THE MIDDLE OF MIND OR SHARE OF

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1 THE MIDDLE C L A S S : S TAT E OF MIND OR SHARE OF WA L L E T? SPENDING FLEXIBILIT Y IN IREL AND IN INFL ATIONARY TIMES OCTOBER 2013

2 SPENDING FLEXIBILITY IN IRELAND DURING INFLATIONARY TIMES IRELAND Income alone does not dictate spending considerations, spending flexibility is key too 61% of Irish respondents claim they only had enough to spend on essentials the past year Two thirds of Irish respondents (66%) indicate they cannot afford a rise in food prices without making difficult choices elsewhere Alcohol, Confectionery and Soft Drinks spending likely most hit by any rising food prices 47% say they will shop more at Discount stores in times of rising prices Convenience channels and local stores are most vulnerable in times of rising prices 47% say they will shop more Private Label if food prices increase, versus 11% say they will shop more brands On a more positive note, however, 56% of Irish consumers will consider experimenting with new brands ABOUT THE NIELSEN GLOBAL SURVEY OF INFLATION 2013 The expanding middle class meets rising food prices. The convergence of these two mega trends is set to dramatically and permanently reshape the consumer landscape. With the global middle class growing by 70 million each year, and food prices expected to more than double within 20 years, the world is entering into an unprecedented period of rising demand, economic pressures and inspirationally-driven buying behavior. However focusing solely on the middle class, which is often defined by income parameters that are either too high or too low for universal acceptance, is unlikely to fulfill economic growth expectations for business. New findings from Nielsen reveal that differences in buying intentions for food products with regard to what we buy, where we shop, and our perceived spending flexibility is driven more by aspirations and cultural norms than by income. The Nielsen Global Survey of Inflation Impact polled more than 29,000 Internet respondents in 58 countries to understand how respondents around the world of all income ranges were coping with rising food prices. The study identifies the countries, categories and retail channels that were more insulated to weather hard economic times and those which were more vulnerable. Tactics and strategies are necessary to reach consumers across the world in these demanding and changing times. 2 RISING PRICES ARTICLE - IRELAND

3 RISING PRICES CAN AFFECT THE CONSUMER LANDSCAPE Innovation is vital to sustaining profitability and building a strong platform for growth. Tactics that align with how consumers think, plan and shop is vital for success. In Europe, consumers have less discretionary income and we see that price inflation may be driving shoppers from local stores to discount stores and supermarkets, so understanding pricing and promotional scenarios are important. In Ireland, the survey revealed that if food prices were to rise, Irish consumers say they would increase price hunting in-store, take advantage of deals by stocking up, reduce number of shopping trips and amount spent per trip, plus shop more in discount stores and look for deals online. INCOME IS RELATIVE WHEN IT COMES TO MEASURING BUYING POWER When evaluating the impact of inflation among respondent households that earned incomes reflective of middle-class income parameters*, Nielsen found that in times of rising food prices, no single group is immune from the pain. The buying sentiment for both discretionary and non-discretionary food and beverage categories among middle-class households compared with all other households, on average, was not dramatically different. 47% OF IRISH RESPONDENTS SAY THEY WOULD SHOP MORE AT DISCOUNT STORES IN TIMES OF RISING PRICES In other words, a closer look at buying propensity by standards other than income was necessary to better measure financial stability. The Nielsen survey revealed that the notion of spending was relative to many factors, which include household composition, spending flexibility and opportunities, aspirations and cultural diversity. *as defined by the Organization for Economic Co-operation and Development [OECD] Copyright 2013 The Nielsen Company 3

4 SPENDING FLEXIBILITY IS IMPORTANT A key measure of buying power is spending flexibility, or the elasticity in the household budget to afford a rise in food prices without having to make difficult spending choices elsewhere. In the survey, Nielsen segmented respondents into three spending capacities; THOSE THAT HAD ENOUGH MONEY TO SPEND FREELY LIVE COMFORTABLY OR JUST HAD ENOUGH MONEY FOR SHELTER, FOOD AND BASICS For Ireland, the effects of the tough recession are reflected in the survey results, as the majority of Irish respondents report only having enough money for the essentials. 61 percent indicate, in the past year, they have only had enough money for shelter, food and basics (versus global average of 44%, Europe average of 52%). Just under one third of Irish respondents (31%) say in the past year they were able to live comfortably and bought some things just because they liked them. Only 9 percent say they were able to spend freely (versus a global average of 14% and a Europe average of 11%) indicating the Irish household budget is still under pressure. SPENDING FLEXIBILITY? Q: PLEASE SELECT THE ONE OPTION THAT BEST REFLECTS YOUR VIEW ON YOUR SPENDING 11% 5% 15% 12% 9% 37% EU 32% AVERAGE 52% FRANCE GERMANY GB 63% 49% 31% IRELAND 26% 59% 39% 61% In the past year I ve only had enough money for shelter, food and basics In the past year I ve been able to live comfortably, and bought some things just because I liked them In the last year I ve been able to spend freely Source: Nielsen Global Consumer Confidence Topic - Ireland Q RISING PRICES ARTICLE - IRELAND

5 ELASTICITY IN THE HOUSEHOLD BUDGET 9 of the top 10 global countries in the Nielsen survey with the least spending flexibility actually hailed from Europe, reflecting the recent EU troubles. More than three-quarters of respondents not able to afford a rise in prices were from Greece (87%), Croatia (82%), Romania (81%), Hungary (77%), Ukraine (77%) and Bulgaria (77%) while two thirds of Irish respondents (66%) indicate they cannot afford a rise in food prices without making difficult choices elsewhere (ranking 18 out of 58 countries surveyed). FLEXIBILITY IN THE BUDGET? Q: IS THERE ENOUGH FLEXIBILITY IN YOUR HOUSEHOLD BUDGET TO AFFORD A RISE IN FOOD PRICES WITHOUT MAKING DIFFICULT SPENDING CHOICES ELSEWHERE? EU AVERAGE 35% 65% FRANCE 24% 76% 34% GERMANY 43% IRELAND 66% 57% GB 44% 56% YES NO Source: Nielsen Global Consumer Confidence Topic - Ireland Q Copyright 2013 The Nielsen Company 5

6 HOW DOES RISING FOOD PRICES AFFECT THE SHOPPING BASKET? When it comes to rising food prices, nearly everyone feels the pain; 85 percent of all global respondents say that higher costs impact their choice of grocery products. Grocery products are not the only areas of spending affected. The top ways that Irish respondents would change spending habits because of increased food prices include snacking food (59%), new clothes and accessories (59%), dining out (57%), beverages at home (42%), travel/vacation (33%), paying for recreation and entertainment (32%). CUTTING TACTICS IF FOOD PRICES RISE Q: IF FOOD PRICES RISE, PLEASE IDENTIFY THE TOP 5 AREAS WHERE YOU WOULD CHANGE YOUR SPENDING - IRELAND RESULTS SNACKING FOOD NEW CLOTHES AND ACCESSORIES FOR SELF DINING OUT (RESTAURANTS, PUBS, ETC.) BEVERAGES AT HOME TRAVEL/VACATION RECREATION AND ENTERTAINMENT ( CONCERTS, MOVIES, SPORTS, ETC.) COMMUNICATIONS SERVICES (MOBILE PHONE, LANDLINE, INTERNET, CABLE TV, ETC.) HOME IMPROVEMENT AND DECORATING MAIN MEAL FOOD AT HOME SAVINGS/INVESTMENTS COSMETICS AND TOILETRIES ELECTRONICS/APPLIANCES ROUTINE TRANSPORTATION (CAR, GAS, COMMUTING, NON-VACATION, ETC.) PAY DOWN DEBT HOUSING (RENT, MORTGAGE, UTILITIES, ETC.) MEDICAL (DOCTOR/DENTIST VISITS, MEDICINES, VITAMINS) NEW CLOTHES AND ACCESSORIES FOR CHILDREN OTHER EDUCATION CHILD CARE 14% 13% 10% 9% 5% 4% 2% 33% 32% 28% 25% 23% 23% 22% 21% 20% 42% 59% 59% 57% Source: Nielsen Global Consumer Confidence Topic - Ireland Q RISING PRICES ARTICLE - IRELAND

7 VULNERABLE CATEGORIES DURING INFLATIONARY TIMES Just as Irish consumers are now shopping around, they will also make trade-offs. For manufacturers and retailers alike, determining which categories have staying power and which ones are more vulnerable is critical as tough in-store decisions are made. While buying more of anything is a challenge when wallets are tight, there are categories that are likely to be hardest hit when it comes to reacting to rising food prices, and others that show resilience to inflation. Categories most vulnerable during inflationary times, and the ones that at least half of Irish respondents say they would buy less frequently were; alcohol, convenience food, soft drinks and confectionery. Three quarters say, on making decisions around buying product categories, if food prices increased, they would be likely to buy less sweets & chocolate (73%), while two thirds indicated less purchasing on crisps/snack foods (67%), food-on-the-go (62%), and for alcohol and carbonated drinks, 58% and 57% respectively. RESILIENT CATEGORIES DURING INFLATIONARY TIMES The more resilient categories for Ireland, where more than half of respondents had no plans to change their shopping routine, were for the staple categories like; dairy products (78%), fresh fruit & veg (64%), meat and poultry (67%), bread and bakery goods (68%), packaged foods (68%) and fish and seafood (58%). Copyright 2013 The Nielsen Company 7

8 However interestingly, 12 percent of respondents also indicate they would buy more fresh or frozen fruits and vegetables if food prices increased. Plus canned fruits and vegetables and packaged foods (eg coffee, pasta etc) were also stock-up essentials among 7 percent and 8 percent of all respondents, respectively. CATEGORY DECISIONS Q: IF FOOD PRICES INCREASE, WHAT CHANGES WILL YOU MAKE WHEN BUYING THE FOLLOWING PRODUCT CATEGORIES? ALCOHOLIC BEVERAGES BOTTLED WATER BREAD & BAKERY CANNED FRUITS & VEG CARBONATED BEVERAGES CONVENIENCE/PREPARED FOODS CRISPS & OTHER SNACK FOODS DAIRY (MILK, CHEESE, YOGHURT, ETC.) FISH & SEAFOOD FOOD ON THE GO FRESH OR FROZEN FRUITS & VEG MEAT & POULTRY ORGANIC PRODUCTS PACKED CEREAL PRODUCTS (BREAKFAST CEREALS) PACKAGED FOODS (COFFEE, PASTA, ETC.) PREPARED MEALS SWEETS & CHOCOLATE NOT APPLICABLE BUY LESS BUY SAME BUY MORE Source: Nielsen Global Consumer Confidence Topic - Ireland Q RISING PRICES ARTICLE - IRELAND

9 SO ARE GROCERY PRICES INCREASING IN IRELAND? In looking at the top selling 20 categories in Ireland (alcohol and tobacco excluded) in latest Nielsen retail sales data, it appears over the long-term and short-term this is the case; LATEST 4 WEEKS PRICES UP LATEST 12 WEEKS PRICES UP LATEST 52 WEEKS PRICES UP +1.9% +2.5% +2.5% WITH 15 OF THE 20 CATEGORIES RECORDING A PRICE INCREASE WITH 16 OF THE 20 CATEGORIES RECORDING A PRICE INCREASE WITH 17 OF THE 20 CATEGORIES RECORDING PRICE INCREASE Source: Nielsen Scantrack data, w/e 8th September 2013 On the latest 12 weeks, staples like breakfast cereals, packaged bread and milk prices are up higher than the overall average (+6.5%, +3.9% and +5.0% respectively), while pre-packed bacon and take home ice-cream are the only categories in the Top 20 which have not seen the average price increase over these time periods. ₂ Copyright 2013 The Nielsen Company 9

10 PRICE FLUCTUATIONS LATEST 4 WKS LATEST 12 WKS LATEST 52 WKS BABYMILKS / MEALS AND RUSKS BISCUITS CRACKERS CRISPBREAD 8.7% 3.5% 8.3% 11.2% 4.6% 5.2% BREAKFAST CEREALS 5.2% 6.5% 7.7% CELLOPHANE BAGS 3.9% 4.3% 3.9% CARBONATED DRINKS 2.7% 1.0% 2.9% COUNTLINES 5.5% 4.3% 5.2% CRISPS 3.4% 3.1% 6.2% -8.4% -4.1% ENERGY DRINKS 0.1% FRUIT JUICES 500ML + 7.4% 5.3% 6.7% MARGARINE 5.5% 2.9% 0.6% MILK 1.8% 4.1% 5.0% -0.6% MINERAL WATER 0.6% 2.1% PACKAGED BREAD 4.3% 3.9% 3.1% 0.0% -0.7% -0.5% PREPACKED BACON PREPACKED SAUSAGES 5.9% 6.8% 6.3% PREPACKED SLICED MEAT -2.3% -0.2% 0.6% SNACKS 3.4% 4.3% 6.8% TOILET TISSUE 0.1% 0.4% 0.2% TOTAL TOP 20 CATEGORIES 1.9% 2.5% 2.8% -5.1% -3.9% -0.6% -1.1% TAKE HOME ICE CREAM YOGURT & YOGURT DRINKS 3.7% 1.4% Source: Nielsen Ireland Scantrack data, w/e 8th Sept RISING PRICES ARTICLE - IRELAND

11 RETAILERS POISED FOR SUCCESS BEST BET RETAILERS With finances under pressure and less discretionary money to spend, consumers continually look for ways to stretch their budgets and find the best value for the money. Retailers poised for success during inflationary times are those with competitive prices often difficult to beat. Many Irish respondents indicate they will continue to shop at Supermarkets and Pharmacy, with 35 percent indicating they would increase shopping frequency at Supermarkets. However, a high 47 percent of Irish respondents say they would shop more at Discount stores in times of rising prices. Ireland currently sees strong and continuous advertising by the main Discounters, which will only help increase awareness of these retailers and their keenly priced offers. STORE SWITCHING IF FOOD PRICES INCREASE Q: IF FOOD PRICES INCREASE WHAT CHANGES WILL YOU MAKE IN WHERE YOU PURCHASE FOOD PRODUCTS? IRELAND RESULTS IRELAND RANKS THIRD HIGHEST GLOBALLY IN SAYING THEY WOULD SHOP MORE AT DISCOUNT STORES, ONLY BEHIND SINGAPORE (48%) AND SOUTH KOREA (47%). 14% 10% 14% 12% 8% 9% 23% 48% 50% 55% 30% NOT APPLICABLE SHOP LESS SHOP SAME 60% SHOP MORE 35% 29% 47% 33% 5% 5% 12% SUPERMARKETS CONVENIENCE STORES DISCOUNT STORES PHARMACY LOCAL NEIGHBOURHOOD STORES Source: Nielsen Global Consumer Confidence Topic - Ireland Q Copyright 2013 The Nielsen Company 11

12 Conversely, retailer formats most vulnerable during inflationary times include convenience stores and speciality retailers. 55 percent and 48 percent of all Irish respondents, respectively, say they would shop at these retailers less often. Ireland results on these scores show vulnerability versus a lot of other countries (versus 40% and 27% global averages). Channel switching from convenience and local shops to low-price outlets/supermarkets is evident, so messaging for these retailers that focuses on trust, differentiation and good value is important. BRANDS VERSUS PRIVATE LABEL IN INFLATIONARY TIMES Some good news is that the majority of Irish respondents report being willing to try new brands. When asked thinking about food brands to buy over the next year, 56 percent indicate they would experiment with new brands. Notably, Ireland ranks 5th highest globally on this score, behind Brazil (64%), Greece (61%), Philippines (60%) and South Africa (57 %). This indicates opportunity for new areas of growth and innovative NPD from brands. STRONG BRAND MESSAGES AND NPD IMPORTANT Q. THINKING ABOUT THE FOOD BRANDS YOU BUY OVER THE NEXT YEAR I EXPECT TO IRELAND 56% INDICATE WILLINESS TO EXPERIMENT WITH NEW BRANDS 63% LIKE WHEN MANUFACTURERS OFFER NEW PRODUCTS 60% WAIT UNTIL A NEW INNOVATION IS PROVEN 60% BUY NEW PRODUCTS FROM FAMILIAR BRANDS 59% LIKE TO TELL OTHERS ABOUT NEW PRODUCTS CONSUMERS WILL RESPOND TO STRONG NPD ADVERTISING / PROMOTIONS Source: Nielsen Global Consumer Confidence Topic - Ireland Q Source: Nielsen Global Consumer Confidence New Products - Ireland Q RISING PRICES ARTICLE - IRELAND

13 However on the flip side, as shoppers increasingly look for value, private-label brands have a potential advantage as shoppers become more discerning and lower-priced alternatives proliferate. In regions where private label is well established, the Nielsen survey results showed the potential power of private label brands during inflationary times. In developed European countries, 35 percent would shop more for private-label brands, compared with only 8 percent saying that they would buy more national brands. For Ireland that number was higher at 47 percent saying they would buy more private label if food prices increased, compared with only 11 percent saying they would buy more national brands. 47% SAYING THEY WOULD BUY MORE PRIVATE LABEL IF FOOD PRICES INCREASED, COMPARED WITH ONLY 11 PERCENT SAYING THEY WOULD BUY MORE NATIONAL BRANDS. Copyright 2013 The Nielsen Company 13

14 BRANDS VS. PRIVATE LABEL Q: IF FOOD PRICES INCREASE, WHAT CHANGES WILL YOU MAKE IN THE TYPE OF FOOD PRODUCTS YOU PURCHASE? IRELAND RESULTS 11% 39% 46% 5% 47% 35% 13% 6% BRANDS PRIVATE LABEL NOT APPLICABLE SHOP LESS SHOP SAME SHOP MORE Source: Nielsen Global Consumer Confidence Topic - Ireland Q Today in Ireland, private-label products account for roughly 22 percent of FMCG sales (worth 2.3billion), according to Nielsen s latest figures₁. Conditions remain good for private label growth, and private-label brands have been shouting loud with strong advertising. The price must be right and marketing must be effective for privatelabel brands to be successful. Packaging impacts trust and quality perceptions especially when private labels extend beyond commodity or low-risk product categories. Sales of private label in Ireland are reaping rewards, reporting year on year growth of +2% (value) latest year to June 2013, (versus -0.8% for Branded), according to latest Nielsen data₁. 14 RISING PRICES ARTICLE - IRELAND

15 PRIVATE LABEL IN NUMBERS THE MAT VALUE SALES OF PRIVATE LABEL = 2.3 BILLION BRANDED PRODUCTS WORTH 8.3 BILLION THE RATE OF VALUE GROWTH OF PRIVATE LABEL YEAR ON YEAR = +2% BRANDED DECLINING AT -1.2% VALUE YEAR ON YEAR THE VALUE SHARE PRIVATE LABEL CURRENTLY HAS IN TOTAL MARKET = 22% BRANDED NOW PLAYING IN A 78% ARENA Source: Nielsen Strategic Planner Data to June 2013 NIELSEN RESEARCH SHOWS THAT IRISH SHOPPERS SEE OWN BRAND AS BEING OF SIMILAR QUALITY AND A VIABLE ALTERNATIVE TO BRANDS. SWITCHING TO OWN BRAND IS ONE OF THE MAIN WAYS THAT CASH STRAPPED SHOPPERS IDENTIFY TO SAVE MONEY. IN RECENT YEARS CONSUMERS HAVE INCREASED THE NUMBER OF STORES THEY VISIT EACH WEEK, AND THERE ARE CLEAR INDICATIONS THAT THEY HAVE ADDED A DISCOUNTER STORE TO THEIR SHOPPING ROUTINE. AS SHOPPERS HAVE BEEN FORCED TO FIND VALUE TO STRETCH THEIR BUDGET, THEY HAVE MOVED TO BUYING MORE AND MORE FROM LIDL AND ALDI OR BY SWITCHING INTO PRIVATE LABEL ALTERNATIVES. MANY IRISH SHOPPERS HAVE SWITCHED THEIR MAIN SHOP TO A DISCOUNTERS AND THEN TOP-UP IN THE MORE TRADITIONAL MULTIPLES, A REVERSE OF THE COMMONLY ACCEPTED NORM. SHANE DALY, RETAILER SERVICES, NIELSEN IRELAND Copyright 2013 The Nielsen Company 15

16 TACTICS TO DEPLOY AND MARKETING LEVERS TO PULL SHOPPER SAVING TACTICS IF PRICES RISE Q: IF FOOD PRICES INCREASE, WHAT CHANGES WILL YOU MAKE WITH THE FOLLOWING ACTIONS? Certain strategy responses from consumers resonate with strong consistency around the world, such as the increased propensity to purchase only sale-priced items (42 percent for Ireland). 61 percent of Irish respondents also say they would stock up on regular-use items when they were on sale (compared with 41 percent global average and 48 percent Europe average). Purchasing larger pack sizes was a strategy favoured among 40 percent of Irish respondents (again trending higher than either global or European averages (28% and 29% respectively). 67% WILL DECREASE SPEND PER TRIP Notably, the speed and efficiency of online methods proved to be the platform of choice for saving money among two-fifths (41%) of Irish respondents, while over one quarter (28%) use social media to find specials. With the rise in smartphone ownership and mobile usage, looking for deals online is only likely to increase in the search for money-saving deals. With consumers looking for value online, this does mean retailers have fewer opportunities to interact. Retailers need to capture consumers through various mediums, not just in-store, as may see them less often than they have before. On those shopping strategies likely to decrease; 67 percent say they will cut down on amount spent per trip while 57 percent indicate they would decrease trips to the store. While the strategic response to consumer buying behavior may be consistent across regions, market-by-market tactical variations are essential. Knowing how to scale goods and services across the world can be challenging when consumer diversity must factor into the marketing mix. Understanding brand position within the category demand landscape allows for a tailored food inflation response that will protect the most profitable shoppers with optimum efficiency. 57% 42% 41% 40% 28% 20% WILL DECREASE TRIPS TO THE SHOP WILL PURCHASE ONLY SALE ITEMS WILL LOOK FOR DEALS ONLINE WILL PURCHASE LARGER PACKS WILL USE SOCIAL MEDIA TO FIND DEALS WILL SHOP MORE ONLINE 16 RISING PRICES ARTICLE - IRELAND

17 ABOUT THE NIELSEN GLOBAL SURVEY The Nielsen Global Survey of Inflation Impact was conducted between February 18 and March 8, 2013, and polled more than 29,000 consumers in 58 countries throughout Asia-Pacific, Europe, Latin America, the Middle East, Africa and North America. The sample has quotas based on age and sex for each country based on their Internet users, and is weighted to be representative of Internet consumers and has a maximum margin of error of ±0.6%. This Nielsen survey is based on the behavior of respondents with online access only. Internet penetration rates vary by country. Nielsen uses a minimum reporting standard of 60 percent Internet penetration or 10M online population for survey inclusion. The Nielsen Global Survey, which includes the Global Consumer Confidence Survey, was established in ABOUT THE GLOBAL SURVEY METHODOLOGY The findings in this survey are based on respondents with online access across 58 countries. While an online survey methodology allows for tremendous scale and global reach, it provides a perspective only on the habits of existing Internet users, not total populations. In developing markets where online penetration has not reached majority potential, audiences may be younger and more affluent than the general population of that country. Additionally, survey responses are based on claimed behavior, rather than actual metered data. ABOUT NIELSEN Nielsen Holdings N.V. (NYSE: NLSN) is a global information and measurement company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence and mobile measurement. Nielsen has a presence in approximately 100 countries, with headquarters in New York, USA and Diemen, the Netherlands. For more information, visit Copyright 2013 The Nielsen Company. All rights reserved. Nielsen and the Nielsen logo are trademarks or registered trademarks of CZT/ACN Trademarks, L.L.C. Other product and service names are trademarks or registered trademarks of their respective companies. 13/7004

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