Germany: When will the crisis hit consumers?
Outlook for consumer behavior in Germany in 2010
Nuremberg, February 3, 2010 – Today’s press conference of the GfK Group, which was held in Nuremberg, focused on the development of private consumption in 2009 and the outlook for 2010. As forecast by GfK, private consumption has increased by 0.4% over the past year, and this in turn has boosted economic development. In 2010, GfK is expecting to see stagnation in private household expenditure.
A large proportion of the German population did not experience any negative effects on their personal living conditions as a result of the financial and economic crisis last year. The labor market recorded surprisingly robust development in 2009, with an average of 3.4 million unemployed people and an increase of just 155,000 over the year. Around one million people were spared unemployment through short-time working. Private consumption was also supported by a historically low inflation rate of 0.4%. Falling prices, in particular for petroleum products and food, boosted consumer purchasing power, and the propensity to buy, as surveyed in the GfK consumer climate study, recorded a significant increase between January and September 2009. In an international comparison, German consumers proved themselves to be the optimists of Europe: while the propensity to buy in Germany recorded an average value of +21 indicator points in 2009, the same survey produced an indicator value of -26 points in Italy,
-40 points in the UK and even -45 points in France. The consumer climate in Germany was not adversely affected until late autumn. Growing fears of unemployment and climbing energy prices had a negative impact on the consumer climate in German private households towards the end of last year.
Modest consumption prospects for 2010
At the beginning of 2010, Germans are anticipating that the economic recovery will continue, albeit with less momentum. This assessment corresponds with that of the leading economic institutes. However, both consumers and experts are expecting conditions on the labor market to worsen this year. Price development is also being assessed less optimistically for the year as a whole, although retail sales promotions at the start of the year triggered a rise in the propensity to buy. Government economic stimulus packages such as the increase in child allowance and improved tax deductability for health insurance contributions will bring financial relief to consumers in 2010. However, the threat of slightly higher inflation and various other financial burdens as a result of additional health insurance contributions and rising communal taxes are also looming. "GfK is expecting a stagnation in consumption among private households, but not a decline,” concludes Professor Klaus L. Wübbenhorst, CEO of the GfK Group. The reductions in consumption are likely to become apparent in the second half of the year.
Fear of unemployment is weighing on consumption
"Unemployment and tangible fears of redundancy are triggering a significant change in consumption behavior. Affected households are reducing their consumption of fast moving consumer goods by approximately 10%,” explains Rolf Bürkl, a consumption expert at GfK Marktforschung. However, the threat of unemployment does not only mean that consumers are spending less, but also that they are putting more money aside for difficult times. This precautionary saving is also impacting negatively on consumption.
Last year, around 23% of German households were either directly affected by unemployment or had real fears of job loss. In 2010, GfK expects the number of these crisis-affected households to rise to around 27%, and estimates that a similar number of households are also at risk of being affected by the crisis this year. These households are trying to adhere to their product preferences when shopping, but are taking up more special offers. Around 46% of German households can be classified as crisis-resistant, which is 1 percentage-point fewer than in the prior year. Consumption in these households is not suffering as a result of the crisis, and is even being boosted further by cheap offers. At the same time, however, expectations of manufacturers and product quality are rising in this consumer group. Sustainability, fair trade and corporate social responsibility are increasingly influencing the purchase decisions of crisis-resistant households.
The crisis: winners and losers
The catering industry was most affected by the drop in private consumption last year. According to GfK’s estimates, out-of-home consumption fell by around 8% in terms of value. The crisis encouraged consumers to concentrate more on activities in their own homes, and the food retail sector benefited as a result. Although it recorded a sales decline of approximately 1%, this was primarily a result of its own price reductions. The positive effects of this greater focus on home, known as "homing”, were especially felt in DIY stores, where sales rose by 2% last year. The consumer electronics sector also reaped the benefits, retaining sales at the previous year’s level.
The homing phenomenon had a particularly positive effect on certain product groups. In comparison with 2008, around 7% more households improved their home environment with an open fireplace or tile stove. Sales of plants rose by 7%, and those of garden furniture and other garden ornaments climbed by 4%. The small domestic appliances segment also benefited, with a sales increase of around 5%. Capsule espresso systems, fully automatic coffee machines and cylinder vacuum cleaners performed particularly well, with sales growth of just under 14%, 9% and 6% respectively. Alcoholic drinks also recorded positive growth. The sales volume of Sekt (German sparkling wine) went up by around 2%, while spirits recorded an increase of 1% in sales volume and around 3% in sales value. Retailers benefited from the declining out-of-home sector.
The trend towards homing will also have an effect on consumption this year. GfK is anticipating out-of-home consumption to decline further, and sales in the food retail sector to remain more or less at the previous year’s level. Consumer electronics will receive an additional boost from the football Word Cup championships, and DIY stores are also likely to see continued positive growth.
Crisis changes the value orientation of consumers
In additional to its monetary effects, the financial and economic crisis is also changing the value orientation of consumers. Particularly in the area of financial services, blind trust has proven to be misplaced. Consumers have become more cautious as a consequence, and are less likely to make leaps of faith. However, they are also questioning their own thoughts and actions to a greater extent. "One of the most important conclusions consumers have reached can be summed up in the German expression ‘Greed devours the brain’. More thoughtful consumption, quality rather than quantity, giving up superfluous products and finding enjoyment in small pleasures are the new trends among consumers,” explains Wolfgang Twardawa, marketing expert at GfK Panel Services. This change in the value orientation of consumers opens up new possibilities. Socially responsible companies, traditional brands and local products have a particularly good chance of recording qualitative growth in 2010.
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