Research: Consumer Frugality Persists in the Post-Recession

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November 23, 2010

The frugal habits adopted by U.S. consumers during the economic crisis of 2008-2009 have continued and even deepened in some cases, and may be here to stay, according to the latest annual survey of 2,000 consumers by global management consulting firm, Booz & Company.

One example of deepening frugality is private label penetration in grocery stores, which has grown from 15 percent before the recession to more than 18 percent of total sales in 2010. “When the economy rebounds, we expect private label sales will remain strong and branded consumer packaged goods may find it difficult to regain their lost market share,” according to Booz.

Conversely, in discretionary categories including apparel, cosmetics, and alcoholic beverages, consumers have found that switching to cheaper brands was an undesirable trade-off and plan to switch back post-economic recovery.

The third annual Booz & Company consumer spending report revealed that U.S. consumers continue to feel they are on shaky ground, fueled by high unemployment and feelings of uncertainty, even among those who are employed.

As a result, consumers are economizing broadly, deferring spending on discretionary items, and trading down on essentials. In fact, most consumers cut back spending even more this year than last.

While U.S. consumers across the board continue to economize overall, spending behaviors are seen to vary among consumer segments. For example, more affluent consumers continue to defer purchases of discretionary items, but are not necessarily trading down in terms of price or prestige when they do buy. Conversely, less affluent consumers (those with household incomes less than $100,000 per year) are more likely to reduce spending by trading down.

According to the findings:

• Approximately 55 percent of respondents said they had reduced their expenditures in discretionary categories such as consumer electronics and apparel during the past 12 months.
• In non-discretionary categories, less affluent consumers were much more likely to trade down in brands or prestige than more affluent consumers. In household products, for example, 41 percent of less wealthy consumers traded down to cut spending last year, while only 30 percent of more affluent consumers took that step.

One third of consumers in 2009’s study expected to be better off in the coming year, and only 14 percent of the 2010 respondents reported financial gains. Approximately one third of consumers expect that their financial situation will improve in the coming year, a level of optimism similar to 2009.

Even optimistic consumers (those who think they will be better off next year) show little tendency to increase expenditures. In fact, less than 10 percent of all optimistic consumers surveyed plan to trade up in brands and only 15 percent plan to spend more in discretionary categories, despite having deferred purchases for roughly two years already.

Online Shopping Increases
Newly frugal purchasing behaviors are most likely to persist in those categories where consumers felt that their frugal behavior was “unpunished,” according to Booz & Company’s analysis of the survey results. For example, run-ups in gas prices caused consumers to switch to lower-priced gasoline brands, but when gas prices fall they see little point in switching back as their cars continue to run reliably. This behavior is called “unpunished experimentation” and tends to stick even after economic conditions improve.

Online shopping has greatly benefited from this “unpunished experimentation.” As cash-strapped consumers searched for bargains during the recession, they discovered convenience and often lower prices available on the Internet. The study showed that the number of consumers who are most inclined to shop online across multiple categories doubled –– increasing from 16 percent in 2009 to 32 percent in the current survey. It also showed a dramatic increase –– rising from 11 percent last year to 23 percent this year –– in the percentage of consumers using the Internet to research before making a purchase offline.

Read These Related Articles:

• Nielsen: Global Private Label Phenomenon is Here to Stay
• New Consumer Study Says Frugal is Cool
• SymphonyIRI: Soaring PL Growth Threatens National Brands in Europe
• Loyalty to Nationally Advertised Brands Declines
• Research: The New Path to Purchase

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