Life’s daily luxuries were once purchased with little thought to the future. A cappuccino here, a smoothie there. A pricey cereal bar or a slab of super-premium organic chocolate (70% cocoa content, of course) were, until recently, all part of a day’s spending for a large swathe of British consumers.
Some ground-breaking and wallet-emptying new brands grew out of this Arcadian era as people became blasé about looking after the pennies. After all, the pounds were taking care of themselves in grand style, multiplying like the ten times table as house prices rocketed.
Innocent Drinks, Green & Black’s chocolate, Eat Natural cereal bars, coffee bars charging £2 a shot and Salty Dog crisps are some of the affordable luxuries that became synonymous with the boom decade.
Then came Armageddon autumn. This September’s banking collapse mixed with doom-laden forecasts of the financial system’s imminent demise focused many people’s attentions on the pennies as the pounds began behaving badly. All of a sudden, a few coins a day blown on idle but pleasurable fripperies started to appear expensive.
Cutting out the froth would be an easy way to save piles of money. Or, with so much despondency about, would people splash out on indulgent brands to cheer themselves up? Chocolate retailer Thorntons saw like-for-like sales grow in the 14 weeks to October, though at 0.9% this is much lower than its 9.6% rise a year before.
We are yet to get the definitive answer about how life’s little extravagances will fare in the downturn. But consumers started exercising stricter wallet control earlier this year as 5% inflation and a sense of economic foreboding hit the UK. With more dismal news on the economy last week, marketers – whose work involves parting people from their loose change – face some big challenges.
There are questions about how the trend towards creating premium products for the masses will cope in the downturn. Those “masstige” products that charge a hefty premium for satisfying our aspirations to luxury are expected to have a tough time. Many believe impulse purchases will continue to exert a strong pull on the public, having become so much a part of their daily experience.
Sales of Innocent smoothies fell by one-fifth – about £27m – in the six months to September, according to TNS, while Nestlé has been forced to pull its premium Heaven chocolate brand from supermarkets.
Coffee bars have become a powerful symbol of the boom times as people think nothing of shelling out £2.50 on a hot drink.
But Starbucks, the brand synonymous with the US and UK coffee bar craze, last week announced a 97% fall in worldwide profits in the fourth quarter to just $5m (£3.32m).
A spokeswoman says: “We are attributing lower traffic in Starbucks stores to the continued weakening of the global economy, which accelerated in the fourth quarter of 2008.
“We believe that customers continue to visit our stores, but are doing so less frequently. In fact, during these difficult times, our customers tell us that they appreciate Starbucks as a place of respite.”
The chain also revealed that fewer Brits are visiting the 500 cafés it operates across the UK. It desperately needs a plan to help it through a potentially grim 2009. According to Nikki Crumpton, planning director at McCann Erickson, who previously worked on the chain’s account at Fallon, Starbucks must uncover the underlying meaning of its brand to find a way out of the gloom.
Rather than seeing itself as simply retailing coffee, the chain needs to realise it is selling a “life-enhancing moment” every day and find other ways to spice up people’s daily routine. “They need to stop looking at the margins on coffee and start looking at the life-enhancement it brings,” Crumpton says.
On the other hand, the UK’s 3,600 coffee bars keep on expanding and some believe the café visiting habit has become so ingrained it will resist the downturn. Costa Coffee, owned by Whitbread, is continuing to open outlets and recently reported a 3.6% rise in like-for-like sales.
Jeffrey Young, managing director of consultancy Allegra Strategies, has confidence the UK’s café culture will remain. “There is a risk that average spend per customer will fall a little and that customers may not get a second cup of coffee, but there will not be a wholesale decline in the market.”
Young is not the only optimist who believes pricey little purchases will fare well in the downturn. Another source says there is a difference between luxuries bought every day and those purchased each week, such as a magazine or a bottle of wine. The daily indulgences may turn into once or twice weekly treats. “One view is that this is going to be a nasty downturn and the luxuries will be the first things people cut. The other is that for the past ten years people have grown so used to having it good that they will still look for ways of indulging themselves. Learning from the recession of the 1990s, lower-priced items are more likely to do well.”
However, it should be remembered that in the early Nineties there were few of the ultra-premium products that are so widespread today. Price expectations have been radically elevated through the premium brand boom of this decade.
Another area where “premiumisation” could be under threat is lager. Last week, SAB Miller, the world’s second largest brewer, said the trend towards drinkers switching from standard to premium lagers was slowing, though a spokesman adds there are no signs the trend is going into reverse yet. It looks likely that impulse purchases will continue to exert a strong pull on the public, having become so much a part of their daily experience.
Just as the banks are hoarding cash for fear of future economic setbacks, consumers are expected to increase their savings to guard against a severe recession, which in itself could exacerbate the problem. The job of marketers will be to lure more money out of consumers’ savings accounts.
According to the Keynesian doctrine accepted by most world governments, it is essential to get people spending if we are to head off a slump. That means brands must persuade people to retain their luxurious daily rituals through bundling up products, reducing prices where necessary and continuing to seduce consumers with sexy marketing and advertising. Marketers, your country – and the world – need you as never before.