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Consumers are sticking to frugal shopping habits developed in the recession even as developed economies show signs of recovery, suggesting some behavior changes could be permanent, industry executives say.
With household budgets under pressure since the financial crisis of 2008, consumers have flocked to discount stores, shifted from branded goods to private-label alternatives and shopped more often at convenience stores or online rather than spending on expensive fuel to drive to out-of-town hypermarkets.
Those trends have benefited discounters like Aldi and Lidl as well as retailers that have the widest own-label ranges and networks of smaller stores, prompting consumer goods firms to retaliate with brand promotions and smaller packaging.
"If you look at data from Millennials, who have really sort of grown up with this, price is more important to them ... than it was to the last generation," Walmart U.S. Chief Executive Bill Simon told the Reuters Global Consumer and Retail Summit, referring to the generation born between 1980 and 2000.
Walmart U.S. is the largest unit of Wal-Mart Stores, the world's largest retailer which benefited from trading-down during the recession, but cut its forecasts last month, citing weak results in many key markets.
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The U.S. economy is expected to accelerate towards the end of the year, helping cut unemployment, while the euro zone's tentative recovery looks set to continue, although wage growth will continue to lag inflation, dampening purchasing power.
John Rogers, chief financial officer of Britain's No. 3 grocer J Sainsbury, said consumer behavior was not yet responding to signs of economic recovery.
"Consumers are still in the place of tightening their belts, watching how they spend, savvy shopping," he told Reuters in London. "That's not a change that is going to quickly reverse."
Rogers said consumers were unlikely to change the habit of shopping more frequently and wasting less food as the economy recovers: "It is an ingrained behavior," he said.
Strong growth of sales at convenience stores and online, as well as of own-label goods which rose to nearly 7 percent in the first quarter, have helped Sainsbury outperform Tesco, Wal-Mart's Asda and Morrisons.
Rabobank expects private-label goods to double their share of food retail to 50 percent by 2025 from 25 percent in 2010, although growth has slowed in some mature markets as brands and stores have launched promotions like "buy one, get one free".
"The moment they stop with promotions, private label grows again. It is a temporary effect," said Rabobank analyst Sebastiaan Schreijen.
In addition to aggressive promotions, consumer goods firms like Unilever and Reckitt Benckiser have responded to the own-label threat by offering brands like Dove soap or Harpic toilet freshener in smaller packs as well as with new value ranges.
"It is amazing how consumer behavior has changed especially in southern Europe," Unilever CFO Jean Marc Huet told the Reuters summit, noting a lack of traffic on a visit to Lisbon. "Some consumer behavior is going back 20, 30, 40 years."
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Unilever is packaging more products around the 1 pound or 1 euro price, as well as rolling out completely new budget brands of margarine and ice cream for struggling economies like Greece.
"We don't expect any significant changes in developed markets, both for Europe and for North America," said Huet.
Reckitt Chief Executive Rakesh Kapoor told the Reuters summit the recession had prompted his company to do more testing of product innovations in emerging economies like Brazil and then roll them out to mature markets, reversing the usual trend.
"At this point of time, people will think about value in a much more holistic way. They look at price points and benefits in combination," he said. "So you lower the price, improve benefits and it is very appealing for consumers."
Wait for sales
A Euromonitor survey from 2011 showed that three-quarters of U.S. and British consumers expressed a strong interest in finding bargains, with a majority of Brazilians, Germans and French also keen on a good deal, while fewer than half of Indians, Chinese and Japanese were bargain hunters.
"It is now ingrained for people to wait for the sales. The sales have become ongoing and constant," said Euromonitor senior retailing analyst Antonia Branston, adding that other habits such as shopping around for food deals might be less enduring.
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"It became quite fashionable to be penny pinching but that kind of thing isn't sustainable. After a while it becomes a grind to shop around for the cheapest product," she said.
The recession has also produced what some marketers call the "lipstick effect" — consumers still treat themselves to small luxuries like cosmetics, a glass of champagne or premium chocolates even as they economize elsewhere.
"The crisis has reinforced this trend of consuming champagne at home," Pierre-Emmanuel Taittinger, Executive Chairman of Taittinger champagne, told Reuters in Paris, adding that in restaurants more champagne was now drunk by the glass.
Rabobank expects the squeeze on mid-range products to persist, predicting that value products will make up 30 percent of spending by 2017 from 25 percent now as premium products grow to 20 percent from 15 percent.
"In a recession people become more aware of value for money but also want to indulge themselves. So they shop at Lidl but also buy Prada shoes," Rabobank's Schreijen said.