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Basket cases

Oct 13th 2010, 20:38 by The Economist online

WE WON T let up, insisted Bob McDonald, the boss of Procter & Gamble (P&G) at

the annual shareholder meeting of the world s biggest consumer-goods company on

October 12th. He promised that P&G was still on track to have 5 billion

customers by 2015. But it is a struggle for the maker of Pampers nappies and

Fairy washing-up liquid. Many of the economies in which we operate are still

recovering from recession, Mr McDonald admits.

P&G and its archrival Unilever, another global consumer-goods firm, had a grim

time last year: profits plummeted. This year has been only slightly better.

Economies are still ailing, and the cost of raw materials is climbing.

But there is something else happening. Basic consumer goods were long assumed

to be more or less recession-proof. Shoppers may not be able to afford Dior

dresses or Cartier watches, went the argument, but they still need loo paper

and detergent. Yet people are finding ways to save money even on daily

necessities.

They are shopping less and with more purpose. Some people deliberately pick up

a basket rather than collect a trolley in supermarkets, to prevent themselves

from buying too much. Some buy smaller packets, which are cheaper, or huge

ones, which are better value. Many make do without air fresheners, hair

conditioner and other fripperies once deemed essential. Many scour the internet

for special deals. According to a report by PwC, a consultancy, 93% of shoppers

say they have changed their behaviour as a result of the economic downturn.

Many have traded down from name-brand to store-brand products. Alarmingly for,

say, Kellogg s or Heinz, many have discovered that Tesco s cornflakes and

Wal-Mart s baked beans taste no worse. A survey of 2,500 American households by

Consumer Edge Research found that supermarkets own labels have become

increasingly popular, especially for staples such as milk, peanut butter,

bottled water and cooking oil. Trading down is most common among households

with an income of more than $100,000 a year. (Poorer people bought fewer posh

brands in the first place.) Store-brand goods are especially popular in Spain,

the Netherlands and Germany (see chart).

Consumers are also trading down from one name-brand to another: for example,

from Lindt chocolates to Cadbury s. Some 18% of packaged-goods buyers switched

from a premium brand to a cheaper one during the recession, according to

McKinsey, another consultancy. Most said they found that the pricier brand was

not worth the money .

Ebbing tide

Terrified consumer-goods firms have cut costs and slashed prices. P&G launched

a less expensive basic version of its Tide brand of washing powder, but then

withdrew it because it was too popular. Many firms are pushing three for the

price of two deals and the like. Some see opportunities amid the gloom. As

people eat out less, Kraft Foods, an American firm, sells more Macaroni &

Cheese and other ready-made meals. As hedonists cut back on spas and beauty

salons, P&G sells more beauty products that can be applied at home.

Companies with a strong presence in emerging economies have the rosiest

prospects. Shoppers in China and Brazil are trading up to foreign brands,

making up for some of the new frugality in the West. Mr McDonald tries to sound

cheery. In 173 years, P&G has survived many recessions. No doubt, but what if

this one teaches consumers that supermarket brands are just as good and, when

the economy recovers, they spend their extra cash on holidays or college fees

instead?