Jun 22, 2009

Consumers eye values as well as value in recession

LONDON/HELSINKI (Reuters) - Consumers are still putting environment and ethical issues at the heart of their spending decisions in the recession, even if they have cut back on some higher priced "green" goods like organic foods.

Shoppers are flocking to environmentally friendly products sold at competitive prices and are often making more frugal choices with a view to their environmental benefits, such as cutting down on packaging and waste.

They are also still prepared to pay a premium from green goods when there are long-term savings to be made, as with energy-efficient light bulbs, and when purchases are being made to last for years, like electrical goods and cars.

"There is a degree to which I think consumers have seen the shock of what's happened and stepped back a bit and said 'OK what's important in life?'," said Ian Cheshire, chief executive of pan-European home improvements retailer Kingfisher.

"We're seeing something between a thriftier and a greener consumer," he said, adding Kingfisher had seen a surge in demand for products that fulfill both goals, like insulation and grow-your-own vegetable packs.

The challenge for retailers and their suppliers is to come up with more affordable, eco-friendly products without hurting profit margins that are already being squeezed in the recession.

This is no mean feat, especially for firms dealing with new, costly technologies, like hybrid cars.

But there are big benefits from companies able to cut back on packaging and waste, making savings for themselves and also improving their image with environmentally-concerned consumers.

In a recent advertising campaign, British grocer Asda highlighted its energy-saving measures as much as the price cuts they helped to fund. The firm has been among the few retailers to thrive in the downturn.

TRADE OFF

Britain's national statistics office estimates spending on ethical goods and services rose 15 percent in 2007-8, versus overall household spending growth of 3 percent.

Few think this growth will be sustained in the recession.

However, UBS analysts believe green issues remain a key factor in purchasing decisions, even if consumers are sometimes trading off price with a slightly less green option.

In a survey of 2,800 people across the Group of Seven rich nations they found 52 percent of car owners saying environmental concerns would influence their next vehicle purchase, but a strong preference in the United States and Britain for smaller, more efficient cars, ahead of costlier hybrids.

"This suggests to us that increasing frugality among consumers will lead to a scenario where green considerations continue to drive purchasing decisions, but that there will be a trade-off between costs and choosing the slightly less green option," they said in a recent research note.

The swing to green is most apparent when it does not hurt consumers' pockets. Earlier this month, the Greens were the only major political grouping that won more seats in European parliamentary elections, increasing their share of the vote to 6.9 percent from 5.5 percent five years ago.

Consumers are finding it harder to be green when asked to pay more for everyday goods. Market researchers TNS WorldPanel said sales of organic foods at British supermarkets fell 9.7 percent year-on-year to April 19.

"I have probably halved my budget on organic food," said David Farrel, 52, a writer shopping in central London, who said he had made "swingeing budget cuts" because of the downturn in property markets.

However, a poll by food and grocery researchers IGD earlier this year showed that, while organic food sales were suffering, demand for locally produced, "fair trade" and higher animal welfare foods were all still on the rise.

WAY OF LIFE

British grocer J Sainsbury said on Wednesday sales of its higher welfare "Freedom Food" meats had quadrupled in the last three months compared with the same time last year.

"The savvy shopper is saving money when they can, but they're staying true to their values as well," said Chief Executive Justin King.

Civil servant Tracy Dwyer, 40, said being environmentally friendly was more than just buying organic foods and was a way of life she was battling to retain in the downturn.

"I still recycle (...and) I shop at local markets wherever possible," she said on a shopping trip in London.

Consumers are more likely to make the environmentally friendly choice when buying something to last.

"At a time of financial crisis that's not going away, quite the contrary," Mitti Storckovius, environmental director at Nokia's phone unit, told Reuters.

Fellow mobile phone maker Sony Ericsson unveiled a new "eco-friendly" product line in June and expects one of its new greener models, the Naite, to be among its top-selling phones in coming quarters.

The new phones will have smaller packages, use more recycled materials, use less energy and have electronic user manuals -- offering benefits to the company and consumers alike.

Courtesy Reuters.com Green business

By Mark Potter and Tarmo Virki - Analysis

(Additional reporting by Phakamisa Ndzamela and Mandalena Munkonge in London)

(Editing by Sitaraman Shankar)

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