What a K-shaped recovery means for retailers

21 April 2021, 08:57 AM
  • As consumers’ fortunes split, independents will find that a successful offering will cater to quality and value
What a K-shaped recovery means for retailers

Consumer confidence during March remained at its highest level in more than a year, but experts at IGD warn that shopper sentiment is becoming increasingly polarised between income groups as the UK moves towards a K-shaped recovery.

For fine food retailers, this presents a challenge of who their shops can cater to and what types of products customers will be seeking. We dig into the data to understand more about this trend.

What is a K-shaped recovery?

This is when an economic recovery is characterised by a “stark split” in the recovery pace, with some shoppers growing in prosperity and others being left behind or staying the same, according to IGD.

“Broadly speaking, economic forecasters are now feeling more upbeat about the future than they were a few months ago,” says Michael Freedman, senior shopper insight manager at IGD’s ShopperVista. “The Office for Budget responsibility has forecast a sharp up- tick in UK economic output in mid- to late-2021. But, for individuals, experience of economic recovery is likely to vary, and we’re already seeing evidence of an emerging K-shaped recovery.

“Some households will prosper due to higher wages, rising house prices and savings generated from lack of expenditure during the pandemic,” Michael says. “Other households will get left behind or stay the same due to lower incomes and unemployment. As a result, the two groups will diverge over time, like the legs of a letter K.”

IGD’s ShopperVista insight revealed that lower income households, younger shoppers and women were more likely to feature on the downward part of the K-shaped recovery. Higher income households, older shoppers and men were more likely to feature on the upward part.

“59% of higher affluence shoppers have reported saving money due to lockdown closures compared to just 42% of lower affluence adults. More higher earners believe they will be better off (26%) than worse off (24%) in the year ahead. More lower income earners expect to be worse off (34%) than better off (14%),” Michael said.

How to cater to consumers during a K-shaped recovery

Meeting the demands of both segments of consumers will require a focus on innovative products that blend quality with value. IGD’s latest Shopper Confidence Index shows that consumers’ desire for quality food and drink is at its highest level recorded for the year ahead, driven by higher earners who have the disposable income to ‘trade up’ –  but there remains a focus on affordability in other areas. Shopper focus on quality rose to 18%, while saving money was recorded at 14%.

But as EIT Food’s Saskia Nuijten recently told Speciality Food, “A focus on value does not mean that consumers will automatically buy the cheapest product.” Demonstrating the value that your products provide could mean a focus on time-saving meal options, more nutritious food and drink or products that do good for the planet as well as consumers’ pockets.

On the other hand are the consumers who have saved money over the pandemic. “In the short term, there will be opportunities to encourage shoppers, particularly those with higher disposable incomes, to trade up; those who have built up their savings will be looking for ways to spend,” says Michael. “Upgrading food choices is an accessible way for shoppers to treat themselves, particularly whilst social and travel restrictions remain.”

In March this year, IGD found that 29% of higher affluence shoppers reported shopping in specialist stores, including greengrocers and bakers. “Retailers have an opportunity to capitalise on this demand, but will also need to focus on building customer loyalty for longer-term gain,” Michael says.

Economic effects of the Covid-19 pandemic are still playing out – for instance, unemployment is not set to peak until the fourth quarter of 2021 before declining. This means that over the months to come retailers will be looked to for both quality and value. By providing the highest-quality food and drink and innovating when it comes to the value proposition, fine food retailers will find success.

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