Persistent inflationary pressures in Western Europe are forcing consumers to re-evaluate their spending priorities. While higher price sensitivity has led to a general reduction in non-discretionary spending, demand for affordable luxuries resists as consumers increasingly seek in-home luxuries and customised experiences. This article explores the primary audience for affordable luxuries and the specific product attributes consumers are willing to pay for.
Gen Z: The youthful consumer group that brings new business growth opportunities
Western Europe is currently among the regions with the highest inflation rates globally (10.2% in 2023 vs global average 6.9% according to Euromonitor International’s Economies and Consumers data). However, Euromonitor International’s Voice of the Consumer: Lifestyles Survey 2023 clearly shows that the impact of inflation is not uniform across generations, with Gen Z respondents being less concerned by the increasing cost of everyday items.
Although this difference can be attributed to the fact that 22.8% of Gen Z respondents in the region claim to be financially dependent on friends and family, the willingness of this generation to spend money on certain product features is sustained or is even higher now than in 2021 when inflation rates were significantly lower. Superior taste, convenience and personalisation have gained additional importance among younger consumers and, in such times of economic uncertainty, have helped redefine the value-price relationship across multiple industries.
Elevating the at-home experience
As the out-of-home sector continues to struggle due to the cost-of-living crisis and increased hybrid working, more consumers are opting to spend on in-home luxury instead.
In the food and beverage space, this has translated into higher demand for products of superior taste, a factor for which 22.7% of Gen Z are willing to pay more
Source: Euromonitor International’s Voice of the Consumer: Lifestyles Survey 2023
Ingredients of premium quality, innovative recipes and artisanal cooking methods continue to appeal to consumers, despite the higher price tag. Indicative is the success story of the premium baked goods manufacturer St Pierre Groupe in the UK. Despite the prevalence of private label in the market, the company has managed to increase its consumer base due to the versatile nature of its range, including brioche buns, rolls, croissants and waffles. Its offer is suitable for a variety of easy-to-make meals and snacks, helping consumers replicate the eating out experience at home.
Consumers looking to enhance their in-home dining experiences has also benefited small cooking appliances with air fryers being one of the categories seeing the greatest uplift in the last two years. As they reduce out-of-home spending on hot drinks, younger consumers continue to invest in a premium coffee experience at home, boosting sales of semi and fully automated coffee machines. Innovation in this space centres around smart appliances that offer both a premium and personalised experience. To capitalise on the increasing usage of smart appliances, German coffee making company Melitta has launched the Barista TS Smart coffee machine, which connects to the user’s smartphone through the Melitta Connect app. This allows the user to control and customise the entire process, from the ordering of ingredients poured into the cup to the individual amount.
Enhancing perceived value through personalisation
Addressing the desire for personalisation has proven to be a growth engine across multiple industries. In personal accessories, for example, Denmark’s brand Pandora, which offers personalised higher-end jewellery at affordable prices, has managed to increase its share in France and other Western European markets after appealing to younger consumers by offering its full range of customisation options through e-commerce.
The power of personalisation is also eminent in the beauty industry.
Over 50% of Gen Z claim to be willing to spend 10-50% more on personalised products which are based on DNA testing
Source: Euromonitor International’s Voice of the Consumer: Beauty Survey 2023
Leveraging this opportunity, September 2023 saw leading British health and beauty specialist Boots launch a free in-store consultation service, which provides skin care analysis and offers personalised recommendations. The retailer accompanied this service with the launch of a new Derm Solutions skin care range under its growing No7 brand, tapping into the growing demand for mass dermocosmetics.
The above examples reflect how current lifestyle trends have contributed to a redefinition of value. The success of affordable luxuries is a good illustration of the increased desire for elevated at-home experience and customisation among younger consumers. Balancing out budget and lifestyle trends offers a unique opportunity at a pan-industry level for companies to overcome the economic challenges and consolidate their relationship with Gen Z and millennials, the generations that are shaping future trends.
Read our report Affordability, Value and the Cost of Living: Where Do Opportunities Lie? for more in-depth analysis and strategic recommendations to navigate today’s business and consumer reality.