専修大学社会科学研究所 月報

No.6532017年 11 月

doi.org/10.34360/00009096

The Nature of the UK Household Consumption System
Underlying Factors 1

Prof. Kenji Tokuda

Household consumption represents 60% to 70% of the GDP of a country and is a
key factor in the national economy.

The nature of consumptions and the factors affecting

consumption are a complex system.

In this paper, consumption is analyzed as the resultof mixture of demographic, economic, household and retail factors.

UK household

consumption did grown at a slow but steady pace, due to a modest growth and an increaseof population.

However, more recently, there has been lower growth, higher prices,

greater use of credit cards and larger mortgage repayments on housing.

Effective

prescriptions for these conditions include key policies, such as labor distribution, social
security and even some price controls.

These results suggest ways to help the current

situation in Japan.
Key words: demography, economy, CPI, social class, middle class, purchasing power,
consumer behavior, household budget, discounter, retail hierarchy,

1 The research fund required to write this paper was provided by Senshu University in 2014～2015
during my sabbatical term in the UK, at the University of Reading. I am very grateful for theirvaluable support for this research. I could not have written this paper without the help of Mr. Foot, aformer senior lecturer of the University of Reading, who checked the content and assisted my researchin the UK. I am grateful for his kind and indispensable support.

－ 1 －

1

Introduction

1.1

An awareness of the problem.
Household consumption is a daily purchasing activity with buyers and sellers,

exchanging money for goods and services.

The sum of those micro activities results in avery large household demand, which affects the size and growth of GDP.

For every sectorof household business, especially the retail sector and the policy sector, it is difficult toforecast the behavior of consumers.

For a household, how do they organize theirconsumption?

For a business, how do they make and plan their marketing andmerchandizing?

For the policy sector, how do Authorities manage the factors affecting

consumption?
The purpose of this paper, is to shed light on the household consumption system, andin particular, why there are fluctuation of consumption and consumer behavior.

This

study analyzes the similarities and differences in consumption between the UK and Japan,
by way of an empirical study and statistical data analysis.

Ultimately the goal is tosuggest ways for revitalizing Japanese consumer consumption and its stagnant retailsector.
1.2

The consumption system.
Fig 1

Consumption System- Interrelation of Sectors-

Household Number
Demography
Population PyramidSize & Structure
Consumer Behaviour
MarketHousehold(consumer)

Expenditure
Consumption
Distribution

Tax

Marketing & Merchandising
Retailer

Benefits

Added Value

PricesGDP
EconomyGovernment－ 2 －Channel

ProducerIn this paper, consumption is studied as an aspect of economics.

It focuses on therelationship between expenditure and income in macroeconomic terms, and therelationship between prices, expenditure and welfare in microeconomic terms 2 .
consumption system is a typical cyclical chicken-and-egg issue.

The

Consumption is an output

of a household, but simultaneously for retailers it is an input they must respond to in orderto make revenue and profit for their business.

Some parts of the output is, as an input,

distributed into the household sector (Fig1).

There are two aspects for household

consumption.
income.

At a micro level, every household can spend according to their disposable

At a macro level, the sum of total expenditure is the quantity of consumption.

From a different aspect of demography, actual household numbers and the population
pyramid age composition, will define the size and nature of total consumption relating tomarket size and its character.

On the other hand, each household's expenditure is

restricted by each income level.

Also, income levels are restricted by current GDP per

capita, tax, benefits and the price of goods.
In the market sector, the price mechanism functions to link household demand toretailer's merchandise, purchased from producers.

Retailers will pursue an expected

revenue and profit by strategic marketing and merchandizing.

Retailers will analyze thenature of consumer behavior in order to decide on actual marketing and merchandizing
strategies.

Thus, consumption is a chicken and egg activity.

another angle, it is a result.

It is a cause, but fromIn analyzing the consumption system, these chicken-and-egg

interrelationships must be untangled and clarified into a clear causal dependence.
1.3

Consumption is the last economic activity of a household.

*Adam Smith 'The Wealth of Nations, Book II, Chapter II, p.329, para. 106.'” Consumption is the sole end and purpose of all production; and the interest of the
producer ought to be attended to, only so far as it may be necessary for promoting that of
the consumer.”
Consumption is the management of making ends meet between income and the costs
for maintaining everyday life.

This depends on how much revenue and social benefits ahousehold receives, and how much tax and repayment they pay.

Households must

consider 4 factors when controlling their household budget, consumption, saving,borrowing and paying tax (Fig2).

2

Angus Deaton From the New Palgrave Dictionary of Economics, Second Edition, 2008

－ 3 －

Fig 2

Household budget management
Market (Goods & Service)

Public (Tax & Benefits)

Tax Payer

ConsumerHouseholdBorrower

Saver

Market (Loan)

Market (Investment & Deposit)

To make this clearer, it is helpful to analyze the structure of the household budget
through the household income/expenditure formula.

Over time and with generation

changes, the position of households will change.

(Income-Expenditure)+(Benefits-Tax)+(Deposit-Saving)+(Loan-Repayment)＝0

Fig 3

Situation of household budget of changing generations

Income-expenditure+ Pension-Tax+ Loan-repayment+ Withdraw-saving

=0

Young

small+

small△

00=0

Middle+△small △

△

=0

Old

△

+

0

+

=0
=0

Income-expenditure+ Pension-Tax+ Loan-repayment+ Withdraw-saving

Youngsmall consumer

small tax payer

0

0

=0

Middleconsumertax payer

even

saver

=0

Old

consumerpension receiver0

withdrawer=0This formula shows some implications of household behavior (Fig3).

An identicalequation would be that if (Benefits － Tax), (Deposit Withdrawal － Saving), (Loan －Repayment) are all minus, then (Income － Expenditure) must be plus, with
Income>Expenditure.

However, an alternative scenario might result in Income <Expenditure, which would indicate that such a household should cut its expenditure inorder to correct the imbalance.

For example, if a household is suffering from a lower

income, with other conditions being equal, it must focus on a reduction of its daily
expenditure.

As a consumer, the household must cut its spending but may still demandcommodities with high quality at a lower price.

In consumption theory, there is an Inertia

Effect, which means that generally a household will try to maintain their living standard,even when their income decreases.

－ 4 －

1.4

The consumer.

Consumers have to live under the current social structure and economic situation.
Consumers live through social changes and economic changes. Which class do they
belong to? What occupation have they selected? How much do they receive in wages?
How much do they pay in tax and receive as social benefits?
credit?

How much do they borrow on

These depend on the current situation and social system, and any social andeconomic changes cannot be resisted by themselves.
Consumption is the sum of all consumer behavior.
Total consumption is the aggregate consumer demand which accounts for about 60～
70% of GDP.
household.

Total consumption, is equal to the sum of the purchasing power of every

In this paper, total household purchasing power will be considered to derivefrom 3 classes, low, middle and high.
income class.

The largest and most influential class is middle

An analysis of all aspects of these middle class consumers is crucial for

retailers.
Consumer behavior will be influenced and changed by changes in the economic and social
environments.
Economic trends.

The most crucial environment for a household are economic trends,

which define the size of their total purchasing power. So, it is important to study changes in
economic
480size and growth rates which will lead to changes in the size of per capita
2 income,
and disposable income (Fig 4).

1.5

460

Fig 4

440

1

GDP qurterly growth and levels

0.5

420

0

400

-0.5
-1

380

-1.5
360

-2

340

Levels (£ billion), chained volume measure, seasonally adjusted
Growth (%), chained volume measure, seasonally adjusted－ 5 －2017 Q1

2016 Q3

2016 Q1

2015 Q3

2015 Q1

2014 Q3

2014 Q1

2013 Q3

2013 Q1

2012 Q3

2012 Q1

2011 Q3

2011 Q1

2010 Q3

2010 Q1

2009 Q3

2009 Q1

2008 Q3

2008 Q1

2007 Q3

2007 Q1

2006 Q3

2006 Q1

2005 Q3

2005 Q1

2004 Q3-2.5

Source: Office for National Statictics

Demographic change.

Another crucial factor is the change of population, especially the

number of households (Fig5).
households.
group.

The total purchasing power is average income ×number ofA change in the population pyramid will affect the characteristics of each

Demographic changes will define the structure of total purchasing power, as well

as a division into the purchasing power of the different groups.
Fig 5

Age distribution of the UK population, 1976 to 2046 (projected)

0 to 15 years (%)

16 to 64 years (%)

Aged 65 and over (%)

UK population

24.5
20.5
20.7
19.2
18.9
18.8
18.0
17.7

61.2
64.1
63.5
64.9
63.1
60.7
58.2
57.7

14.2
15.4
15.9
15.9
18.0
20.5
23.9
24.7

56,216,121
56,683,835
58,164,374
60,827,067
65,648,054
69,843,515
73,360,907
76,342,235

1976
1986
1996
2006
2016
2026
2036
2046

Source: Office for National Statistics
Notes:
1. Population estimates data are used for 1996 to 2016, while 2014-based population projections are used for 2026 and2036.

Consumer change.

The spending power of different consumer groups, depends on theirincome level, their age and their home region. Households are grouped by socio-economic
class. Income class is divided into low income class, middle income class and high income
class.

The changes in the number in each group will affect the size and characteristic ofconsumer expenditure.
Retail change.

The retail sector must respond to the changes of the consumers, but any

changes in the attitude of the retail sector, could in turn influence the attitude of theconsumers.

In turn, the retail sector can be divided into low, middle and high category

retailers, which may fluctuate in accordance with the level of consumption.
In conclusion consumption, total or by class, would be expected to expand or to
decline through changes to these 4 factors.
1.5

Hypotheses to be assessed through Empirical Study and Data Analysis.

－ 6 －Middle class purchasing power.

Has there been an expansion or decline in the purchasing

power of the middle class, the most influential majority, as economic conditions havefluctuated? When comparing the UK and Japan, there are some interesting similarities
and differences in terms of economic and demographic situations. Despite similar per
capita income level, the UK population is increasing, while that of Japan is decreasing,which is a big demographic problem for Japan.

The differences of demography could

influence the consumption situation, especially that of the middle class.

However, becauseof similar living standards, there are many similarities in consumer behavior.

The biggest

difference in social structure is the existence of large numbers of immigrants into UK
society. What does the high immigration into the UK mean in terms of consumption?
Fig 6

Demographic Shift

20000
18000
16000

35003, 14755

Household number

14000

32881, 14200

12000

2013

10000

2015
2013ave

8000
22455, 8886
20313, 9050
6000

2015ave
58943, 3564

4000
57349, 3590

2000
0
20000

25000

31928, 033779, 0

30000

35000

40000

45000

50000

55000

60000

Income levelFig6 shows the shift of class purchasing power from 2013 to 2015, using household
number×average income. The horizontal axis is income level and the vertical axis ishousehold number (000s).

The center of the horizontal axis is the average income of eachclass, low, middle and high.

This chart shows that in the UK the total purchasing powerof each class, has increased with a small increase of average income and an increasehousehold numbers.

The growth of consumption in the consumer market depends on thegrowth of income and the increase of population.
borderline of each class has increased.

Also, this chart shows that the

In conclusion, the graph shows that thepurchasing power of low class and middle class has increased but that of high class has－ 7 －slightly decreased. This may fundamentally affect the situation of each category of retailers,
which are often classified according to the classification of income class.
A consumer layered society.

It appears that retail shops differ by class.

According to Ms.

Kate Fox, a social anthropologist, the different classes can be distinguished according totheir different shopping patterns 3.
“The upper-middle classes buy food in the expensive but high-quality M&S food halls,
and will also happily buy M&S underwear and perhaps the occasional plain, basic item,
such as a T-shirt, but will not often buy any other clothes there, except perhaps for children
The middle-middle classes also buy M&S food, although those on a lower budget
would not do their entire weekly shop there. They complain a bit (to each other, not toM&S) about the high prices of M&S food, but tell themselves it is worth it for the quality,and buy their cornflakes and loo paper at Sainsbury’s or Tesco.
The lower-middles and some upwardly mobile lower class workers buy M&S food,but usually only as a special treat: for some, particularly those with young children, an
M&S ‘ready-meal’ is an alternative to eating out at a restaurant, something they might
have as an indulgence, maybe once a week.”
Formerly, it was thought that this layered structure was influenced by social class.
Now social class is virtually identical to economic class, and class is now calledsocio-economic class.

The combination of social class with economic class has a strong

effect on the stability of a class structure.

The socio-economic class 4 structure (Fig 7),

shows income and source of income by socio-economic classification of household.
Fig 7socio-economic classification of household

Fox, Kate. Watching the English: The International Bestseller Revised and Updated. Hodder &Stoughton.
4 National Statistics Socio-Economic Classification (NS-SEC).
3

－ 8 －

In this kind of analysis, micro household-data, including individual occupation andincome could be used.

However, this information is not available and so an aggregateddata set by SEGs (Socio-Economic Groups) is used.

This is formulated by the UK Officefor National Statistics and includes average income and occupation of each socio-economic
group.

For the purpose of this study, households in the SEGs of Fig 7 are assigned to oneof the classes, low, middle or high.
Low-income class.
UK in 2015.

This class covers SEGs 8, and represents 33% of all households of the

Most of these households are in poorly paid insecure occupations, or retired,but without an occupational pension, although it also includes the unemployed andstudents.

Their average income per year is under £25,000.

Middle-income class.

This class is a majority of UK households (54% in 2015), andcontains SEGs 2, 3, 4, 5, 6, 7.
managerialandThe occupation of this class are spread widely with lower

professional,

semi-routine and routine jobs.

intermediate,

small

employers,

lower

supervisory,

Their average income per year is between £45,000 and£25,000.
High-income class.

The occupations of this class are SEG 1, the higher managerial,administrative and professional jobs.

They represent 13% of all UK households in 2015,

and their average income per year is over £45,000.
In the UK, the job-based wage system is common, and so to increase income, people
may change their occupation.

This may be a good motivation for the younger generation.

The existence of income class categories for households, does lead to the formation of aretail hierarchy (Fig8).
Fig 8

Retail hierarchy

low

middleHighdiscounter

Supermarket

Depatment store

Aldi

Waitrose

M&S

Lidl

Tesco
Sainsbury
MorrisonsIn the low-end category are discount stores, local grocery shops and pound shops.
In the middle-end category are supermarkets, from Morrisons to Waitrose.
high-end are M&S and department stores.
is very important in the UK.

At theAlso, as a class-cross category, online retailing

In comparison to Japan, the hierarchy in the UK is clearer－ 9 －and more distinguishable. In Japan, almost all retailers can be regarded as class-crossretailers, regardless of the income level of consumers.

－ 10 －

Fig 925%

Upgrade of German discounters〇

middle income
50%
2014●

75%

40%

■
△

● Aldi〇 Asda◎ Morrisons△ Sainsbury's■ Tesco30%Age 16-44 share◎2010 ●

20%
Source: Kanter world panel insights report 2017

Interestingly, the retail hierarchy in the UK is changing (Fig9).

Discounters, whichwere formerly categorized as low class retailers, have gained some middle class consumers
to become a lower class and middle class retailer.

It is useful to understand the change ofconsumer behavior in relation to a change of economic trends. More consumers now preferdiscounters for their price-competitiveness, despite any increase in purchasing power.
The background to this change will be analyzed.
The originally thrifty UK consumer.

Even middle-class consumers generally spend lessand prefer non-frequent cheap bulk buying.

This is especially true for essential

expenditure, like food and clothing, where they spend carefully.
the UK consumer seems more straightforward.

In comparison to Japan,

In the UK, with the support of middle

class consumers, German hard discounters have grown recently, while the market share of
traditional supermarkets has declined.

However, Aldi, Lidl and other discounters, arestill small retailers by comparison with the larger supermarkets.

Cost-saving online

retailing is growing rapidly in every class, low, middle and high.

On the other hand,

high-cost organic markets and farmers markets are flourishing, showing the importance of
price and value.

Also, charity shops are popular in the UK, with their affordable price andcertain quality.

The reason and background of the UK consumers’ thrift will be analyzed(Fig10).

－ 11 －

Fig 10Annual Expenditure of Household

40000.00

78%

35000.00

76%
74%

30000.00

72%

25000.00

70%
20000.00
68%
15000.00

66%

10000.00

64%

5000.00
0.00

62%

2001/02 2002/03 2003/04 2004/05 2005/06 2006DISPOSABLE INCOME

2007

2008

2009

2010

FINAL CONSUMPTION EXPENDITURE

2011

2012

2013

2014

60%

propensity to consume

Source: Office for National Statistics

The significance of social changes.
UK consumer society?

What is the role of immigrants when considering the

They are generally in low income jobs when they arrive, but by the

2nd and 3rd generation they are in better jobs.

Baby-boomers, born in the late 1940s and1950s, are rapidly become retirement-age, with some moving from middle income class to
low income class.

However, many will retire with a good pension, and so stay as middle

class consumers.

In considering the future consumer society, the attitude of Millennials,

those born from the year 2000 onwards, could be important.

Also, there has been a change

in the type and quality of jobs on offer in the UK, so that now there are far more low paid
and insecure jobs.

These social movements can influence and change the size andcharacteristic of each class. Even after the shift to another class, consumers tend to retain
the character of their former class and be influenced by the character of other people. The
way the social movements affect the characteristic of each class will be analyzed.
1.6

Framework for a consumption analysis.
Fig11 shows the framework of this consumption analysis.

The analysis involves a

study of 4 main factors, demographic factors, economic factors, consumer factors and retailfactors.

－ 12 －

－ 13 －

Tendency of household expenditure⇒situations of essential, discretionary expenditures⇒Food, Clothing, Culture&Recriation, other items
Influence of loan repayment, sales tax, social securities
Influence of retirement or non-retirement
No. of children, Household size, Region
Major generation's tendency⇒Baby boomers, Millennials
Class'es tendency⇒High, Middle, Low class behavior
Typical effects⇒Ratchet effect, Demonstration effectWealth effectLife cycle hypothesis(life stage)

Change of consumer behavior (es. middle class)

Income layers(income composition of population)
Link to Social Class,Age composition
Social Movement(up and down)
Link to Economic environment
No. of children, Household size, Region

Demograhic Change

Consumer Factor
Retail Factor

Consumption

Economic Factor

erarchy
Online, convenience, discounter upsurge⇒Growth of Organic retailer, online retailer, discouters
Change of Middle supermarket share
Disruptive hard discounters (Aldi, Lidl)⇒low price and high quality, offensive store openings⇒hard impacts against traditional supermarkets
cost structures, renewal of total merchandising, store concept⇒fundamental change of price order of each supermarkets⇒discouter towards main stream
R.P.I vs C.P.I

Change of retail hierarcy

Economic fundamentals(Scale, growth, income per capita., wages)(bank rate, Propensity to consume、save)
Class ( High, Middle, Low disposal income)
Purchasing power of each class⇒ change of each scales
Influence of prices(C.P.I), social benefits

Change of purchasing power

Framework of Consumption Analysis

Demographic Factor

Fig 11

Demographic factors.

How are the income layers formed, and how are they linked to age

composition and social class, under current population trends? In particular, what is thehousehold number in each class and what is the average income? This will give the size ofeach class market.

With a change of economic growth, how will the purchasing power of

each class change? Is there social mobility, since movements between classes will affectthe purchasing power of each group?
Economic factors.

This involves the economic fundamentals of economic scale, economic

growth rates, income per capita and wages.

How do factors change?

How do prices

change, as measured by the consumer price index? How do changes of those factors affectclass purchasing power?
Consumer factors.

How does consumer behavior change for each class or each generation,with the change to economic growth?

How does consumer expenditure in each class oreach generation change, as the economy changes?

How does retirement affect the level ofconsumer expenditure? What happens with the major generations, for example the Babyboomers and the Millennials?

What factors affects consumer behavior and how dolifecycle hypotheses affect consumer behavior? Official government household data has tobe used in any analysis of consumer behavior, which has its limitations.
Retail factors.

According to the change of size or characteristic of each consumer class,how does the retail structure change? In particular, how do the discounters affect thehierarchy and the strategy of traditional supermarkets?

2
2.1

Demographic factors.
Population
The UK population has increased through some net birth rate increase and througha large net immigration increase (Fig12).

The population pyramid is a hanging-bell shape,

which shows the growth of population in the future (Fig13).

－ 14 －

Fig 12Population change, mid-1992 onwards

600

500

thousand

400

300

200

100

0

-100
Births minus deaths

Net international migration & other

Source: Office for National Statictics

Fig 13Population pyramid

Source: Office for National Statistics 2016－ 15 －Overall net change

2.2

Income class structure
Household consumption is correlated with the level of household disposable income.

To calculate the change of purchasing power of each class, the socio-class data for 2013 and2015 can be used.

The purchasing power of each class for 2013 and 2015 is shown in Figs

14, 15, 16.
Fig 14

Income and source of income by socio-economic classification of household
Number ofhouseholds inthe population

NS-SEC Group2000s

high income class Large employers/higher managerial

Average annual
household income
Disposable

Gross

£

£

844

63 007

86 3752 720

55 06272 296

middle income class Lower managerial and professional

5 123

45 52558 370Intermediate

1 819

30 82637 679Small employers

2 194

30 94735 151

Lower supervisory

1 532

34 92543 044Semi-routine

2 106

24 91529 265

1 981

26 90731 643437

16 47117 132505

23 95027 6627 944

22 68925 718Higher professional

Routine1354

low income class Long-term unemployed3
Students4
Occupation not stated533

27 205
Source: Office for National statictics 2015
Notes:
1 See Table 2 for information relating to the composition of different sources of income.
2 National Statistics Socio-Economic Classification (NS-SEC).

－ 16 －

－ 17 －

£32,881£20,313£31,928

Low

Average£57,439High

MiddleAverage
Disposable
incomeestimated

Incomeclass

2013Long-term unemployed 3
Students4
Occupation not stated5

Large employers/higher
Managerial
Higher professional
Lower managerial andprofessional Intermediate
Small employers Lower
supervisory Semi-routine
RoutineSocial-economic class*

34%

53%

13%

9050

14200

3590

Number ofhouseholds in%the population
000s

-

-

-

-

Generation
Emmigration(popular name)Less than 30
Millennials
including(Generation Z),
Students
Immigrant
Retired Baby(young): Overboomers
65

30～64Working age

30～64Working age

Age2013 income class characteristics

Proportion

Fig 15£183,830,400,000£466,912,680,000£206,205,480,000

21%

54%

24%

Estimated
2013
Aggregateddisposable income

－ 18 －

£35,003£22,455£33,779

Low

Average£56,943

MiddleHighestimated

incomeclass

Average

Disposable

Income£2,142£2,122-£495

Occupation not stated5

unemployed3 Students4Long-term

Semi-routine Routine

supervisory

employers Lower

Intermediate Small

professional

Lower managerial andprofessional

managerial Higher

employers/higher

Large

33

54

13

2015/16-2913 Social-economic class* Proportion %

8886

14755

3564

000s

the population

Over 65

Students(young):

includingLess than 30

30～64 Working age

30～64 Working age

Ageboomers

BabyZ), Retired(Generation

Millennials

-

-

name)

(popular

Generation

Immigrant--

Emmigration£918,954,185,000£199,533,993,000£516,473,644,000£202,946,548,000

disposable income

AggregatedEstimated

2015/16 income class characteristics

households in

Number of

Fig 16

107%

22%

56%

22%

2015/16

Estimated£856,948,560,000£183,830,400,000£466,912,680,000£206,205,480,000

disposable income

Aggregated2016-201321% £15,703,593,000

54% £49,560,964,000

24% -£3,258,932,000

2013

109%

111%

98%

Growt rate

The graph chart of the above tables, Fig 17, shows the changes quite clearly.

They-axis is aggregate total disposable income, household number×average income, of eachclass, and the x-axis is average disposable income.

This chart shows that the purchasing

power and the market size of each class, have increased from 2013 to 2015, which meansthat the lower class and middle class has become wealthier in terms of average income.
Also, the proportion in the middle class has increased, while that of higher class has
decreased.

So, UK average income levels have increased, as has mean income level(Fig18).
Fig 17

Demographic Shift 2013-2015

20000
18000

Household number

16000
14000
12000

35003, 14755
2013

32881, 14200

2015
2013ave

10000

2015ave

8000
22455, 8886
20313, 9050
6000
58943, 3564

4000
2000
0
20000

31928, 030000

57349, 3590

33779, 0
40000

Income level－ 19 －

50000

60000

Fig 18

Growth of median household income

250.0
200.0

%

150.0
100.0
50.0
0.0

Mean equivalised disposable household income index 1
Median equivalised disposable household income index 1
Source: Office for National Statistics
Notes:
1 Indices are calculated relative to 1977 values
2 1994/95 represents the financial year ending 1995, and similarly through to 2014/15, which represents the financial year
ending 2015

2.3

Age income structure
Generally, age income structure will overlap the socio-economic class income

structure because of a person’s occupation. Middle class people are mainly working aged
people.

In general, a household becomes wealthier, the older they become (Fig19).

However, when old people retire by 65, some shift from middle class to low class, but thosewith good pensions retain their middle class income levels.
they may shift from low class to middle class.

When young students get a job,

The average income of middle class, 30～64,

of working age and not retired, is higher than that of retired households (Fig 20).
However, older people have less necessary spending, with no children and no housemortgage.

In general, middle age income levels are about equal to the middle (occupation)

class income level (Fig21).

－ 20 －

Median net household wealth per
adult(£’000, 2014–15prices)Fig 19 Median net household wealth per adult by age, for people born in different decades
300
250
1950s

200
1960s

150
100
1970s
50
0

Early 1980s
25

30

35

40

45

50

55

60

Age
Note: Households containing mor e than one benefit un i t are excluded fr om the sample. Figures are adjusted for
inflation using a variant o f the CPI th at includes mortgage interest payments. ’Age’ is the average (median) age
o f each cohort in a given wave o f data. Excludes Northern Ireland as data are n o t available.
Source: Authors’ calculations using the Wealth and Assets Survey, various years.

Source: Institute for Fiscal Studies 2016

Fig 20Median equivalised disposable income 2015 (£ per year)

Retired households

Non-retired households

All households£20,000 £21,000 £22,000 £23,000 £24,000 £25,000 £26,000 £27,000 £28,000 £29,000
Source: Office for National Statictics 2015

－ 21 －

Fig 21Aggregate income by age group£400,000,000£45,000£350,000,000£40,000£35,000£300,000,000£30,000£250,000,000£25,000£200,000,000£20,000£150,000,000£15,000£100,000,000£10,000£50,000,000£0£5,000Less than 30

30 to 49

50 to 64

65 to 74

75 or over£0

Source: Office for National Statistics

2.4

Other conditions

Type of residential area.
residential area.

From a different angle, there are differences in income by type ofGenerally, constrained city-dwellers are low income level and the middle

income class are generally suburbanites, urbanites and rural residents (Fig22).

All this isrelated to house prices and house rents.
Fig 22Gross annual income by region

All households
Hard-pressed living
Constrained city dwellers
Suburbanites
Urbanites
Multicultural metropolitans
Ethnicity central
Cosmopolitans
Rural residents
0

10 000 20 000 30 000 40 000 50 000 60 000

Source: Office for National Statistics

House renter or house owner.

In general, Fig 23 shows that people renting a house

belong to the lower income class, and that house owners are wealtier than house renting
households（Fig 23).
－ 22 －

Fig 23

Tenure of dwelling £Owner occupied

Owned outrightRental purchase
With mortgage
Average
Rent free

RentedPrivate rented furnished
Private rented unfurnishedSocial rented
Average0

10 000

20 00030 00040 00050 000Source: Office for National Statistics 2015

Family type.

Fig 24 shows that generally the lowest income group is that of 1 adultwithout children.

The highest income group is 2 adults without children, probably a

double-income family.

Family type will seriously affect the financial household position.
Fig 24

Household type of income class

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Bottom2nd

3rd

1 adult without children

4th

1 adult with children

5th

6th

2 adults without children

7th

8th
2 adults with 1 child

9th

Top

households

2 adults with 2 children

Source: Office for National Statistics

3

Inequality.

Quintile groups of all households have varied over time 5 (Fig 25).

Gini

5 “Income quintiles: Households are grouped into quintiles (or fifths) based on their equivalized
disposable income. The richest quintile is the 20% of households with the highest equivalized
disposable income. Similarly, the poorest quintile is the 20% of households with the lowest equivalized
disposable income. “ Office for National Statistics.

－ 23 －

coefficient of original, gross and disposable income (Fig 26), shows that the lower theincome class, the higher the cash benefits.

The lower income groups have morecash benefits while the higher income groups pay more direct taxes (Fig 27).
Through this income transfer, the inequality gap diminished until the 1980s, after
which it has increased.
Fig 25Since 2010, Government policy has been to reduce benefits.

Quintile groups of all households ranked by equivalised1 disposable income

70,000.0
60,000.0
50,000.0
40,000.0
30,000.0
20,000.0
10,000.0
2012/132015/16

3rd

Top

All Households

Source: Office for National Statistics

Fig 26

Gini coefficient

60.0
50.0
40.0
30.0
20.0
10.0

Original

Gross

Source: Office for National Statistics－ 24 －

Disposable

2011/12

2009/10

2007/08

2005/06

2003/04

2001/02

1999/00

1997/98

1995/96

1993

1991

1989

1987

1985

1983

1981

1979

1977

0.0

2014/15

2010/114th

2008/09

2006/07

2004/05

2002/03

2000/01

2nd

2013/14

Bottom1998/99

1996/97

1994/95

1992

1990

1988

1986

1984

1982

1980

1978

0.0

Fig 27

the effects of taxes and benefits on ALL households by quintile group1, 2015/16

100000
80000
60000
40000
20000
0

Bottom

2nd

3rd

4th

Top

All households-20000-40000

Income, taxes and benefits per household (£ per year)

Original income

plus cash benefits2

Gross income

less direct taxes3 and employees' NIC

Disposable income

Source: Office for National Statistics
Notes:
1 Households are ranked by equivalised disposable income, using the modified-OECD scale.
2 Tax credits have changed in line with National Accounts, all tax credits have been classified as cash benefits from 2003/04
onwards.
3 These are: Income Tax and Council Tax/Northern Ireland rates (after deducting discounts, Council Tax benefits and rates
rebates).

Summary
Fig 28Interrelations of Class clasification category
Consumer↓Classification
Socio-economic class

Occupation←Linkage→Household Consumption

IncomeTotal Consumption
Classification
Class Consumption [Average income × Household No]
Low Class Market
Middle class Market
High class Market

Low category

RetailMiddle category－ 25 －High category

The classification of consumers by socio-economic class, is divided into three groups,
low-income, middle-income and high-income class, according to the difference in income
level of each occupation.

This classification shows the size of each class market. If percapita income is increasing due to economic growth, not only is the size of total household
consumption increasing, but also the class consumption of each class is increasing inaccordance with the increase of average income levels.

This will affect both the consumer

behavior, the management of consumer expenditure and the strategy of the retail businesssector, marketing and merchandizing (Fig 28).
Class structure is fairly stable, but includes some social movements, like retirement
or getting job.

From this data, it is clear that there are differences between low income

class and middle-income class.

Also, the differences of occupations, age, retired or not,type of residential area, house owner or not and family type, affects the income level. The
characteristics of the middle class are average income levels of about £35000, age 30～64,
intermediate occupation, non-retired, not constrained city-dweller, house owner and withhalf the households having no children and double-income.

3
3.1

Economic factors
Stable Economic Growth
The most important economic factor is the movement of GDP.

In conjunction withthe population and productivity, how does per capita GDP change and how is disposable
income determined under the income transfer between classes? The level of disposable
income is the source of household consumption.
In the UK, after the Lehman Shock of 2008, GDP growth recovered quite quickly(Fig 29).

Since about 2010, there has been a small but positive GDP growth which has led

to a growth in disposable income, although there have been restrictions on income growthin public sector jobs.
increased.

Disposable income of lower and middle income classes have slowly

The most recent data seems to show that the higher class has suffered a lower

increase, but since this is a % increase, the top class are still gaining more than the otherclasses (Fig30).

In particular, the median and mean disposable income growth has

exceeded growth of per capita income (Fig 31).
low and middle, and high has increased.

－ 26 －The purchasing power of UK household,Fig 29

GDP qurterly growth and levels

480

2
1.5

460

1
440

0.5

420

0

400

-0.5
-1

380

-1.5
360

-2

340

Levels (£ billion), chained volume measure, seasonally adjusted
Growth (%), chained volume measure, seasonally adjusted
Source: Office for National Statictics

Fig 30Growth in disposal income of each class

115
110
105
100
95
90
2007/08

2008/09

2009/10

Bottom2010/11
2nd

2011/122012/13
3rd

Source: Office for National Statistics－ 27 －

2013/144th

2014/15
Top

2015/162017 Q1

2016 Q3

2016 Q1

2015 Q3

2015 Q1

2014 Q3

2014 Q1

2013 Q3

2013 Q1

2012 Q3

2012 Q1

2011 Q3

2011 Q1

2010 Q3

2010 Q1

2009 Q3

2009 Q1

2008 Q3

2008 Q1

2007 Q3

2007 Q1

2006 Q3

2006 Q1

2005 Q3

2005 Q1

2004 Q3-2.5

Fig 31 Growth of GDP per person, disposable income

240
220
200
180
160
140
120
100

1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994/95
1995/96
1996/97
1997/98
1998/99
1999/2000
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/102010/112011/122012/132013/142014/15
2015/16

80

Median Income

Mean Income

GDP per person 2

Source: Office for National Statistics

3.2

Consumer spending
In accordance with the household income level, household consumption has grown(Fig 32).

Supported by some real income growth, consumer spending has grown and thepropensity to consume has continued to recover since 2010, after the Lehman shock of 2008
(Fig 33, 34).

At the same time, the saving ratio of households has continued to fall, whilehousehold debt to income has continued to rise.

This increase in debt is causing concern

to the UK regulatory authorities, and even to international agencies, like the IMF.
Fig 32

Real income growth has supported consumption growth－ 28 －

Source: Inflation Report February 2017 Bank of EnglandFig 33

Total national household final consumption annual growth rate %

8

6

%

4

2

0

-2

-4
Source: Office for National Statistics

Fig 34

propensity to consume

78%
76%
74%
72%
70%
68%
66%
64%
62%
60%

Source: Office for National Statistics－ 29 －

Fig 35

Household Saving ratio

16.0
14.0

Percent

12.0
10.0
8.0
6.0
4.0
2.0

1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015

.0

as a percentage of household income
Source: Office for National Statistics

3.3

The price of goods and services.
One question to ask is about the way prices have changed, which in turn will affectthe real purchasing power of households. In the UK, several price indexes exist, showing
a price index for different economic phases.
CPI consumer price index: all items.
CCPI core consumer price index: all items excluding seasonally volatile products such as
food and energy.
CPIH consumer price index including a measure of owner occupiers’ housing costs
Import prices.
OOH owner occupiers' housing costs.
RPI retail price index: price index on all retail goods.
The CPI, CCPI, CPIH increased by over 2% until 2013, and then fell below 2%, but
by 2017, they are back above 2% again. Import prices have gone up rapidly, largely the
result of a big devaluation in the pound in 2008 and 2015.
goods has increased.

Consequently, the price ofThe growth in prices, especially food inflation, import price rises andthe high housing costs, has caused pressure on consumption with the CPI above 2% in 2017.
This may cause the consumer to spend earlier, before prices increase in the future (Fig 36,
37, 38, 39).

An interesting point is that under such inflationary pressure, the retail priceindex has gone well below the CPI (Fig 40).

This means that the retail sector did not raise

retail prices, despite the CPI growth, because of the constraint on household expenditure.
The question is why UK households have constrained their expenditure and this will be－ 30 －

analyzed later, in an analysis of consumer change.
This mechanism can be set out as follows.
CPI(H) up, at faster speed than income growth → food price up and expect future CPI up→ price conscious → RPI < CPI

Inflationary pressure, where households have become conscious of price rises, mightlead to households becoming thrifty.

Also, this thriftiness may be the result high housing

cost pressure, especially for the middle-income class.
Fig 36CPI

CPIH OOH

6
5
4

Percent

3
2
1

-1
-2

Jul 2007
Nov 2007
Mar 2008
Jul 2008
Nov 2008
Mar 2009
Jul 2009
Nov 2009
Mar 2010
Jul 2010
Nov 2010
Mar 2011
Jul 2011
Nov 2011
Mar 2012
Jul 2012
Nov 2012
Mar 2013
Jul 2013
Nov 2013
Mar 2014
Jul 2014
Nov 2014
Mar 2015
Jul 2015
Nov 2015
Mar 2016
Jul 2016
Nov 2016
Mar 2017
Jul 2017

0

-3

CPIH

CPI

OOH

Source: Office for National Statistics

Fig 37

CPI food Inflation 2015=100

120.0
100.0
80.0
60.0
40.0
20.0
.0

－ 31 －

Source: Office for National Statistics

Fig 38Rising import prices have weighed on household real income growth

Source: Inflation Report 2017 Bank of EnglandFig 39CPI inflation is projected to continue to rise－ 32 －

Source: Inflation Report 2017 Bank of EnglandFig 40Difference between CPI and RPI rounded 2015=100

4.0

3.0

2.0

1.0

-1.0

2005 JAN
2005 JUN2005 NOV2006 APR
2006 SEP
2007 FEB
2007 JUL
2007 DEC
2008 MAY
2008 OCT2009 MAR2009 AUG
2010 JAN
2010 JUN2010 NOV2011 APR
2011 SEP
2012 FEB
2012 JUL
2012 DEC
2013 MAY
2013 OCT2014 MAR2014 AUG
2015 JAN
2015 JUN2015 NOV2016 APR
2016 SEP
2017 FEB
2017 JUL

.0

-2.0

-3.0
Source: Office for National Statistics

3.4

Wages and social benefits.
One source of household income is a wage. Also of importance, is how much wages

have increased and this depends on the supply and demand in the labor market (Fig 41).
Another source of income is social benefits. It is useful to study how these sources ofincome have contributed to consumption.
In the UK, labor market, new jobs have been created, but these have tended to be
low paid jobs and often part-time jobs (Fig 42).

For 6 years after 2008, household

purchasing power decreased, and it is only recently that for some workers there has been
any pay growth (Fig 43).
over the past

decade 6

Labor and benefit income has increased relative to consumption(Fig 44).

In the UK, a job-based pay system is common.

The

income level of household depends not on age but on occupation, with higher skilledoccupations receiving higher wages.

6This is very different from the age related seniority

Bank of England, Inflation report 2017

－ 33 －

-2

2008
Apr 08Jul 08
Oct 082009
Apr 09Jul 09
Oct 092010
Apr 10Jul 10
Oct 102011
Apr 11
Jul 11
Oct 112012
Apr 12
Jul 12
Oct 122013
Apr 13
Jul 13
Oct 132014
Apr 14
Jul 14
Oct 142015
Apr 15
Jul 15
Oct 152016
Apr-Jun 2012
Jun-Aug 2012
Aug-Oct 2012
Oct-Dec 2012
Dec-Feb 2013
Feb-Apr 2013
Apr-Jun 2013
Jun-Aug 2013
Aug-Oct 2013
Oct-Dec 2013
Dec-Feb 2014
Feb-Apr 2014
Apr-Jun 2014
Jun-Aug 2014
Aug-Oct 2014
Oct-Dec 2014
Dec-Feb 2015
Feb-Apr 2015
Apr-Jun 2015
Jun-Aug 2015
Aug-Oct 2015
Oct-Dec 2015
Dec-Feb 2016
Feb-Apr 2016
Apr-Jun 2016
Jun-Aug 2016
Aug-Oct 2016
Oct-Dec 2016
Dec-Feb 2017
Feb-Apr 2017
Apr-Jun 2017%

system in Japan.
With steady economic growth, well-paid jobs might increase and this inturn might affect the improvement of low and middle-class income levels, although this has

not happened in the UK.
Fig 41

Fig 42

Regular pay growth (nominal)

Umemployment rate

9.5

8.5

7.5

6.5

5.5

4.5

3.5

Source: Office for National Statistics

PeopleMen

Source: Office for National Statistics－ 34 －
Women

Regular pay growth (real)

6
4

4
3

2
2

1

0

0

-4

-6

Impact of CPI inflation

Regular pay growth (real)

-1

-2

-3

-4

Fig 43

Breakdown of growth of Household resources

10
8
6
4

％

2
0
-2
-4
-6
-8
Wages and salaries

Employers social contributions

Property income

Mixed income and GOS

Total resources
Source: Office for National Statistics

Fig 44

Labour and benefit income has increased relative to consumption
over the past two decades－ 35 －

Sources: ONS and Bank of England(a) Post-tax labour and benefit income is defined as wages and salaries plus mixed income, plus
general government benefits and private pension receipts, minus income tax and National
Insurance contributions.
(b) Calculated using household post-tax income.

3.5

The economic impact on each generation.
As an economy grows, each generation would expect higher incomes than those born

earlier (Fig45).

It is a motivation for the younger generations and is strengthened bysteady economic growth.

However, this is not happening in the UK for the first time inover 100 years. In the past, every generation expected to be better off than their parents
but the current young generation are really struggling.

There is a generation wealth gap.

If this situation is not resolved soon, it will have a detrimental effect on consumption(Fig46).
Fig 45Median net equivalised household income (after housing costs are
deducted) by age, for people born in different decades

Source: Institute for Fiscal Studies

Fig 46The composition of mean net household wealth per adult by age,for people born in different decades－ 36 －

Source: Institute for Fiscal Studies

3.6

Summary

Economic fundamentals.

In terms of economic fundamentals, Fig 47 shows the way

economic factors influence consumption.
Fig 47

Influence of growth and prices

recovery of economic growth↓
improvement of labor supply and demand↓
consumer spending higher↓
CPI growth and consumer price index up
Food price inflation
burden of future price growth expectation↓
prudent way of consuming, price-conscious↓
RPI < CPI↓
Thrift under good business conditions
Combining economic and demographic change factors.

Fig 48 shows that classconsumption depends on both economic fundamentals and demographic change. In theUK, the effect of better economic fundamentals with a bigger demographic change, has led
to an improvement of household consumption, total and by class.

－ 37 －

, wages

gr o wt h

Lo w C lass M ar ke t

－ 38 －

C o n su m e r C h an geHigh c lass M ar ke t

Change of Class Consumption[Ave r age in c o m e × Ho u se h o ld No ]M iddle c lass M ar ke t
C lass pr o po r t io n c h an ge
C lass bo r de r le ve l
[Do wn gr ade o r Upgr ade ]C lass M ar ke t Size
[Expan sio n o r Re du c e m e n t ]Fig 48De m o gr aph ic C h an ge
Po pu lat io n SizePo pu lat io n Pyr am id
Life c yc le ge n e r at io n
So c ial M o ve m e n t
Im m igr an t
Re t ie d Baby Bo o m e r
St u de n t s ge t t in g jo b
T ype o f h o u se h o ld

4Consumer change
The analysis in previous sections of this paper shows that the UK consumer has

gained an increased in disposable income.

However, under the pressure of CPI growth,

UK households might struggle to manage their household budgets in the future (Fig 49).
Fig 49Household budget management
Market (Goods & Service)

Public (Tax & Benefits)

Tax Payer

ConsumerHouseholdBorrower

Saver

Market (Loan)

4.1

Market (Investment & Deposit)

Expenditure class structureThis section will examine how current households manage their household budget.

As briefly set out in this introduction, the differences of household budgets, class or
generation, can be considered by using the household budget formula.
.
(Income-Expenditure)+(Benefits-Tax)+(Deposit-Saving)+(Loan-Repayment)=0
This formula can be used to look at the budget situation of each generation (Fig 50).
Fig 50Situation of household budget of changing generations

Income-expenditure + Pension-Tax + Loan-repayment + Withdraw-saving

=0

Young

small+

small△

00=0

Middle+△small △

△

=0

Old

△

+

0

+

=0

－ 39 －

Income-expenditure + Pension-Tax + Loan-repayment + Withdraw-saving

=0

Young

small consumer

small tax payer

0

0

=0

Middleconsumertax payer

even

saver

=0

Old

consumerpension receiver0

withdrawer=0This table suggests certain characteristics for different groups.
The younger generation might appear to be a small consumer and small tax payer,
without savings, and living within their own limited income.

However, by borrowing

heavily, their propensity to consume can be higher than a middle-class household. This
young generation use credit cards to increase their consumption, often with little concern
about paying back the debt.

For example, nearly 50% of young people in the UK enter

higher education, and they leave at age 21 with large debts of £40,000 and more.
The middle class are big consumers who need to manage their budget effectively.
Their biggest outlay is on housing, either renting a house or buying a house with amortgage which is repaid over 25 or 30 years.

They use credit cards in order to increase

consumption, and they pay more tax because of their higher income.

As a result, themiddle class focus more on the payment of essential expenditures.
The older retired generation is completely different. They focus on using moneyfrom the state pension, a work pension, and any savings.

Therefore, their propensity toconsume may be higher than that of the middle class on certain goods and services,
although, with no children to support and having already purchased most consumer goods,
then retail consumption is often about replacement,
The response of each generation to consumption, will depend on their income.

If

their income increases, then they may have more to spend, but it depends on how prices
have changed. If their income decreases, or if prices increase, they need to cut theirexpenditure.

However, what some households do, is to keep the same level of expenditurebut borrow on credit cards. Other households choose a selection of goods and services withlower unit price but with the same quality.

This puts pressure on retailers to satisfy thisdemand.
4.2

Other Scenarios.

If there is a tax increase.
Fig 51

Case: Tax invrease e.g.sales

Income-expenditure + Pension-Tax + Loan-repayment + Withdraw-saving

=0

Young

small+↑

small△↑

00=0

Middle+↑△↑small △△

=0

－ 40 －

Old

△↓

+↓

0

+

=0

The biggest influence will be on the middle class generation (Fig51). There will
be a decrease in their expenditure because they are paying more tax from the same income.
They could borrow money using credit cards to maintain their same level of consumption,
hoping that their income will soon increase.

For the young generation, the influence isquite limited because they pay less tax.

For the old generation, the influence can be quite

small because of their limited income.

For the middle class, if income increases at ahigher rate than tax increase, then it has no influence for their household budget
management.

If there is a rise in interest rates.
Fig 52

Case: Interest rate up

Income-expenditure + Pension-Tax + Loan-repayment + Withdraw-saving

=0

Young

small+

small△

00=0

Middle+↑△small △↓

△↑

=0

Old

△

+

0

+

=0

An interest rate rise will affect the loans and savings of households (Fig 52).

An

interest rate rise will result in an increase in monthly mortgage repayments, which will
mean less disposable income to spend on other items.

Households may be willing to savemore money and may decrease their loans, although households usually repay their loansat regular intervals.

Maybe, they will just decrease their expenditure, but past experienceof consumers shows that this is less likely.
If there is an increase in prices.
Fig 53

Case: Price up

Income-expenditure + Pension-Tax + Loan-repayment + Withdraw-saving

=0

Young

small+

small△

00=0

Middle+↓△small △

△

=0

Old

△↑

+

0

+

=0

This would lead to a similar situation as in tax increase (Fig 53).
most affected will be the middle class.

The generation

They might cut their expenditure, but they are far

more likely to find some way of continuing with the same level of expenditure.
－ 41 －

4.3

Differences in expenditure elasticity.
In this section, an analysis of the kind of items that will limit expenditure in the UK

is undertaken.

For this, the expenditure elasticity is calculated, which means thechanging rate of the item divided by the changing rate of all items (Fig 54).
Fig 54

Expenditure elasticity fraction△expenditure of some item/ △expenditure of all items

This fraction indicates whether an item is essential or discretional.

If the fraction

is above 1, then it is categorized as a discretional expenditure, but if it is under 1, it iscategorized as an essential expenditure. The value 1 is a border line item.

A comparisonof 2001 and 2014 expenditure structure for the UK (Fig 55), is used to calculate theexpenditure elasticity table (Fig 56).
Fig 55

2001-2014 Household Expenditure of average household

DISPOSABLE INCOME
FINAL CONSUMPTION EXPENDITURE
Housing, water, electricity, gas and other fuelsElectricity, gas and other fuelsElectricity
Gas
Liquid fuels
Solid fuels
Food and non-alcoholic beverages
Alcoholic beverages, tobacco and narcotics
Clothing and footwear
Furnishings, household equipment and routine household maintenance
HealthTransport
Communication
Recreation and culture
Education
Restaurants and hotels
Miscellaneous goods and services

2001/022014
Nat Currency (£) 23230.50 33961.70
Nat Currency (£) 17610.40 23984.70
Nat Currency (£) 1866.90 3779.10
Nat Currency (£)
609.00 1344.10
Nat Currency (£)
299.90626.00Nat Currency (£)
260.60627.50Nat Currency (£)
33.70
78.10
Nat Currency (£)
14.60
12.50
Nat Currency (£) 2171.70 3056.10
Nat Currency (£)
590.90638.40Nat Currency (£) 1187.50 1233.80
Nat Currency (£) 1583.90 1842.80
Nat Currency (£)
233.90367.70Nat Currency (£) 3006.50 3890.40
Nat Currency (£)
539.40803.90Nat Currency (£) 2808.20 3578.40
Nat Currency (£)
287.90508.00Nat Currency (£) 1739.70 2207.80
Nat Currency (£) 1594.10 2078.30

Source: Office for National Statistics

As the result of calculating the elasticity is as follows. (Fig 56)
Fig 56

expenditure elasticity

2014/2001

2.00
1.77

1.80
1.60

1.62
1.49

1.70

1.53

1.40

1.30

－ 42 －

1.20

1.03

1.00
0.80
0.60
0.40

1.15

0.79
0.63

0.76

0.85

1.09
0.95

0.94

0.93

0.96

This analysis highlights some interesting information on household budget
management.
The elasticity of food expenditure, which is the largest expenditure, is 1.03.

Thismeans that in the UK, households always allocate a certain part of their budget for foodspending, regardless of income and prices.

This shows even with price or tax increases,

under a fixed income, households manage to reduce other discretionary or other essential
expenditures on behalf of securing their most essential food expenditure. As analyzed inprevious sections, food inflation is common and it can be a big pressure for UK consumers.
They behave like thrifty consumers.
The elasticity of household related expenditure is often over 1.0.

This means that if

their income is raised, the incremental part of their income would be allocated to housing
related expenditure before other items.

This is a burden for the middle income classbecause even if their income is increased, they could not easily increase other expenditureon such things as recreation to improve their living standard.

This might be because theexistence of the property ladder, with UK households said to accumulate their wealth bymoving to a more expensive property.
Another interesting item is education which is 1.3 and therefore a discretionary
expenditure.
children.

State education up to age 18 is free in the UK and is used by over 90% of

There are also private schools where parents pay to send their children. For

these parents, who are mainly in the high income class, education is a big factor in theirhousehold budget management.
If the economic situation changes, such as a recession, then discretionary
expenditures would tend to declined.

This movement of discretionally expenditure might

create a consumption cycle (Fig 57).

－ 43 －

Fig 57

4.4

Consumption cycle

Similarities and differences in the characteristics between classes.
Based on the above analysis, an indication of the characteristics of each income classcan be gained (Fig 58).

Fig 58Characteristics of Consumer Behaviour of each classThrifty+

Value-Oriented

Low Class Market

Middle class Market

High class Market

Cost/Price conscious

Cost/price Value for Money

Value conscious

Low income

Housing cost burdenHigh income

Education Cost

Family support cost

WealthLow class market
With a limited income, they are forced to constrain their expenditure.

There will besome retired people with no occupational pension in this class, who have moved frommiddle class to low class after retirement.

They might try to maintain their living

standard by selecting goods and services with an affordable price and good quality.

In

general, low income class consumers have to be price-conscious and to some extent
value-conscious.
Middle class market:
This is the class with big housing costs, family support costs and essential costs likefood.

The younger generation with a job, might shift from low class to middle class.

Basically, this generation is active because of so-called demonstration effect, which means
they might have the tendency of imitating existing class behavior.

Despite this, they are

urged to be thrifty, and price-conscious, and to be value-oriented for the improvement of
their standard of living.

They will prefer goods and services with both cost-saving andvalue-creation, something that is often hard to find.
looking for “Value for money”.

－ 44 －

This may be called the tendency of

High class market:
This class can afford expensive expenditure due to high income and wealth. They
tend to be value-conscious with the wealth effect.
Overall, UK household behavior is generally thrifty and value-oriented.

Theyspend more money on property, and less money on cultural, recreation expenditure with afixed proportion of expenditure on food consumption.

4.5

Older generation verses younger generation.
A comparison of household budgets for the old generation and the young generation

can be made in order to study the nature of their class consumption structure. For this,the household income/expenditure formula is used (Fig 59).
Fig 59Household income/expenditure structure(income-expenditure) + (benefits-tax) + (withdrawl-saving)+(loan - repayment) ＝0(identical equation)（Ｉ＋Ｅ）＋（Ｂ－Ｔ）＋（Ｗ－Ｓ）＋（Ｌ－Ｒ）＝０

A summarized comparison of their household budgets is shown in Fig 60.
Fig 60Situation of household budget of changing generations

Income-expenditure + Pension-Tax + Loan-repayment +Young

Withdraw-saving =0 debts property assets

small+

small△

+

0

=0

●

Middle

+

△

+

△

=0

●

×

Old

△

++

0

+

=0

-

〇

Income-expenditure + Pension-Tax + Loan-repayment +×

Withdraw-saving =0 debts property assets

Youngsmall consumer

small tax payer

consumer credit

0

=0

●

×

Middleconsumertax payer

consumer credit

saver

=0

●

×

Old

consumerpension receiver0

withdrawer

=0

-

〇

The household budgets for these two groups is opposite.

The already retired oldgeneration is often relatively rich, with the means to maintain their middle-class position
after they have retired.
being a house owner.

This depends on being in receipt of an occupational pension andMany old people have paid off their mortgage, and own their house.

They can maintain their consumption with their pensions and savings. House prices in the
UK have increased massively over the last 30 to 40 years, and so retired people who own ahouse are backed with a good property asset.

Many old people in the UK are well off,

while many other old people are struggling to cope. In the UK, there is a State Pension of
about £6,000 to £7,000 which everyone receives.
－ 45 －

However, many old people have anOccupational Pension as well and this can be much higher.

For example, some

occupations had a final salary pension scheme where a person received about half their
final salary.

The average income for those working is about £23,000, and so many retired

pensioner receive more than those working.

However, retired old people living just on thestate pension and renting a house, are certainly in the poor class category.

In the UK,

people refer to the White Pound, meaning old people with white hair who have money tospend.

Retailers try to tap into this wealth.

In contrast, the situation of the young generation is quite gloomy, now and in the
future.

It is difficult for them to enter the middle class of their parents’ generation. For

this generation, many earn a relatively small income and they have to rely on it. To
supplement their income, they often use convenient consumer credit cards, causing a big
burden on their future.

As already stated, with nearly 50% of young people going on tohigher education, at the end of their 3-year course they often have debts of £40,000.

Again

this causes a big burden on their future.
Since 2010, GDP has been positive, but wages have not increased very much.

All

Public Sector workers have had a 6-year 0% increase, and then a maximum of 1% increaseeach year.

It is estimated that Teachers are £5000 per year worse off in 2017 than in 2010.

Everyone except those at the very top of the income scale are worse off now than they werein 2010. ThereUK
aremoreprice
peoplebut (a)nearly all the new jobs are poorly paid.
house
to working,income ratio
Much of any GDP increase comes from credit.

The young cannot afford to buy a house and it is very expensive to rent. Houses are
now about 4 or 5 times an average salary (Fig 61).

However, this chart covers all UK

regions, and house prices in some regions are much higher, probably nearer 10 times salary.
Meanwhile old people live in the houses they own, often the bigger houses and houses thatthey could not now afford. Old people had very good Pensions, but these are no longer
available to the young, as Occupational Pensions have changed for the worse.

Manyyoung people in 2017 do not have a pension attached to their job and this would apply tonearly all the new jobs.

The young think that the old are ruining their future.

This isgoing to be the first generation of young people who are going to be worse off than theirparents and grandparents for well over 100 years.
Fig 61

House prices have risen relative to incomes－ 46 －

Sources: Department for Communities and Local Government, Halifax/Markit, Nationwide, ONS and Bank calculations.
(a) The ratio is calculated using a four quarter moving average of gross disposable income of the UK household and non-profit
sector per household as the denominator. Aggregate household disposable income is adjusted for FISIM and changes in pension
entitlements. Historical UK household population estimated using annual GB data assuming linear growthin the Northern Irelandhousehold population between available data points.

Fig 62

So gloomy future of current young generation

Income-expenditure + Pension-Tax + Loan-repayment +Withdraw-saving =0 debts property assets

current old
generation

△

++

0

+

=0

-

〇

future oldgeneration△ but small+ but small△+ but small

=0

●

×

A comparison of the situation for old retired people now and in the future (Fig 62). It
shows a completely different situation.

The future old generation will suffer fromsmall pensions, small incomes and small savings, with inadequate property assets.
When considering their future, they would envy the situation of the current old
generation.
4.6

The role of consumer credit in consumer spending
Consumer spending from credit cards is worth £billions each year in the UK. It is notjust credit cards.
on credit.

Purchase of new cars has been very high, but nearly all cars are bought

So much of the GDP increase in the UK is driven by credit which has been

growing much faster than household income over the last few years.

This means that

consumer credit has had a critical role in both household consumption and GDP growth.
The post-2014 boom in jobs and growth was tied to a period of over 10% consumer credit
growth although this growth rate seems to have levelled off 7 (Fig 63).

7https://www.theguardian.com › Business › Consumer spending 2017/08/31－ 47 －

Fig 63

Consumer credit has been growing much faster than household incomes

Annual growth rates of consumer credit products and household income

Sources: Bank of England, ONS and Bank calculations.
(a)
(b)
(c)
(d)

Identified dealership car finance lending by UK monetary financial institutions (MFIs) and other lenders.
Sterling net lending by UK MFIs and other lenders to UK individuals (excluding student loans). Non seasonally adjusted.
Percentage change on a year earlier of quarterly nominal disposable household income. Seasonally adjusted.
Other is estimated as total consumer credit lending minus dealership car finance and credit card lending.

The role of consumer credit on household budgets is shown in Fig 64.
Fig 64Situation of household budget of changing generations

Income-expenditure + Pension-Tax + Loan-repayment +Withdraw-saving =0 debts property assets

Young
Middlesmall++

small△
△

+
+

0
△

=0
=0

●
●

×
×

Old

△

++

0

+

=0

-

〇

The young and some middle-class households cannot afford to buy a car and durable
goods with their income, and yet they are under pressure keep to a household budget.

To

supplement their inadequate household income, they use consumer credit to maintain or
improve their standard of living.

Consumer credit has been growing rapidly over recent

years and now total debt to total income is 135% in 2016 (Fig 65, 66).

Many organizations

like the IMF and The World Bank are warning about the problems this could bring to theUK.

－ 48 －

Fig 65

Household debt is high relative to income

UK household debt to income ratio(a)(b)(c)

Sources: ONS and Bank calculations.
(a) Total household debt to income is calculated as gross debt as a percentage of a four-quarter moving sum of disposable income.
Includes all liabilities of the household sector except for the unfunded pension liabilities and financial derivatives of the non-profit
sector. The household disposable income series is adjusted for financial intermediation services indirectly measured (FISIM).
(b) Mortgage debt to income is calculated as total debt secured on dwellings as a percentage of a four-quarter moving sum of
disposable income. The household disposable income series is adjusted for FISIM.
(c) Non-mortgage debt to income is the residual of mortgage debt to income subtracted from total debt to income.

Fig 66

Household debt and consumption growth over 2007–12(a)Sources: Flodén (2014) and OECD National Accounts.
Change in consumption is adjusted for the pre-crisis change in total debt, the level of total debt and the current account balance.
See Flodén, M (2014), ‘Did household debt matter in the Great Recession?’ available at http://martinfloden.net/files/hhdebt_
supplement_2014.pdf.

－ 49 －

Soon, the non-retired generation will not be able to afford to repay this debt.

Areport by the Bank of England, states that accumulating debts might have an adverse
effect on household consumption. For middle-class households, if the use of consumer
credit is not restrained, they might have to tighten their household budget under low
wage-growth or possibly downgrade their living standard.
4.7

For retailers
Based on all this analysis, there are several implications for retailers.

UK

consumers tend to be cost-conscious and avoid spending more than is necessary under theburden of housing costs, essential food costs and the pressure of price increases.

However,

there has been some improvement in their income due to steady, but quite low, economic
growth.

Cost conscious consumers may prefer the retail categories which reduce extra

purchasing costs, such as low price retailers, convenience stores, discount retailers, online
shopping and charity shops.

5

Retail change
The framework of retail change is shown in Fig 67.
Fig 67

Framework of Retail Change
New category development

Online, Convenience, Charity, Sharing, Organic
Price war

CPI>RPI

Retail Hierarchy Change
Low Class Market

Middle class Market

High class Market

OnlineDiscounter offend

Super Market

Department Storediscount

discount & premium

Premium

Affordable price movement

5.1 No-frills discounters becoming main-stream retailers.
With the expansion of the middle market, the increase in purchasing power and thepressure of price increases, then the existing income class structure will change in terms ofboth its size and its characteristics. In turn, this change may induce a change of retailhierarchy, with new category developments fitting into the new nature of the middle class.
Discount retailers, formerly supported by the low income class, have been entering into the
middle-class market with their affordable prices and good quality.
－ 50 －The increase in shareof those discounters, is depriving the traditional supermarkets of their market share (Fig68).
Fig 6825%

Upgrade of German discounters〇

middle income
50%
2014●

75%

40%

■
△

● Aldi〇 Asda◎ Morrisons△ Sainsbury's■ Tesco30%Age 16-44 share◎2010 ●

20%

Formerly low-end retailers, the discounters have entered the middle-end market as well as
retaining the lower income market (Fig 68).
69, 70.

The market share changes are shown in Figs

However, although the Discounters have had a large % rise in their sales, they arestill small retailers in comparison to the big supermarkets, like Tesco.
Fig 69Market share change 2015Feb=100

160%
140%
120%
100%
80%
60%
40%
20%
0%

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
15 15 15 15 15 15 15 15 15 15 15 16 16 16 16 16 16 16 16 16 16 16 17 17 17
2016
Lidl

Aldi

Waitrose

Morrisons－ 51 －

Sainsbury's

2017
Asda

Tesco

Fig 70

Grocery Market Share

35.

30.

25.

20.

15.

10.

5.

0.

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
15 15 15 15 15 15 15 15 15 15 15 15 16 16 16 16 16 16 16 16 16 16 16 17 17 17
Lidl

Aldi

Waitrose

Morrisons

Sainsbury's

Asda

Tesco

This type of discounter is a no-frills retailer like Aldi and Lidl, and is defined in theEuropean Grocery Discounters report Nov. 2015 8.
“The grocery discounters that are the focus of this report, include the big, limitedline, no frills, hard discounters, such as Aldi and Lidl, as well as the major soft discounters,such as Penny, whose stores typically stock more brands and more product lines overall”.
“Discounter” is a difficult concept to define. Technically, the retailers covered inthis report are not usually discounting the products they sell, but they are simply selling
groceries at an everyday low price. They do this by offering a limited choice and focusing on
private label ranges, which means they drive large volumes through each product line.
This allows them to source in bulk, sometimes from major brand owners, keeping quality
levels high and prices low.

8

Fung Business Intelligence Center. Global retail and technology.

－ 52 －

There are several defining characteristics of a grocery discounter.
•

Limited ranges. Hard discounters have traditionally offered between 600 and
1,000 lines in each store, although this has crept up in some chains.

By contrast,

there can be as many as 50,000 lines in European hypermarkets and UK
supermarkets.
•

Private label dominance.

Hard discounters have traditionally focused almost

exclusively on their own brands, although recently, several major players haveincreased the presence of major brands on their store shelves.
•

Smaller stores. Limited ranges and limited brand choice typically translate into
smaller stores, of around 800 square meters at Aldi and Lidl. Discounthypermarket Kurland, which is not in the UK but is prominent in other parts ofEurope, is the major exception to this rule.

It is included as a discounter becauseof its private label focus and discount policies.

It shares many common factors

with its sister chain, Lidl.
•

Everyday low price policies. Rather than relying on a high/low promotional policy,
as happens in the large supermarkets, discounters have traditionally offered
everyday low prices.

•

A general absence of any frills. Elements such as in store merchandising andservices such as online retailing and loyalty programs tend to be minimal.
The main point to be noticed is the price-level.

According to the Kantar World

Panel Report 9.
“Mostly, brands are managing to successfully achieve the correct balance of price.
Kantar World panel has found that on average branded goods sold at the discounters are
just 5% cheaper than they are elsewhere. One crucial difference in the strategy of the
discounters is that, unlike their larger rivals, they very rarely sell products on promotion or
discount. When the effect of promotions is considered, it is evident that the average priceof a brand at a

discounter, could be higher than at other retailers.”

This is very interesting price strategy.
5% cheaper than at other supermarkets.

Usual prices at discount retailers are about

However, with promotions on at certain times,

the average price over a year at supermarkets, could be lower than at the discounters. For
price-conscious consumers, the all year lower price is attractive under the strain of thehousehold budget.
middle market.

Therefore discounters can expand their market share, even in the

For existing supermarkets, a defense strategy might be to reduce prices,leading to a fierce price war between discounters and other supermarkets.

9Kantar World Panel’s Thoughts On...the discount retailers. 2017

－ 53 －

5.2 Marketing changes.
The price point may be shifting to a lower position (Fig 71), which means that all
retailers will shift their whole price structure to a new level (Fig 72).
Fig 71Price line downgrade

250

200

150

100

50

0

0

1

2

3

4

5

Fig 72

Downward Price Rigidity

6

Downward Price Rigidity△conditions CPI Up
esp. Essential expenditure (indispensable)
Food price, transport price+conditions Income Up
Reservation Price (Household Lower vs Retail Higher)*Dependence on Power balanceThis is an interesting case.

Despite some income increase, under budget

constraints, the UK consumers tend to be price-conscious.

It means that households will

welcome lower prices from the cost-push by retailers, under purchase price pressure. For
higher cost retailers, this situation can cause retailers to change their whole strategy,
which may lead to a reduction of profits.

To avoid this hard situation, retailers must adopt

the 4p×4c marketing strategy, from price-oriented marketing to value-oriented marketing(Fig 73).
Fig 73
4P×4C
Transaction Utility

Marketing Scheme

Price → Customer Cost ↓Product → Customer Value↑
Place → Customer onvenience ↑Promotion → Customer Communication↑

An effective marketing strategy is the well-known 4p package, with affordable prices,－ 54 －

and products with good value and quality, should be developed and placed in proper
locations in their store, with an effective promotion.

This package should result in the

improvement of the so-called 4c, with a decrease of customer cost, an increase of customer
value, an increase of customer convenience and an increase of customer communication.
The improvement of retail output should be realized in the context of value-oriented
marketing.

In this scheme, online shopping, convenience stores and discounters, withgoods of good quality and reasonable price, might gain a better retail position than
traditional large retail shops.

6

Conclusion
In this last section, the mechanisms and functions of consumers and retailers can bebrought together and ordered.

Then the policy implications can be introduced, with acomparison of consumption between the UK and Japan, countries with very different
demographic changes, with population increasing in the UK and decreasing in Japan.
6.1 Interrelationships.
There are complex interrelationships between the different factors, as shown in
Fig74.

－ 55 －

－ 56 －

population ↑immigrants

import prices ↑prices in Goods, foodinflation ↑exchange rate ↓disposable income ↑economic growth ↑Fig 74

middle class ↑total purchasing power

fixed food expenditurepurchasing power ↑housing cost ↑Chart of Interrelations

online retailer ↑share ofdiscounters ↑middle market
middle classmarket ↑health organic
market ↑thrifty and value
conscious
budget strain

The main factors are economic growth, inflation and population change, including
immigrants.

Changes in these factors will affect nearly all consumers.

They mayincrease the size of the middle class consumer, who may show greater value-oriented
behavior than before.

Consumers may try to maintain their living standard in real term,

avoiding the effect of inflation, by preferring goods of affordable prices.

An expansion of

the purchasing power of the middle class consumers, is encouraging the entry of othercategories of retailers.

As these consumers are generally thrifty, discounters with theirprice-competitiveness are growing.
Major policy factors can be ordered as follows.
・Population-related policies
・entry of immigrants
・aid for family with children
・Economic-related policies
・economic stimulus
・monetary policy
・promotion of major industries
・Labor policies
・re-entry of older generation into labor market
・motivation for younger generation
・wage policy, job-related wage system

A mixtures of these policy factors can directly affect the size and nature of
middle-class spending and the structural changes of the retail sector.
6.2 Comparison between the UK and Japan.
These factors can affect the differences in consumption in both nations (Fig 75).

－ 57 －

－ 58 －

Fig 75

Summary of Comparison between UK and Japan
UK

Japan

purchasing power

up

down

middle classexpansion

declineCPI

higherlower

future CPI

high

low

immigration

low classno

Baby boomer

→Low

→Low

millennium

wealthierpoorer

wage

up

→

wage systemjob-basedseniority

consumer

thriftthriftprice-conscious

price-conscious

value

conscious?

saving rate

down

up

debt

down

?

charity〇×

retailAldi, Lidl, online

amazon, CVS

discounter◎△

online◎◎convenience△◎

There is an opposite movement of the income level and size of middle class market
between the two nations.

In the UK, the expanded middle-class market is shifting

towards the richer side.

On the other hand, in Japan the decline in the middle-classmarket is shifting to the poorer side (Fig 76).

－ 59 －

Fig 76

The difference of direction of the middle market of the UK and JapanUK MIddle market
20 000
15 000
10 0005 000
0£0£10,000£20,000£30,000£40,000£50,000£60,000

8000

10000

Japan middle market
30000
25000
20000
15000
10000
5000
0

0

2000

4000

6000

The Japanese shrinking middle market and expanding low market can be changed
using a mix of policy measures.
Population-related policies
・entry of immigrants → highly restricted・aid for family with children → to some extent
Economic-related policies
・economic stimulus → monetary policy
・monetary policy → minus interest rate
・promotion of major industries → stable
Labor policies
・re-entry of older generation into labor market → reemployment－ 60 －

・motivation for younger generation →?
・wage policy, job-related wage system → seniority system remains

6.3

Thoughts about consumption and retailing in Japan.
By comparing the situations in the UK and Japan, although they have a lot incommon, there are also big differences. What causes the differences or similarities?
Middle class purchasing power is declining in Japan. This is caused by a demographic
difference, with population decreasing, and by economic differences, with persistent
deflation. In particular, the size of the middle class is declining and getting poorer than it
was before.

This shrinking market is a difficult issue for retailers and producers.

A much more equal society has developed in Japan.

It would seem that all consumers are

becoming similar in Japan. The low-end category of shops, such as convenience store and100yen shops, are flourishing, while high-end Department stores and middle-end General
Merchandise Stores are stagnant.
Low-price oriented consumer.

The recent characteristic of a Japanese consumer is of alow-price orientation.

Every category of shop in Japan is struggling against thedemanding consumers.

Only cost-saving category shops such as convenience stores,

100-yen shops and online shops are flourishing.

The situation is that consumers in the

UK and Japan prefer low-price goods, but the background is so different in the twocountries.
CPI.
trend.

The most important difference is the movement of the consumer price index,

In the UK, there is an inflationary trend, while in Japan, there is a deflationary
Despite this, consumer behavior in both countries is similar.

Few immigrants are allowed into the Japanese society.

There is a natural population

reduction in Japan, with deaths being higher than births.

One way to increase thepopulation is to allow immigration, but how far Japan would accept immigrants in order toincrease consumer demand, will be a crucial political issue.
What is the future for shopping streets in Japan? The biggest different in the urban
landscape between the UK and Japan, is the appearance of their shopping streets.

In

Japan, there are many stagnant shopping streets, which are often called shutter-closed
shopping streets.

In the UK, generally streets are not stagnant.

However, this might bebecause shopping streets are continually changing in the UK, and this change is quick withshops closing and others opening.

Also, shopping centers in the UK have decreased in size

over the last 30 years and many small local shops have closed.
－ 61 －

So maybe, shopping streets

in the UK and Japan are at different phases of change.

－ 62 －

－ 63 －

Ec on omic Ch an ge
Disposable In c ome
GDP, size & growthpe r Capita
Labou r c ost ,wage
Tax, Be n e fits
CPI
In flation
De flation

0
20000

2000

4000

25000

8000
20313,22455,
9050 8886
6000

10000

12000

14000

16000

18000

20000

Appendix synoptical table

Household number

45000

50000

←Lin kage →Hou se h old Con su mption

Con su me r↓
Classific ation
Soc io- e c on omic c lass

40000
Income level

55000

In c ome

60000

57349,
35903564
58943,

Low Class Marke t

Low c ate goryFig 4 8 Ch an ge of Class Con su mption[Ave rage in c ome × Hou se h old No ]Middle c lass Marke t
Class proportion c h an ge
Class borde r le ve l
[Down grade or Upgrade ]Class Marke t Size
[Expan sion or Re du c e me n t]

ChangeRe tail
Middle c ate goryHigh c lass Marke t

High c ate gory

Total Con su mption
Classific ation
Class Con su mption [Ave rage in c ome × Hou se h old No]
Low Class Marke t
Middle c lass Marke t
High c lass Marke t

Oc c u pation

30000
31928,
33779,
0 35000
032881,35003,
14200 14755

Conceptual Diagram (Demographic Shift)structure

De mograph ic Ch an ge
Popu lation Size
Popu lation PyramidLife c yc le ge n e ration
Soc ial Move me n t
Immigran t
Re tie d Baby Boome r
Stu de n ts ge ttin g job
Type of h ou se h old

2015ave2013ave

2015

2013

－ 64 －

Pricing

TrendsGeneration

FactorPressure
Essential

C/Y

-200

0

200

4

6

Lower price, Higher quality
Health Convenience TasteThrifty + Value-Oriented
Middle class Market
Cost/price Value for Money
Housing cost burden
Family support cost
Lifecycle Lifecycle Hypotheses
MiddleLow
Class Movement→ Effects
Job-acquired Young
Downgrade to Low

2

8Discounter offend
discount

Low Class Market

Retail Hierarchy Change
Middle class Market
OnlineSuper Market
discount&premium
Affordable price movement

Old
High

High class Market
Value conscious
High income
WealthDepartment Store
Premium

High class Market

Demonstration Effect
Inertia EffectNew category development
Online, Convenience, Charity, Sharing, Organic
Price war
CPI>RPI

0

Consumption cycle

Property ladderHigh class Market

discretionary expenditure(elasticity >1) fluctuation

Upgrade to Middle
Retired Old
Immigrant

Young
High

Consumer Change
Middle class Market
Expenditure Pressure
Housing cost 1.6
Food '=fixed proportion of total expenditure
Consumer Price & Retail Prices
Food Inflation and Exchange rate

Low Class Market
Cost/Price conscious
Low income
Education Cost

Education

Low Class Market

Weal t h Ef f ect

di scr et i onar y expendi t ur e( el ast i ci t y >1)
essent i al expendi t ur e ( el ast i ci t y ≒ 1)

－ 65 －

included item
Demography

minor classification
populationsocial movementclass proportion

point
trend of population (increase or decrease)between classes (young, middle, old)each class size (low, middle, high)age composition of population
population pyramid(working age, young, old, immigrant)
retired, non-retired
difference of income and property
socio-economic classsocial class(occupations, income, behaviour, region, nationality)
occupational division
regular or irregular employment, ordinary worker or professional
old youngdifference of income and property
high:middle,low
difference of occupation, income, assets
family type
number of family, existence of child
Class purchasing power
Economydisposable income
GDP per head, original, gross, disposable income
economic size
GDP size, disposable income size
economic growth
GDP growth (nominal, real)Prices
CPI,CoreCPI,CPIH,Import,Retail price, Expected
inequality
difference of income and assets between top 20 and other 80
benefit tax
social benefits(national pension, occupational pension),tax(income, sales)
average income
average ( mean, median) income, downward or upward
aggregate purchasing power of each class(average income ×classaggregate class purchasing power
population), increase or decrease
consumer spending
total amount, GDP vs consumer spending
wage system ( seniority, job-paid, performance-paid), growth (wage vswageGDP), labour distribution rate,
supply and demand of labours (unemployment rate, active opening rate),labour market
new jobs, regular or irregular employment
exchange ratecurrency depreciation or appreciationdifference of household behaviour due to life stage
Household sector
Consumer behaviour
lifecycle hypotheses(young, middle, old)link to life stage, income level, essential costs, discretionary costs, working
class characteristics
age or not, birth age
elasticity
expenditure elasticity ( △I/△E), discretionary or essential expenditure
debt consumer credit
effect of consumer credit for consumption

themeClass structure

－ 66 －

debt to income ratio, affection of debt amount for household budget management, i.e.
consumption
household income/expenditure
revenue and payment [(income, expenditure), (benefits, tax), (loan, repayment), (withdrawal,
structuredeposit)]wealth effectaffection of net assets for consumption
ratchet effecttendency for maintaining living standard regardless of income change
effects on the behaviour of individuals caused by observation of the actions of others and theirdemonstration effectconsequences
difference of income, pension and property assets retired; pension, withdrawal, assets
retired non-retired
non-retired: wage income, saving, assets formation cost
opposite situation; rich old (adequate pension, expensive house owner), poor young
old young(inadequate income, non-house owner)
housing costs
property ladder, house price/income ratio, supply and demand
property ladderreplacement for more expensive property
pension national occupational
difference of pension balance according to the generation
using money and other resources carefully and not wastefully. price-sensitive, low-pricethriftypreference
value for money
affordable price, balance between value and pricecharitya system of giving money, food, or help free to those who are in need because they are illpropensity to consume, saving ratio
dependence on income, generation, living-standard
Retail sector Retailer
low middle high price category
in accordance with low, middle, high income class category
supermarket
existence of hierarchy
discounterNo frills, strong price competitiveness, destruction of past hierarchy of supermarket
marketing
4P×4C, emphasized points
merchandizing
number of items in shop,emphasized points
pricing
simplication of price line
onlinepopularization of online shop in every category
convenience store
popularizaition as a low price category
upgrade downgrade
retail category
wheel of retail
upgrade of retail category causing the risk of loss of past market

debt effectReferences
Bank of England, “The dynamics of consumers’ expenditure: the UK consumption ECM
redux” 2003
Bank of England, “UK household indebtedness” Nov.2016
Bank of England, “Inflation Report” Feb.2017
Bank of England, “Inflation Report” Aug.2017
Bank of England, “Inflation Report” May.2017
Bank of England, “Consumer Credit” 2017
Bank of England, Prudential Regulation Authority,” PRA Statement on consumer
credit”2017
Bank of England,” The potential impact of higher interest rates and further fiscal
consolidation on households: evidence from the 2015 NMG Consulting survey”2015
Bank of England, “Household debt and spending” 2014
Bank of England,” Influences on household spending: evidence from the 2012 NMG
Consulting survey”2012
Institute for Fiscal Studies,” The Economic Circumstances of Different Generations: The
Latest Picture” 2016
House of Commons Library,” Household debt: statistics and impact on economy” June 2017
Global Retail Technology, “EUROPEAN GROCERY DISCOUNTERS” Nov. 2015
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Inflation”2013
Office for National Statistics,” Wealth in Great Britain Wave 3: Relationship between
wealth, income and personal wellbeing, July 2011 to June 2012”2013
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Kantar World panel, “Thoughts On...

the British grocery market”2016

Kantar World panel, “Thoughts On...

the discount retailers”2016

Kantar World panel, “Thoughts On...DEMOGRAPHY: SHOPPER BEHAVIOUR BEYOND
THE STEREOTYPES” 2017
UK card association,” UK Card Payments 2017”
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Retail Economics, “Retail Sales”2017
And many Statistics of “Office for National Statistics”－ 67 －