At a time when household budgets are being tested to their limits – and further pressure on spending is set to come in the autumn – consumers are beginning to change their habits ahead of what is likely to be a long, cold winter

  • Shoppers are increasingly using cash to make their purchases and doing so in-store, rather than online, in order to keep better track of spending
  • Consumers are trading down in the supermarket, with Kantar data finding own-brand sales accounted for 51.6% of all grocery spend in the four weeks to August 7
  • One in five Brits chose to holiday in the UK this year in a bid to save money and avoid airport chaos, and 67% are cutting back on meals out this summer
  • Cost of living tracker: How retailers are acting to ease the squeeze on consumers and staff

Britain’s biggest retailer Tesco was the first to highlight the early signs of shifting sands when it unveiled its full-year results in early April. Data from the supermarket giant suggested that its customers were ready to start trading down to cheaper own-brand goods, purchase more frozen or tinned foods to eliminate waste and fill their baskets with items that were on offer.  

As spring turned to summer – and inflation surged to a new 40-year high of 10.1% – such behaviours are becoming more entrenched and more commonplace as a growing number of shoppers seek to look after the pennies.

Retail Week looks at seven of the key ways consumers are changing their habits amid a growing cost-of-living crisis.  

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“We’re seeing more and more people increasingly reliant on cash as the tried-and-tested way to manage a budget”
Martin Kearsley, Post Office

Cash back

Shoppers are increasingly choosing to use cash to make their purchases in order to keep better track of their spending, according to research from the Post Office.

Customers are quite literally “counting their pennies”, the research found, withdrawing cash and separating it into physical pots so they don’t overspend on certain categories.

The Post Office handled £801m in personal cash withdrawals in July – the highest level since it started tracking such data five years ago and up 20% compared with last year.

In total, £3.32bn in cash was deposited and withdrawn at Post Office counters in July, £100m higher than in June.

Card payments became more common during the pandemic as a safer way to pay – avoiding the handling of notes and coins – but physical budgeting has become more popular.

Post Office banking director Martin Kearsley said: “We’re seeing more and more people increasingly reliant on cash as the tried-and-tested way to manage a budget.

“Whether that’s for a staycation in the UK or if it’s to help prepare for financial pressures expected in the autumn, cash access in every community is critical.”

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“Sales in the first half of the year have been dominated by a sharp reversal of last year’s lockdown trends”
Simon Wolfson, Next

Return to stores

Online shopping soared during the pandemic as consumers sought greater choice while shops were closed, but customers are reverting back to old habits.

Shoppers are increasingly shifting away from online and returning to in-store shopping, partly in an effort to gain more control over their spending.

According to Barclaycard, in-store shopping grew faster than online during July, with the value and volume of face-to-face transactions rising 8.5% and 12.9% respectively year on year. 

Online shopping, on the other hand, registered a smaller rise of 6.6% in the amount spent, and a 3.3% decline in the total number of transactions.

In discretionary categories, the return to stores allows consumers to try before they buy without the financial cost and hassle of returning unwanted items to the retailer.

They can also avoid making unnecessary purchases and shop using cash.

More fashion retailers – including Zara and Boohoo – have put in place charges for customers returning their items.

Next, which has had a returns charge in place since 2018, also noted this reversion to pre-pandemic shopping trends.

Next boss Lord Wolfson said in a statement that “sales in the first half of the year have been dominated by a sharp reversal of last year’s lockdown trends”. 

He added: “Sales in retail stores recovered, while online growth appears to have reverted back to its longer-term trajectory.”

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Asda’s new Just Essentials range is already appearing in 33% of baskets, despite only being launched earlier this year

Trading down to own brand

Supermarkets are already seeing the impact of the cost-of-living crisis play out at their tills as customers seek ways to save cash.

New data from Kantar earlier this week revealed that food price inflation hit a record high of 11.6% in the four weeks to August 7, sending the annual food bill for the average household rocketing by £533 a year.

Kantar said consumers are making “lifestyle changes to deal with the extra demands on their household budgets”, trading down into grocers’ own-label ranges and away from more expensive proprietary brands.  

Sales of entry-level own-brand products soared 19.7% during the four-week period, while sales of all own-label grocery ranges rose 7.3%. 

That meant own-brand sales accounted for 51.6% of all grocery spend – the biggest share of the market ever recorded since Kantar started tracking such data in 2008. 

Kantar head of retail and consumer insight Fraser McKevitt said: “Over the past month we’ve really seen retailers expand and advertise their own value ranges across the store to reflect demand.”

Asda’s new Just Essentials range, for instance, is already appearing in 33% of baskets, despite only being launched earlier this year. 

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37% of consumers are purchasing items on a “need-to-buy basis” in order to save money and waste less

Budgeting baskets

The trend of downtrading from more expensive third-party brands is feeding into another big consumer shift: spending less on the weekly food shop. 

Data from Barclaycard earlier this month revealed the average value of a supermarket transaction had fallen from £23.67 in January 2021 to £19.33 in July – an 18.3% decline in the space of just 18 months. 

Nearly two-fifths of consumers (37%) told Barclaycard they were purchasing items on a “need-to-buy basis” in order to save money and waste less. 

It is a theme that had already been flagged by a number of food retailers, including online grocer Ocado. The etailer said its average basket size fell 13% to £120 in the six months to May 29, while the average number of items per basket dropped 15%.   

Anecdotal evidence suggests that hard-pressed consumers are removing items from their baskets, or selecting discounted alternatives, in order to stick to predetermined budgets. 

Writing for Retail Week last month, Asda chief customer officer Sam Dickson said: “We can see first hand the tough choices facing customers each day. Some are buying less or only buying products that are on promotion, while others are leaving products at the checkout to stay within the strict budget they have set themselves.”

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Netflix lost 1 million subscribers in its second quarter of 2022 as consumers looked to cut back on spending

Scrapping subscriptions

As consumers evaluate their monthly outgoings with increasing scrutiny, subscription services are having their value questioned perhaps like never before.  

TV streaming giant Netflix, which became almost a ‘must-have’ product for households during the Covid-19 pandemic, has haemorrhaged users this year.

Netflix lost 200,000 subscribers in the first three months of 2022 and an eye-watering 1 million more during its second quarter, citing the sluggish economy as a key reason behind falling customer numbers.

Naked Wines, which derives much of its revenue from its subscribers known as ‘Angels’, is also feeling the squeeze. Although the number of active Angels rose 9% to 964,000 in the year to March 28, repeat customer sales retention slipped 800bps to 80% as subscribers scaled back their monthly booze spend.     

Other businesses could face similar challenges with their subscription propositions, after hiking prices at a time when inflation on essential goods has reached record highs.  

In July, Amazon increased the price of its Prime subscription service in the UK from £79 to £95 for those paying annually, and from £7.99 to £8.99 per month. 

And back in February, Pret a Manger hiked the price of its coffee subscription service by 25% to £25 per month, blaming rising inflation and the government’s increase in VAT for hospitality businesses from 12.5% to 20%, which came into effect in April. 

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One in five Brits chose to holiday in the UK this year in a bid to save money and avoid airport chaos

The rise of the staycation

Many holidaymakers opted to stay closer to home during the Covid crisis to avoid ever-changing international restrictions and complex pre-travel admin. Even though the world has largely reopened to tourists, tens of thousands are sticking with staycations this year in a bid to keep a lid on costs. 

Data from Barclaycard found that one in five Brits had decided against a summer holiday altogether this year due to rising living costs and airline disruptions, while a further 16% said they would look to save money by taking a break in the UK instead.

Research by CensusWide on behalf of Great Western Railway found that 41% of Greater London residents were now more likely to holiday domestically due to the cost-of-living crisis.

And a survey from Marks & Spencer last month suggested that of the 60% planning to take a summer holiday this year, just over half were planning a staycation in a bid to keep costs down.

Retailers such as Seasalt – which is based primarily in market and seaside towns, and emerged as a beneficiary of the rise in staycations last year – are likely to experience further growth amid the continued popularity of UK residents holidaying on their home turf.

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Consumers are looking to save money by socialising less in pubs and restaurants

Stand down on socialising

Despite spend in a range of categories including clothing and health and beauty delivering month-on-month growth in July, Barclaycard data found that demand for eating and drinking out had slowed over the summer – down 1.5% in July based on the previous months.

This decline correlates with plans by nearly a third of Brits (29%) to spend less on social plans and days out this summer, with 67% cutting back on meals out and 55% reducing spend in pubs, bars and nightclubs.

This cutback in demand was echoed in Just Eat’s latest financial results. In the six months to June 30, the food delivery group suffered a 4% drop in active customer numbers to 94 million, while total order numbers dropped 7% to 509.4 million. The group blamed the declines on the end of surging online food demand that had been sparked by the pandemic. 

With further cost pressures on the horizon from October, this socialising squeeze could spell bad news for retailers hoping for a boom in consumer spend on festive outfits during the golden quarter. 

However, it could present opportunities for the grocers to upsell customers into their premium-tier products as consumers seek to treat themselves at home, rather than eating out.

Consumer Week 2023: Your free pass for events and insight on combatting the cost-of-living crisis

Consumer Week 2023 artwork

As the cost of living continues to rise at an unprecedented pace, Retail Week is bringing together brands including Deliveroo and Pandora with industry experts such as Peter Williams and Natalie Berg to explore the driving factors behind customer spending in the current climate.

Comprising a free virtual morning masterclass on September 28 and a free in-person morning summit on September 29 at The Form Rooms, Covent Garden, come together with Retail Week to redefine your strategies for customer engagement and growth.

Find out more and register your interest in attending.