Recession: how 2020 differs from 2008

Date : 04 June 2020

By Laura Jacobson and James Walton

With the UK once again on the brink of recession, this report draws on a collection of data sources to demonstrate how the state of the nation has shifted in the last 12 years. These explore economic, retail and shopper perspectives. We summarise with key considerations for suppliers.

Economic indicators

Some phrases such as discount growth, margin squeeze and savvy shopping continue to be highly relevant in 2020.

However, the following slides will highlight some structural and behavioral shifts that make the grocery retailing landscape of 2020 a very different environment to 2008.

 

 

In 2008 we saw high inflation in key commodities like oil and food, it was this inflation that drove value growth in the market.

Unemployment is expected to rise sharply in H2 2020. The current forecast is that it will reach 10%, which would mean more than doubled in a year and reach its highest level since the 1990s. This is not expected to return to its previous level until 2025.

 

 

In the lead up to the 2008 recession, real incomes had risen 27% over a 10 year period. In 2020, real incomes have risen just 5% in the last decade. In addition, households have not shown evidence of developing their financial resources or resilience since the credit crunch.

 

 

The retail landscape

Multiple factors have changed the retail landscape since 2008, including mergers and acquisition (M&A) activity, increasing popularity of discount and online resulting in some market position leapfrogging. While the Big Four remain unchanged, they have lost a combined share of -9ppts over the period, with Tesco experiencing the sharpest decline (-4.3ppt) Investment in online and convenience has slowed share decline.

 

 

In 2008, IGD estimated that online sales accounted for 2.3% of the total grocery market. While Ocado notched up its first £1bn in sales, there were fewer players, no Cash and Carry (C&C) and no mobile apps. While still the UK’s fastest growing grocery channel, online has matured significantly, with retailers shifting from customer acquisition to profit-focus. Those not yet shopping the channel may be harder to convert.

2020’s huge upsurge in interest in, and capacity of online shopping is unique to the conditions of COVID-19, and would not have been replicable 12 years ago.

 

Despite the recession, many casual dining, coffee and food-to-go chains continued to grow strongly in 2008/09, in some instances competing with grocers for “share of stomach”. This is in stark contrast to the conditions brought about by COVID-19.

 

While the past few years have seen a recovery in profit for three of the Big Four, this remain significantly behind their peak in this time period.

2008 sowed the seeds for pricing and promotional campaigns for years to come, as well as a surge in activity in private label ranges across the price spectrum.

 

 

The shopper impact

While in many ways the different circumstances of 2020 are putting different strains on shoppers, some aspects of behaviour are similar. Changes in the UK retailing market over the last 12 years, such as shifts in promotional strategy, have contributed to different shopper behaviour. Social distancing and short-term product shortages have also had impact.

For in-depth insight on savvy shopping and changing behaviours in response to coronavirus, visit ShopperVista

 

 

The implications

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