As Europeans head to the shops this Christmas, they do so with a little bit more disposable income than in previous years following five years of economic turmoil, according to new analysis.
For many European countries, this year will be the first Christmas in years without high inflation or a global pandemic, though the residual impact is still felt. With topline inflation at a manageable rate, but with food inflation remaining at a higher level than would be desirable, GlobalData predicts the emergence of three key themes that will influence European consumer spending this Christmas.
For much of Europe, 2022 saw a sharp increase in inflation, and whilst 2023 saw a lower inflation rate, it was still high enough to hinder a recovery in consumer spending.
For example, the UK had a CPI rate of over 9.1% in 2022, 7.4% in 2023, and 2.6% in 2024F. Other major economies in both Western and Eastern Europe followed similar trajectories.
Of course, lower inflation does not equal lower prices. Even where people’s wages have kept up with the CPI, specific categories, such as food and drinks, have outpaced general inflation.
For example, while the UK and France’s 2022 CPI rates were 9.1% and 5.2% respectively, food inflation was higher, at 10.9% (UK) and 7.3% (France).
Another issue compounding the problem has been that food inflation has not come down with overall inflation. Indeed, food inflation increased in 2023 for several countries, with the phenomenon mainly focused in Western Europe.
Fred Diamond, Senior Food Consultant and Analyst at GlobalData, said: “Looking at 2024 specifically, it is clear that European food inflation is only correlating loosely with general inflation trends and remains high in many major economies. European consumers are contending with a market environment that is still seeing higher inflation for key categories, but which also bears the scars of previous inflation, in the form of products that have gotten smaller and/or more cheaply made as brands tried to limit price-increases through ‘shrinkflation’ and ‘skimpflation’. Therefore, this Christmas, the concept of value for money is key.”
In light of recent price increases, *25% of European consumers report cutting back on grocery shopping, according to the latest GlobalData consumer survey results. At the same time, **74% of the respondents state that a brand or product’s ‘authenticity’ is essential or nice to have when making a purchase. Products that maintain a sense of authenticity, heritage, or traditionalism while offering a good value price point, will be in high demand.
One key example of this comes from the UK where, like many of its European neighbors, Christmas hampers packed with jams, chutneys, relishes, and crackers, are a seasonal tradition. Aldi UK has succeeded in using an independent artisan chutney maker for its private label selections, under the banner ‘Specially Selected’. During the Christmas season, the retailer sells them in boxed assortments at a low price, presenting strong competition to more established chutney and relish brands for whom Christmas is an important time of the year.
One of the more persistent trends pervading Western markets in recent years has been the idea of connoisseurship, the desire by consumers to engage with food and drink they can learn more about and take a real interest in. This has a long history in wine, coffee, and chocolate, all of which have benefited from the contemporary salience of the trend. More recently, categories such as hot sauce have joined the fray.
Products appealing to this trend typically come in a variety set. For example, a box containing six different types of roast coffee, with information on where each roast came from. Indeed, products in-line with this trend lend themselves well to multipacks or selection boxes which can easily be turned into ‘gift sets’.
Diamond continued: “Products containing multiple different varieties of something, be it dark chocolate, sauces, or any other type of food, can be extremely popular during the festive period. *56% of European consumers report that ‘new experiences associated with product purchases’ are ‘essential’ or ‘nice to have, which is exactly what these types of products can bring people”.
The subscription model has seen increased application over recent years, with brands like Hello Fresh pioneering this commercial opportunity in the food and grocery category. Meal kits more generally have also seen increased uptake. By the end of last year, **63% of Europeans reported using meal kits.
Pasta Evangelists is a brand that appeals to people’s desire for authentic products that allow personalization and a fun experience. The brand’s website offers recipe kits for delivery, allowing consumers to cook meals at home with bespoke ingredients and instructions. They also offer pasta-making kits, which are also marketed as a gift idea. This type of model encourages brand loyalty and longer-term usage of the product.
Diamond added: “Though the worst of the inflationary period is over, as Europeans begin their 2024 Christmas shopping, they do so against a backdrop of eroded savings, smaller portions, and lower confidence. With a *quarter of European consumers reporting cutting back on grocery shopping in light of recent price increases, value for money is key. Guilt-free indulgence through sustainable practices, and added value in their product purchases through brand authenticity, sensory experiences and food or drink kits that enable people to learn and grow in their tastes and expertise will likely prove very popular.”
Photo by erin mckenna on Unsplash
