Inside track by Rob Willock
Football, they say, is a game of two halves. And as a supporter of Crystal Palace I can testify that those halves are usually ‘bad’ and ‘worse’. 2012 is also promising to be a year of two halves. But all the signs suggest that those halves will be ‘bad’ and ‘better’.
In the first half, the Eurozone crisis and a weak labour market are threatening to undermine business and consumer confidence to the extent that the UK may experience an economic contraction in the quarters one and two.
Suggestions that a heavy snowfall might save us from officially sliding back into recession by deepening the affected quarter’s decline and deferring economic activity to the next show the extent to which people are clutching at straws. The weather will not save failing businesses and hope is not a strategy.
Unemployment is a real and present danger, and it is likely to get worse before it gets better. Already at a 17-year high of 2.62 million, and predicted to rise by another 150,000 by the middle of 2012, it is the strongest handbrake on the economy. And with 22% of 18 to 24-year olds not working, ‘first-time-buyer’ activity is limited – for pubs, restaurants and nightclubs, as well as cars, holidays and housing. A lack of money, or the fear of a lack of money, inevitably impacts on discretionary spending.
For pubs and restaurants, any negative impact on household income is immediately felt. According to the Office for National Statistics 2011 Family Spending report, both the amount and the proportion of money spent on eating and drinking out falls evenly and steeply with any reduction in gross income. Upper quartile earners spend around 10% of their total expenditure on eating and drinking out, compared to just 6% for lower quartile earners – representing a difference of around £70 per household per week.
The difference in spending on grocery (food and non-alcoholic drinks) between higher and lower earners is much less stark. Indeed no other category of household spending shows such proportional sensitivity to income.
Even those who are spending seem to be hooked on discounts. Mintel’s British Lifestyles Report reveals that “half of British consumers don’t like paying full price for anything”. They have become wowed by the voucher and seduced by the sale tag to the extent that it will be a brave retailer who tries to wean their customers off the cut-price habit.
Maybe the second half of the year will be the time to try to focus on growth. It certainly seems to hold more promise. The Queen’s Diamond Jubilee, the Olympic games, and The Euro 2012 Championships will all arrive as super-subs mid-year. And if inflation and unemployment are, by then, falling – as many predict –the cumulative impact of a bumper summer and more benign economic conditions could provide the stimulus for growth.
It’s such a buyers’ market at present (and will continue to be for the foreseeable future) that there will be some tremendous bargains out there for those with growth ambition and the finance to match. Look out for banks disposing of unwanted, balance-sheet heavy property assets to improve their liquidity.
It’s all to play for. Defend well in the first half and counter-attack in the second. There’s every chance of a few late goals and maybe even a winning season for those who get it right.
* I’m delighted to have joined M&C Report as Group Editor at such an interesting time for the licensed retail and foodservice markets. I am keen to hear your thoughts and feedback on the publication, the website, the alerts service and our events programme. My contact details are 01293 610295 or rob.willock@wrbm.com. Feel free to use them.
