The perils of income elasticity

Upturned champagneA reminder this week of the dangers of selling products that are income sensitive: champagne producers are seeing their sales drop as consumers start to tighten the belts and reduce spending on non-necessities. Four of the five largest producers have reported drops in sales compared to 2007, with one down 30%.

Presumably folks have switched to substitutes that meet some of their celebratory/ commiseratory needs at a lower price. I wonder if it’s beer or chocolates? Either way,  firms like Rémy can build in very few switching costs to prevent such consumer behaviour. Wonder if it will be time for more consolidation in this industry…

What other products are experiencing such drops in sales?

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2 Responses to “The perils of income elasticity”

  1. Steve Sammartino Says:

    History shows that luxury in home consumables, like chocolate increase in volume during tough times, as it is a substitute for external entertainment, or going to the movies and so on. They stay home and have ‘smaller in home treats’ like a block of Cadbury and a DVD night’. This was very noticible for premium fast moving consumer goods while I was in this Industry. The same goes for beer… the volume of premium and standard beers doesn’t change much, but the mix of volume moves from on premise (more expensive) to packaged take home beer (Cheaper)….

    There are strange microcosms of behaviour within total categories and markets…
    Steve.

  2. Andre Sammartino Says:

    In fact it would appear beer sales do actually go up in hard times… well so says the evidence for Australia over last 30 years: http://www.news.com.au/story/0,,24568043-2,00.html

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