Emergence of recession diets

Emergence of recession diets

At 40 cents a serving, Kraft’s Mac-and-cheese is much cheaper than a restaurant burger. US consumers are lapping it up, leading to double-digit sales growth amid a recession.

Here is my hypothesis on consumers’ food behaviour. First, we don’t really need a recession for urban consumers to tighten belts. With 7% GDP growth, India is far from a recession. But news of job losses, slowing growth and likely salary freezes is enough for many consumers to cut back on non-essential foods, because bad news prompts us to save for a more uncertain future. Recession psychosis is more powerful than recession itself. Also, while overall inflation has declined, inflation of food items continues to remain above 10%. This will prompt cutting back on non-essentials.

As far as rural consumers are concerned, there may not be any major cutting back, because their eating is restricted to essentials. Also, sectors impacted by the current slowdown have hardly any direct impact on rural incomes.

What will urban consumers do? At the top end, dedicated premium consumers will continue to eat as they have done during the boom. Food consumes only a small percentage of their incomes, so where is the compulsion to change even if incomes drop a little? Also, because luxurious eating is an addiction, it is difficult for many of these affluent families to change eating patterns unless a current habit becomes impossible to support. If you are rich and have lamb cutlets for lunch ever so often, or love your weekend family brunch at the club, chances are you will continue to indulge.

One segment of the premium market which will see a change in dining behaviour is companies. Entertainment expenses are among the first costs to be axed when profits are under pressure. Conferences at fancy resorts and meetings at hotels (with buffet lunches) will now move back to offices (canteen lunches plus a sweet dish thrown in). Even essential entertaining will move from five-star restaurants to more economical options.

Among the upper middle and middle classes, I foresee a weakening urge to splurge, as consumers facing possible salary cuts or lower business incomes attempt to balance budgets or save for a rainy day. The first evidence of this will be less eating out, since each restaurant meal makes a large dent in the wallet.

One effect of less eating out will be increased sales of in-home food equipment. Waffle makers are being marketed to US consumers as a sensible purchase in today’s economic environment. It’s easy to make, the batter costs so little, the waffle maker itself costs less than two restaurant meals. So, in yuppie India’s kitchens, can mixers, dosa pans and sandwich makers be far behind ?

We will see downtrading on branded foods, be it tea, ketchup or noodles. Private labels in supermarkets will gain at the expense of brands. We will also see downtrading on unbranded foods, as consumers ponder over new value equations—why continue to buy long-grained rice at a 25% higher price, when shorter grained rice tastes just as good?

A marked preference for direct deals will set in. This will be fed by brands attempting to stimulate demand, particularly for upmarket food products. So, consumer offers (“20% more coffee in this pack"), limited period deals (“Buy one, get one free till 31 January") and fixed-outgo offers (“All you can eat for Rs99") will rule the roost.

We will witness an interesting trend—packaged brands reducing quantities but keeping unit prices intact to cover cost inflation yet prevent their increasingly cost- conscious consumers from downtrading. A famous brand of noodles has recently reduced pack weight from 100g to 90g, but has kept unchanged the price of Rs10 per pack. Consumers will mostly fall for this ruse—how many of us carefully observe grammages? And those who do, will perhaps silently tolerate the change, since it helps protect our budgets without forcing an unpleasant change.

Across segments, the glum prospect of a recession and job losses will enhance demand for inexpensive comfort foods which make us feel better. So, watch out for increased sales of chocolates and mithai. Many global chocolate giants were born during the Great Depression of the 1930s.

In general, people crave fatty, starchy foods in difficult times. These foods release feel-good endorphins in our bodies, which helps counteract the bad news around. So, pubs are likely to see increased sales of alcohol, though inexpensive beer will gain against fancy wines.

We cannot close this piece without reference to the great Indian wedding, where mountains of food get consumed. Here again, the aristocracy will continue to splurge on champagne and tiramisu weddings. But the rest of us will opt for moderation. Fourteen-course wedding menus are certainly less likely next year.

Harish Bhat is chief operating officer, watches, Titan Industries Ltd. These are his personal views. Your comments are welcome at theirview@livemint.com