After looking at three recessions (1974-75, 1980-81 and 1991-92), there are a number of important lessons that we can draw.  

1. The effect of recession on most markets is typically fairly short; the short term imperative is survival

2. The longer term imperative is to plan for the “new” (post recession) market. The baseline assumption is for a continuation of pre-recession market development: typically towards increasing premiumisation and segmentation

Questions you should to ask to identify possible deviations from the baseline assumption:

• What is the likely nature of the recovery: vigorous or hesitant, with/without any “hangover” effects?
• How will the recovery be experienced by different groups within society; will there be “winners” and “losers”?
• Will government policy be consistent with pre-recession policy, or will there be a significant shift?
• What will the effects of the above be on public and private spending?
• Will any factors in the broader environment change significantly e.g. price/availability of raw materials; population migration; international trading framework?
• Will the thrust of underlying social attitudes and aspirations remain stable or will they change? Are there any signs of discontinuity in long term social trends?
• What are the most prominent developments in science and technology with potential for application over the next 5 years?

It is also worth analysing the current downturn as we have those previous. This recession also has its roots in problems with property and financial bubbles, and volatility on the oil markets, but was further exacerbated by the near collapse of financial system.

Initial indications of recessionary cycle suggest:

• Deep recession in 2009, with beginning of recovery in 2010
• Slow recovery thereafter as government debt has to be paid off and squeezes public and private spending
• Unemployment to rise towards the 3 million level

It is likely that the nature of recovery will be slow, hesitant, and constrained (closer to 1970’s than 1980’s/1990’s). The shape of post-recession Britain will be determined by responses across society, government and industry:

• Likely to be considerable variation of effects on different social groups, with the under-educated and under-skilled being increasingly disadvantaged
• Government will give greater emphasis on control/regulation; attempt to balance stability with dynamism
• Public and private spending will both be constrained; government policy will determine how the pain is spread across different income levels
• In the broader environment there will be a massive imperative for change, driven by depletion of energy reserves, global population growth and global warming; potential for conflict or co-operation within a shrinking globe
• The long term underlying social trends towards individual freedom and self expression that originated in the 1960’s have proved durable; expect them to continue
• Science and technology will be the most important dynamic force – continuing to evolve at an accelerating pace; the appliance of science to the major issues of resource depletion, population growth and global warming will be the defining feature of the post recession economy
• In terms of social attitudes, we should expect a pragmatic response from the UK public – knuckle down and get on with it – or in the words of a recently revived retro poster…

So with the benefit of hindsight, which businesses and brands are most likely to emerge as winners from any recession?

• Those who learn to work within a more regulated environment
• Those who deliver enhanced value to “cautious consumers” with less spare cash
• Those who operate in science-rich industries
• Those who find new ways to satisfy enduring consumer lifestyle aspirations

And in any recession who will be those who lose out? Those who focus exclusively on survival programs for the duration of the downturn and fail to look to the opportunities beyond…

Proving hopefully that whilst it’s always useful to look backwards, and forwards, we should never dwell too gloomily on the present!

This time we’ll be examining the most recent previous economic downturn in 1991-92. This recession was triggered by the effects of global slowdown as well as the collapse of the UK property bubble.

The nature of recovery was broadly similar to the 1980’s, but with :

• An earlier peak to unemployment (10% in 1993) and a lengthy hangover in the housing market – “negative equity”
• Job insecurity affecting white collar as well as blue collar workers
• Continuing de-industrialisation
• Growing force of globalisation (UK brewing industry acquired by global giants)

Under John Major’s government much of Thatcher’s policies were continued:

• Emphasis on market forces (e.g. NHS reforms)
• Tighter control of government spending
• Further loosening of regulation (e.g. Pub and shop opening hours)

However in marked contrast the majority of the populace were actually diverging from such policies. The British Social Attitudes Survey asked if “Government should increase tax and spend more on social welfare”. In 1983, 32% had agreed; by 1993 this figure had grown to 63%. Socially, British attitudes to relationships and sex “were characterised by pragmatism, common sense, tolerance and some respect for traditional monogamous ideals” (A. Marwick, ‘British Society Since 1945′).

The latter 1990’s were essentially a continuation of the late 1980’s: the UK was now regarded as a dynamic economy, in which enterprise was rewarded and foreign investment was welcomed.

OPPORTUNITY AREAS
Further potential of IT
Global capitalism (the deregulated City, demise of USSR, metamorphosis of China and India)
Multicultural Britain
Medical applications of life sciences
Affluent society (substantial rise in affluence since 1980)

STRONG GROWTH MARKETS AND INDUSTRIES

IT/COMMUNICATIONS
PC’s, Mobile phones, satellite and cable TV

GLOBAL CAPITALISM
Financial services, business services
Japanese car plants (Toyota, Honda)

MULTICULTURAL BRITAIN
Ethnic targeted products

MEDICINE
New/enhanced treatments and drugs

AFFLUENT SOCIETY
Premium products and brands

OTHER
Low price air travel
English premier league football
Sex industry (Ann Summers)

FMCG Innovation was very limited in 1991 & 1992. This was followed by a somewhat patchy recovery – strong in 1993, weak in 1994, strong again in 1995. Major themes in 1993-95 included old favourites convenience and snacking, but also new technology and aspiration – affordable aspiration and aspirational lifestyle.

So looking back at the last recession of the 20th century, how did Britain fare?

Pros:

• Reinforcement of dynamic UK economy
• Developing consumer demand is met effectively across a broad range of products and services

Cons:

• Continuing existence of “underclass” making only marginal economic/social contribution
• FMCG innovation was less robust than during 1980’s
• Government increasingly out-of-step with population

Next time we’ll try to summarise some of the useful lessons from history; and some pointers for the prospects on the other side of the current recession.

After 1974-5, it wasn’t long before the UK found itself in another economic downturn at the start of the eighties. Once again the combination of Oil price rises and global slowdown caused recession.

This time it took the form of a period of intense pain followed by strong rebound:

• Manufacturing production declines 15% in 1979-83
• Unemployment rises to a peak of 11% in 1986, declining rapidly thereafter
• Growth of GDP per capita averages nearly 4% in 1985-88

However a very different set of politicans were at the helm. Margaret Thatcher’s government focused on enterprise culture and the replacement of the post-war consensus:

• Market as key driver
• Privatisation and deregulation
• Individual enterprise
• Reduced role of state (and unions)

Thatcher memorably said that “there is no such thing as society”. Certainly the society was changing, with the emergence of ‘Yuppies’ widening the gap from a growing ‘underclass’. In 1986 a Gallup Poll found that 10% gave “getting rich” as their main goal in life. A report on Social Trends in 1988 cited that “inflation and unemployment are seen as ever present threats; a sizable minority from the lowest income groups were sceptical that any general improvements in the economy would benefit them”.

However the latter part of the 1980’s were favourable to UK business: the unions were tamed, the workforce was energised by the “cold bath” of 1980-81, deregulation gave business its head, and government coffers were bolstered by tax incomes from North Sea oil.

Key growth markets and industries in the late 1980s:

NATURAL RESOURCES
North Sea oil

IT/ELECTRONICS
Computers, office machines, telecommunications equipment

ENTERPRISE ECONOMY
Business services (eg. Management consultants)
Science parks and industrial parks
Shopping centres

POLARISING SOCIETY
Premium consumer goods (eg. Beer, cars)
Discount grocers (eg. Kwiksave)

OTHER
Pharmaceuticals
Sports equipment (eg. Running shoes)

Innovation in FMCG was focused around austerity,value, and relatively simple offers in 1980/81; thereafter there was a rapid reversion towards fundamental drivers such as convenience, snacking, new technology and affordable aspiration, while health became an important concern. By 1986/87 aspirational lifestyle had re-emerged as a strong force.

So having revisited the eighties, let’s return to our recession scorecard:

Pros:
Energising of UK Plc
Strong response to opportunities
Robust innovation in FMCG

Cons:
Loss of output as a result of substantial unemployment
Disenfranchised “underclass” make limited contribution to economy and society

Next time we’ll look at the recession which followed a decade later in 1990-91.

35 years ago the UK was also in the depths of a downturn, caused by the oil price rise and global recession; plus the collapse of property and stock market bubbles.

This made for a slow and uncertain recovery:

• Per capita GDP growth averaged 2.5% in 1976-79
• Sterling crisis forced UK to go to IMF in 1976
• Unemployment remained high throughout late 1970’s (“high” by historic standards – at 5% it was low by modern standards)

Harold Wilson’s Labour Government made a last ditch attempt to maintain the post 1945 neo-Keynesian consensus through:

• “Social contract” with trade unions
• Wage and price restraint
• Government intervention to support faltering industries

The effects on the society of the time were to stall the aspiration for progress which had grown over previous years – Gallup Poll surveys tracked the decline of economic confidence compared to 1960’s. A 1977 survey by New Society found that a clear majority wanted to work “only as much as necessary”, and to have “a pleasant life” – most were content with their current income level.

Following the recession, the period 1976-79 was one of on-going economic weakness and uncertainty which did not favour UK business, despite its recent EU membership:

• Weakness of public services (eg. NHS)
• Potential of computers and other electronics
• Continuation of social aspiration trends of 1960’s (home of one’s own, new experiences, self-expression)

Key growth markets and industries in the late 1970s:

NATURAL RESOURCES
North Sea oil and gas

EU EFFECT
Imported cars
Wine

ELECTRONICS
Computers and electronics

PUBLIC SERVICE WEAKNESS
Private medical insurance

ASPIRATION
Foreign holidays
Foreign restaurants
DIY (based on increasing home ownership)

OTHER
Commercial radio

More importantly for marketers, innovation in FMCG, as recorded by Supermarketing magazine’s annual survey of grocery buyers, demonstrated a slightly delayed response to recession (austerity lines introduced in 1975), followed by progressive recovery and the re-assertion of underlying trends such as snacking and slimming. Some major product launches following recession:

So onto our recession scorecard for 1974-75:

Pros:

• Employment maintained at relatively high level

Cons:

• Limited energising effect on ‘UK Plc’
• Weak response to economic challenges and opportunities

In the next post we go forward in time to the eighties to see how the next decade’s recession would treat the UK.

Enough of today’s doom and gloom! We decided to take a look back at the past to see the effects of previous recessions and see what lessons we could draw for now and the future. 

In the second half of the 20th century the UK experienced three recessions: 1974/75, 1980/81 and 1991/92. Each of these followed a typical pattern:

• 2 years of decline in GDP and consumer spending
• 1 year of recovery, followed by “business as usual”
• Substantial rise in unemployment – pain concentrated on an unfortunate minority

And could mainly be attributed to causes such as “overheating” (e.g. asset price bubble) or key raw material price hike (e.g. oil).  

Taking a long view of these past downturns has let us identify the 4 P’s of Recession:

• PAUSE: In long term economic growth and associated market developments (e.g. Premium segments stop growing)
• PRESSURE: Cull of weak/struggling economic enterprises (stimulus for restructuring)
• PAIN: Unemployment and fear of unemployment engender more cautious consumer attitudes (aspiration retrenchment)
• POLITICAL RESPONSE: Either “change” or “more of the same”

In the UK the recession of 1974/75 and 1991/92 produced a “more of the same” response; the 1980/81 recession was associated with a “change” response.

However, while recession produces a short-term effect on markets, this effect is typically small when viewed against the longer term perspective.

Take for example the numbers for holidays taken abroad by UK citizens:
1971 – 4.2 million
1981 – 13.1 million
1991 – 20.7 million
1998 – 32.3 million

In a similar manner, the evolution of underlying social trends is not greatly influenced by recession, as exemplified by the incidence of lone mothers (as % of all families with dependent children):
1971 – 7%
1976 – 9%
1981 – 11%
1986 – 13%
1991 – 18%
1996 – 20%

Overall then, we can compile a ‘Recession Scorecard’ – to remind us that it’s not always bad news…

Pros:

• Elimination of weak enterprises
• Corporate re-focus and re-structuring
• Limited effect on long-term trends

Cons:

• Short-term “freeze” in economic growth and consumer aspirations
• Extreme pain for some consumers (the unemployed)
• Cautious mindset (corporate and consumer) is unhelpful to business development in short-term

In the next instalments of Doomwatch, we’ll be looking at each of these former recessions in turn – their causes, their impact on consumer behaviour and the opportunities created for business and innovation.