Gf K CEE How is current crisis impacting

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 1 How is current economic crisis impacting consumer trends? Vilém Hübner Retail In Detail Conference, Sofia, 11 November, 2009 Growth from Knowledge

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner The Agenda 1 Where are we now? 2 Consumer trends in tough times 3 What comes after the crisis is over? November 2009

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 Two important Anniversaries: The Berlin Wall fell down on November 9, 1989 3 . . . and the “Palace Revolution” started changes in Bulgaria just one day later

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 Two Important Anniversaries: The Big Economic Crisis broke out in October 1929 4

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner The Agenda 1 Where are we now? 2 Consumer trends in tough times 3 What comes after the crisis is over? November 2009

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 6

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 But consumers perceive the crisis strongly! 7 Is your household’s financial situation better, worse, or about the same as it was 12 months ago? Source: Gf. K Consumer Confidence Barometer, September 2009

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 How specifically? 8 What is your household’s present financial situation? Source: Gf. K Consumer Confidence Barometer, September 2009

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 Differentiated Recession Depth and Recovery Paths 9 GDP Growth in CEE countries WIIW Forecast for 2009 -2011 Source: WIIW – The Vienna Institute for International Economic Studies, July and November 2009

Gf. K CEE Vilém Hübner How is current crisis impacting consumer trends? November 2009 Milestones of the crisis Slovenian perspective Aug 2007: First indications of crisis in the US as result of the housing price crash Dec 2007: US economy in recession “Is crisis knocking at our door? ” Jan 2008: Europe still optimistic, most CEE economies are showing strong growth! Jul 2008: Recession also in Europe? “German economy has been decreasing over last months. ” Aug 2008: Recession in Europe expected but for some in CEE hard to imagine! “Atmosphere in Slovenia cautious , yet not pessimistic. ” Sep 2008: Slovenia jeopardized by recession “The dominoes are falling. ” Oct 2008: Crisis is visibly impacting Slovenian economy “Recession has come, what to do now? ” “A crisis we have not seen before!” Nov 2008: Eurozone fell officially into recession Mar 2009 Slovenian statistics also confirm recession “The most negative forecasts are getting true. ” May 2009: US economy should return to growth already this year “But recovery in 2010 will be slow and painful!” Aug 2009: Germany and France report slight growth in Q 2 Nov 2009: US unemployment highest in last 26 years 10

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 From all our concerns - which are the most urgent ones? Example Slovenia 11 The Slovenes are: pesimistic the worse is still to come concerned about future uncertain and worried suspicious sad, compassionate yet distanced Compared to Croats and Serbs, Slovenes are the most confident about keeping their jobs, also crime rate is ranking lower! All three countries are sharing fears of higher prices and a lower living standard. Source: Gf. K Slovenija

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 Croatian Households have to adjust their consumption habits 12 My salary is delayed or reduced (31%) I have to use my savings from the past (40%) We can still save something (20%) We hardly make our ends meet (35%) We are falling into debts (10%) I was sacked from my job (13%) Source: Gf. K Croatia

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 . . . But won’t give up all their treats 13 Consumption to be reduced / postponed: Consumption to be reduced only slightly: No savings planned on: “We are taking care about electricity in our house, that lights are switched off, to avoid unneeded phone calls. Especially if you have two teenaged kids, they are all the time on the phone. “ “We are living hard, for the same money we get as salary you can buy much less. We can afford less and as far as fun and leisures we are on the survival mode. ” “Until a year ago we went for skiing every year. Never to the most fashionable ski resorts, these were just normal places. But for the time being it’s over, we can’t do that this year. ” Source: Gf. K Croatia

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner The Agenda 1 Where are we now? 2 Consumer trends in tough times 3 What comes after the crisis is over? November 2009

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 Trend 1: Switch to saving money? 15 In the next 12 months are you expecting to save more or less compared to the last 12 months? Save more 2008 2009 1/3 of all Slovenes will also this year succeed to save some money but the expected amounts are visibly lower than last year! Other Adriatic countries are significantly more pessimistic regarding ability to save – less than 1/5 of Serbs, resp. ¼ of Croats. Save less Traditionally, Slovenes have been saving for hard times, third age years and children. Compared to last year, saving for kids is much more popular! Source: Gf. K Slovenija

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 Trend 2: Are we giving up luxury? 16 Which items are the most attacked? This year Slovenes declared to give up mainly “luxury” items. Bosnians go a similar way: leasures and hobbies are given up first. Holidays, alcohol and sweets follow. They won’t renounce coffee! Croatians are more hedonistic: rather saving on food than on personal care! Also hobbies are hardly given up. Serbs want to mainly control spendings on food and beverages. their The good question is what is perceived as luxury today? Source: Gf. K Slovenija

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 What would Consumers Expect from Producers or Retailers? Example Croatia 17 “They could attract us by some new products, by new packaging, price promotions, free product samples. Maybe some promotion packages. ” “Retailers know how to do, they are bombarding us with promotion flyers. This helps me as I really buy in promotions. ” “ They should not decrease quality of their products when lowering the price – means cheaper products but same quality. “ “I love product samples and gifts. This cheers your really up, promo packs like 2+1 or products you buy often. “

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 Trend 3: Postponing big purchases Was there also a housing bubble in Eastern Europe? 18 4 Q 08 1 Q 09 2 Q 09 Source: Czech Statistical Office, Statistical Office of Slovakia 4 Q 08 1 Q 09 2 Q 09

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 Trend 3: Postponing big purchases? European Consumers Bought 6% Less New Cars 19 Despite massive government incentives to consumers in several countries (up to 2, 500 € “eco-rebate” in D) YTD sales only up in Germany, F, A and PL. In UK, Oct sales +32% (4 th month of growth sustained by the “Scrappage Incentive Scheme”), but YTD -12% ES -28%, NL -25% Oct YTD, CZ -14% (Oct, no government incentives), SK -36% (Oct), -3% YTD strategy: In SLO new car sales in 2009 25% more rational use, maintenance & no. of cars in Slovene households Car insurances 4% Source: Associations of car producers

Gf. K CEE Vilém Hübner How is current crisis impacting consumer trends? November 2009 Trend 3: Postponing big purchases? Price erosion contributes to value fall of Technical Durables Gf. K TEMAX West EU -8, 5 Selected countries: Austria Germany -5, 4 Spain -15, 4 UK -5, 5 Czechia -7, 4 Poland -8, 4 Romania -40, 4 Russia -32, 7 Ukraine Source: Gf. K Retail and Technology, Western Europe Gf. K TEMAX Western Europe: AT, BE, CH, DE, DK, ES, FI, FR, GR, IT, NL, NO, PT, SE, UK -0, 2 France Y-Y trend Q 1+Q 2: -8, 5% -3, 4 -40, 9 20

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 Food markets remain a stabilizing factor Central and Eastern Europe 21 Source: Europanel Consumer Index, Q 2 2009

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 Spendings for Food expected to Rise Example Bulgaria 22 Source: Gf. K Bulgaria

Gf. K CEE Vilém Hübner How is current crisis impacting consumer trends? November 2009 Trend 4: Of course, price is (also) important Example Slovenia 23 Key factors for selection of your shopping place • 8 % Discounters gained importance 6% (07/08) Discounters increased shopper penetration (07/08) 16% Slovenes shop there at least occasionally, 9% every month. • 5% For 61% of Discounter shopers the only or main reason is lower price • 8% • 4 % 4% more shoppers decide for a retailer who rewards their loyalty! Source: Gf. K Shopping Monitor, Slovenia

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 When Consumers go for a better price: Shopping abroad is “in” again 24 Croatia § The last year when Croats massively travelled across the border to do their shopping was 2000. Then nearly 1/3 of all HR households did so. § This year the crisis let this phenomen be re-born: almost 1/5 go shopping abroad regularly. Slovakia § Introduction of Euro in Jan 2009 removed exchange rate risks but depreciation of currencies in neighbouring countries made everyday purchases abroad visibly cheaper in the 1 HY 2009. § Money drained off from Slovak retailers was estimated to 400 m €.

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner The Agenda 1 Where are we now? 2 Consumer trends in tough times 3 What comes after the crisis is over? November 2009

Gf. K CEE Vilém Hübner How is current crisis impacting consumer trends? November 2009 When is the crisis over? What comes then? 26 How long will the economic crisis in Slovenia take? Up to 1 year 34% 2 years or longer 57% The Slovenes are much more optimistic than Bosnians and Croats, comparable to Serbs! 20 XX What else can we expect in the future? 2009 - higher unemployment - lower incomes - diffusion to additional economic segments and social groups - postponement of purchases, more cautious spendings, increased price sensitivity… social unrest, wars, illnesses, depression, suicides, fall of birthrate. . . closer and more genuine interpersonal relationships + orientation on non-material values + higher esteem of property + Source: Gf. K Slovenija

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 Retail development in Bulgaria is entering a new phase. . . and it is the Consumer who decides about success 27

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 New retailers will create a really competitive environment with increasing promotion activities Consumer Attitudes to Retailer Promotion Leaflets: Bulgaria Source: CEE Shopping Monitor 2009 28

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 New retailers will create a really competitive environment with increasing promotion activities Consumer Attitudes to Retailer Promotion Leaflets: Czechia Source: CEE Shopping Monitor 2009 29

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 What can you do? 30 Open your eyes wide. . . listen to consumers. . . and offer more than you are expected 1 You can forget most of what you have known about consumers so far. Recession is a time of change. An your consumer has certainly changed! Listen to him and learn him in the new light. 2 Have no illusions that price is not (the most) important. Rather ask yourself what better than your competitors you can offer for the price. Find your way how to differentiate! 3 Segment your buyers! It is not a short-term investment. But new behavioral patterns will not simply disappear tommorow. Sources: Rhodes, D. I. , Stetler, D. 2009. Seizing advantage in a downturn. Harvard Business Review. February. Taylor, E. 2009. Going against the grain. Research World. January. CIES -The Food Business Forum 2009. Top of Mind 2009. January. www. ciesnet. com

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 What can you do? 31 Open your eyes wide. . . listen to consumers. . . and offer more than you are expected 4 There is certainly is not enough time to for preparing a brand new strategy. If you wait someone else takes the opportunity to reply to the new needs of consumers. But before you invest into something new make sure it is not just you who wishes it! 5 Priority should be to retain existing customers! If they need a reason to stay with you, reward their loyalty. What is a relevant reward you have to ask them. 6 And now something for your bosses: Now it’s definitely not time to reduce your marketing budget! After the Marketing Science Institute, increased promotion in times of recession has a bigger impact on performance than in the time of growth. Sources: Rhodes, D. I. , Stetler, D. 2009. Seizing advantage in a downturn. Harvard Business Review. February. Taylor, E. 2009. Going against the grain. Research World. January. CIES -The Food Business Forum 2009. Top of Mind 2009. January. www. ciesnet. com

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 Instead of Conclusion 32 “A producer should adjust (to the new situation) short-term and find the comparative advantage he has. Then he could end up as a company or a brand which increased market share in his industry or market segment. ” Lana Popović, Managing Director, Coca-Cola Adria “. . . In this period it’s key to understand consumers. Exactly now we need information to estimate their future behaviour and, more important, to be able to influence it in the most appropriate way. So our budget in the information segment can only rise. ” Lana Popović, Managing Director, Coca-Cola Adria

Gf. K CEE How is current crisis impacting consumer trends? Vilém Hübner November 2009 33 Thanks for your time! Vilém Hübner vilem. huebner@gfk. com Growth from Knowledge