By Katrina Bishop, head of thought leadership Western Europe & UK at NielsenIQ
IKEA recently made the decision to cut prices across hundreds of products in Europe to woo customers struggling during the ongoing cost-of-living crisis. It’s an interesting response during a complex period.
As households navigate the legacy of the crisis, many would assume that shoppers are becoming more cautious across the board. But today’s consumer isn’t easily defined as either financially confident or financially constrained.
Our data shows that 57% of UK consumers say they feel actually financially comfortable day-to-day, compared with 46% globally. Yet that greater sense of financial comfort does not automatically translate into a greater willingness to spend, as they remain reluctant to splurge across every major category.
Think of it this way: we shouldn’t assume that a consumer who is comfortable buying a £50 bottle of wine will automatically feel comfortable committing to a £500 piece of furniture. Brands and retailers must think differently, to understand that the financial decision is now being made in the context of the category, occasion and perceived value of the purchase.
To trade up or trade down
The consumer mindset is increasingly being shaped not just by how much money people have, but by what they believe is worth spending on.
In other words, the same shopper can be willing to trade up in one aisle and trade down in another. We found UK shoppers are more willing than the global average to spend on categories such as alcohol and frozen food, while they are more likely to pull back on fresh produce, dairy and personal care.
This is reflected in the wider findings from NielsenIQ’s Tale of Two Consumers report. In the UK, persistent inflation and broader cost-of-living pressures are creating a distinct “barbell” effect across FMCG, with growth moving in different directions depending on the category and consumer. Premium gained one share point and value gained 1.2 points over the last two years, while mainstream lost 2.2 points despite modest growth.
This suggests that UK shoppers are increasingly willing to trade up or trade down, rather than remain in the middle.
For retailers and brands, this distinction is crucial. Financial confidence is often treated as a proxy for spending confidence. But the two aren’t necessarily the same thing.
A consumer may feel that their finances are under control. Yet that doesn’t mean every purchase will receive the same level of consideration. Instead, shoppers are becoming increasingly intentional about where they allocate their money.
That helps explain why value remains such a useful proposition, even as some areas of consumer spending show resilience.
Value does not necessarily mean buying the cheapest option. Instead, it’s the feeling that a product, experience or brand delivers enough to justify the price.
Walking the retail tightrope
For retailers, this creates a difficult balancing act. Cutting prices can be an effective way to signal value, like IKEA’s latest move. But price is only one part of the equation.
Brands also need to understand where consumers are prepared to pay more and crucially, why.
Take a look at M&S for an example. Despite occupying a more premium position than many mainstream supermarkets, its food sales grew 7% last year. Recent data showed that M&S continues to be one of the fastest-growing grocers in the UK, up 10.8% over the latest 12 weeks, with larger baskets supported by its focus on family shoppers, refreshed ‘destination’ food halls and value-led ranges such as ‘Remarksable Value’ and ‘Bigger Pack, Better Value’, contributing to an average basket value of £16.29, up 9.1% year on year.
So M&S is investing in product quality while also expanding its value proposition.
This suggests that shoppers are not necessarily looking for the cheapest option, but for a price they feel is justified by what they are getting in return.
And it’s where the distinction between price and value becomes important. A shopper might choose M&S for a particular meal because they perceive the quality to be worth paying for, while choosing a cheaper alternative elsewhere in their basket.
It means the same consumer can be both price-conscious and willing to pay a premium depending on the category, occasion and perceived benefit.
Confidence is not willingness to spend
Now confidence is only part of the equation. For retailers and brands, the more important question is where this confidence translates into spending.
This means having a more holistic view of the consumer, to understand where shoppers are prepared to spend, what they expect in return, and how to make the value of that choice clear.
Ultimately, the brands that can connect price with a compelling sense of value will be best placed to turn selective spending into continued demand. And they’ll be the ones that can offer real value in a difficult time.
