A new survey of 2,000 U.S. consumers, the second issued by Booz & Company since the early days of the recession in October 2008, confirms that a “new frugality,” born of the Great Recession and evidenced by two consecutive years of declining per capita consumption, is now becoming entrenched among U.S. consumers and is reshaping their consumption patterns in ways that will persist even as the economy starts to recover.
A new frugality, characterized by a strong value consciousness that dictates trade-offs in price, brand, and convenience, has become the dominant mind-set among consumers in the United States — and probably in other wealthy countries as well. Two-thirds of American shoppers are cutting coupons more frequently, buying low price over convenience, and emphasizing saving over spending. Per capita consumption expenditure has declined across demographic groups. Consumer sentiment remains weak. These trends are not going to change, no matter the pace of economic change.
Annual consumer surveys conducted by Booz & Company during the past two years suggest that the deep and prolonged nature of the recession, in conjunction with longer-term trends — such as ongoing shifts in the share captured by retailers’ private labels and the greater online research shoppers do before going to the store — has hardened changes in consumer spending and behavior. Even as a slow recovery is under way, it is becoming clear that consumers are not going to step up to store counters with pre-recession alacrity. Marketers and retailers that wait for them to do so are taking a major risk with the futures of their companies. And as consumer demand returns, it will likely center on a different mix of price points, brands and private labels, and retail formats than prior to the recession.
In short, the Great Recession has forced consumers to shift their behaviors, and many of these new behaviors will stay in place. As consumers persist in more frugal behaviors — such as trading down to private labels and buying packaged foods rather than eating out — companies that rely on pre-recession strategies and tactics will find themselves struggling against strong headwinds.
Given the fundamental shifts in consumer behavior, consumer marketers and retailers — across categories as varied as food and beverage, home improvement, consumer electronics, and apparel — should be changing their product assortments, pricing strategies, advertising, and promotions. Companies that do this well will find the winds far more favorable, and they will prosper first and most in the new value-driven marketing environment.
Recessionary Behaviors Are Hardening
In the face of a recession that has caused two consecutive years of per capita consumption declines in the U.S. (for the first time since the Great Depression), an unemployment rate near 10 percent, and persistent concerns about the future, the frugal consumer behaviors that were first identified in the Booz & Company Fall 2008 Survey of Consumer Spending remain commonplace. Indeed, Booz & Company’s second annual consumer survey — conducted in the fall of 2009 and including a representative sample of about 2,000 U.S. consumers across demographics, geographies, product categories, and retail formats — revealed that frugal behaviors, such as reducing or deferring consumption, trading down to lower price points, purchasing “private label” brands (typically the house brands of retail stores), and shopping at discount outlets, are hardening into habits.
Most of the consumers surveyed said they continue to consider saving more important than spending (65 percent). They sacrifice convenience for price (65 percent), frequently use coupons (65 percent), and, to a lesser extent, prefer the best price to the best brand (55 percent). Further, over the past 12 months, consumers have continued to cut back on spending in 16 major categories, especially discretionary categories such as entertainment, apparel, electronics, and eating out — although on occasion they do spend on small indulgences for themselves, in categories such as health and beauty. (See Exhibit 1.)