Research about the new economy is in vogue, but what about the new consumer? Changing demographics a...
Research about the new economy is in vogue, but what about the new consumer? Changing demographics and lifestyles are set to cause dramatic shifts in consumer spending, with various sectors poised to profit in the next 10 years.
Britons spend 38% more in real terms than they did 30 years ago. As people get richer they spend a smaller proportion of their income on necessities like food, and proportionately more on luxury items such as leisure goods and services. Indeed in 1999 we spent more on leisure than on food and drink for the first time since records began, three times more than in 1968. In general, greater wealth has been responsible for the huge shift away from spending on goods to services. Household expenditure on services has risen to 48% from 28% in 1963. In fact we have become such a service-led economy that there are now more people employed in UK curry houses than in heavy industry.
Though we are much more wealthy than 30 years ago, we only have 5% more spare time. With consumers generally cash-rich but time-poor, they are more exacting about the quality of the experiences they buy.
As increasing numbers of women are being drawn into the workplace (two-earner households have doubled in the last 20 years to about 60% of couples with children) labour saving appliances and products should continue to proliferate. Despite greater equality for women, they still do most chores at home. In fact, women will need extra help more than ever, as demographic changes may mean an extra burden of caring for elderly relatives in addition to children and men. Greater numbers of working women have contributed to the rise in demand for domestic help, up four-fold in the last 20 years. No wonder Unilever is now moving into domestic service provision.
Time-saving goods and services will also be in demand due to the increasing number of single person households. By 2010 these will become predominant due to a projected fall in marriage, accounting for almost 40% of all households compared to 29% now. Tesco saw a 63% increase in the sales of meals for one in the past year, also helped by fewer families eating together. Spending on takeaways has also surged, up 15% in 1999. Companies that can tap into the preferences of single people look set to profit in the next decade. The increase in singletons will dramatically change leisure and entertainment which, at present, tends to focus on families and couples. The growing number of single households will also increase the demand for homes. Government estimates suggest between 4.4 and 5.5 million additional homes will be required by 2015 - good news for property developers. With more women living alone, with more financial power, personal security may become more important, with video surveillance and other safety services in demand.
Over the longer term, population ageing will cause the biggest change in consumer preferences. Early retirement for those who can afford it will mean unprecedented numbers of people who have lots of money and lots of time. The World Tourism Organisation forecasts that global tourism will double within 20 years. Relaxing world cruises may attract oler travellers with time to spare, but younger, time-poor travellers, will look for maximum thrills in minimum time. Adventure holidays will increase and exotic, far-flung destinations will be even more sought-after.
Innovation is the flip-side to changing consumer preferences. However much you might have wanted one, you couldn't buy a mobile phone, a DVD player or a twin-pot yoghurt before they were invented.
The increasing proportion of family income spent on leisure is caused partly by new technological advances. Spending on TVs, videos, computers and music systems has quadrupled to £8 per week for the average household over the past 30 years. Quality is key here, with consumers willing to switch to a better product, despite its greater cost. Expenditure on mobile phone accounts rose by 25% between 1998-9 and now that mobiles are mutating into internet access devices, spending is set to continue increasing apace in the next decade.
So far, the main stumbling block for and internet advancement has been the cost and speed of digital information transfer. But broadband provides a solution, carrying huge amounts of information swiftly and cheaply. There will be more scope to create engaging and entertaining web sites. Online shopping may become so visually seductive, that people will choose it not just for convenience, but for entertainment.
The Austrian economist Schumpeter showed that economies were constantly being disrupted by waves of innovation. These waves are now much shorter than they were, suggesting that the distinction between old and new economy might be somewhat misplaced. Mobile phones and the internet may be surpassed in 20 years by the next big thing. If the source of competitive strength is to change more frequently, as Schumpeter's waves suggest, companies' ability to adapt will be increasingly essential to their survival.
In an ever-changing world, certainty is highly sought-after. We have a pretty good idea that consumers in 2010 will be older, wealthier and more likely to be single than we are today.
That gives us a reliable guide as to how spending patterns might change in the next 10 years and which sectors should profit.
Keith Wade is chief economist at Schroder
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