© igd 2012 recession and social change implications for co-operative organisations co-operatives uk...

© 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

The Heart Of England

We are here

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Edge Hill, 23rd October 1642

Image: www.thinkstockphotos.com, February 2011

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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

© IGD 2012

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

© IGD 2012

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?

© IGD 2012

Growth In Real Wealth Is At A Standstill


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

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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


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


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

© IGD 2012

Focus On Saving Money



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

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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

© IGD 2012

Asda – A Sample Netto Conversion

Images: Retail Analysis, IGD Research, February 2012

From visit to South Harrow store, August 2011

© IGD 2012

Little Waitrose – Emphasising Healthy, Premium Food

Images: Retail Analysis, IGD Research, February 2012

From visit to Watford store, October 2011

© IGD 2012

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


© 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


© 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?

© igd 2012 recession and social change implications for co-operative organisations co-operatives uk...

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