeconomic, political and social crises continue to surge at unprecedented scales. A shocking image of a new reality has appeared.
In times of turbulence, brands instinctively respond to consumers with communications tactics, attempting to exhibit empathy, transparency and understanding. Like skincare brand Deciem who were transparent when announcing price increases, explaining that it was to ensure the business remained sustainable, while also giving two weeks’ notice, allowing consumers to stock up before prices went up. This is a good start, but no longer enough. The days of simply telling your consumers that you care are over. Brands must demonstrate an understanding of the struggles that consumers face and take action that has real impact in reducing the pressure. Food retailers and FMCG are no exception. In fact, consumers use these brands as their economic frame of reference and look to them for security of staple goods. Yet, action-based responses are few and far between so far.
So how can brands act today in a way that is sensitive, meaningful, and effective for the consumer? How can brands express the kind of duty of care to the public that made some of them heroic during the pandemic?
It starts with understanding what is important to the consumer and what value means to them. Sounds obvious, but so many brands are missing this point. With the application of natural language analysis, and behavioural science, brands can understand the human drivers behind the wealth of available data and get to the root of what value is for their consumers.
For example, Dutch supermarket chain, Dirk, understands that for their customer, value is price. So, with that in mind, they have pulled national TVC advertising to compensate for rising costs. Their products have remained stable, where most supermarkets have become more expensive. Iceland, also with a highly price conscious customer base, reduced the price of all frozen food to £1 over Easter, when consumers were really struggling. Sudocrem are running a PR campaign to encourage their customers to recycle and reuse baby clothes. This is a great initiative for the environment and customers pockets, but Sudocrem could go further by enacting action themselves, for example setting up local initiatives to make recycling easier.
But why should brands care about taking meaningful actions to benefit consumers at all when shareholder value needs to be maintained? It is proven that in times of uncertainty, brands that invest in building consumer trust and brand equity bounce back quicker than those that don’t. When the world resolves itself, brands that have invested in providing meaningful value to their consumers, will be better set for growth into the future.
Brands need to understand that the time for empathetic messaging has long passed and what’s needed now is that clear expression of their duty of care to their consumers first and their shareholders second. Brands that get this will reap the benefits in customer equity over time and those who don’t will suffer the consequences.
The word ‘crisis’ suggests an intense but short term situation. However, one of the greatest challenges about our cost of living ‘crisis’ is its indefiniteness. Consumers have endured the impact of rising costs since January this year and this crisis is set to deepen as the year goes on. For many people the unknown future (and the prospect of a cold and penurious winter) is compounding their stress levels, already heightened as they struggle to put food on the table for their families right now.
Brands can and should do what they can to soften the blow by increasing access to essential items - just as [Havas client] ASDA has done with its newly extended value range ‘Just Essentials’, which covers all items a household needs at a competitively low price – as well as maintaining access to little everyday pleasures – as McDonald’s have done by cutting prices on their saver menu.
But economic salves should be married with empathy and steadfast support in order to truly help people, rather than being used as a cynical ‘land grab’ opportunity to acquire customers desperately seeking lower prices. The rising cost of living is having a severe impact on mental health, creating a vicious cycle of money problems for many as poor mental health can often lead to further financial difficulty. Mental health charities report seeing an marked uptick in demand for their services in recent months and according to a survey by the Office for National Statistics, around three-quarters of adults were very or somewhat worried about the rising cost of living (78%) compared to 57% who are worried about the environment and 39% who are worried about covid. This not only shows how significantly this crisis is affecting people mentally but also that it is only adding to the mental burden of several other parallel crises.
Just as they did during the height of the pandemic, brands should consider how they bolster and support people emotionally in a time of great stress and uncertainty. This is not the time for short lived promises or temporary fixes. This is a moment for long term investment in the continuing wellbeing of the people they serve. That means keeping prices low and reassuring customers that they won’t be rising, just as ASDA’s ‘Dropped and Locked’ inflation busting price promise campaign, which promises prices will stay fixed until the end of the year, is doing right now (and where M&S’s new remarkable meal planner for summer only, falls short). It means finding ways to help people shop in a more economical but fulfilling way long term - giving them low-cost, nutritious weekly meal planners and tips for how to feed their families for less or tangibly rewarding them for buying healthy food (just as Sainsbury’s have done with their newly announced ‘Great Big Fruit & Veg Challenge’.) It also means brands need to step up in their role as consumer guardians and collectively put pressure on governments to provide greater financial assistance to those in need, rather than expecting consumers to take on the responsibility for navigating this storm alone.