Global uncertainty weighing down on Australian consumer confidence: Nielsen

Australia’s resilience amidst the current global uncertainty is the envy of many developed nations globally. Yet despite the relative stability of key economic indicators, Australian consumers are increasingly apprehensive about the impact of global issues on the economy and their personal finances.  With confidence sliding in the most recent quarter to its lowest level since the global financial crisis to an interim index of 97 in August (as measured by Nielsen), shoppers are changing the way they spend their money, what they spend it on and where they make their purchases. The legacy of the 2009 global financial crisis has provided many lessons for Australian consumers. With increasing global uncertainty on our doorstep, we are once again seeing these lessons being applied. This change in consumer behaviour is a key driver shaping a rapidly evolving Australian retail landscape. 

State of the Nation

Australia is one of the few countries that emerged from the recession of 2008-9 relatively unscathed. With nearly full employment, one might expect Australians to be among the more confident in the world. But if we scratch beneath the surface we witness a number of factors that are darkening Australians’ outlook: unemployment is expected by some analysts to rise, and has done so marginally in July, up from 4.9 percent to 5.1 percent; inflation has risen 0.3 percent  to 3.6 percent in July, causing the prices of basic needs to go up; utility rates are higher; uncertainty about the carbon tax – and its effects on the average household – lingers; massive market fluctuations caused by economic jitters in the U.S. and Europe have made investors nervous, and not least, natural disasters in neighbouring New Zealand and Japan have taken their toll. It’s no surprise that Australian consumers have been rattled and are behaving with an almost recessionary mindset.

Source: Nielsen

 

 

Source: Nielsen 

Why is this happening?  First, they are saving more; the personal savings rate has increased to 11.5 percent – the highest since 1988. Second, they are looking for new ways to manage their household budgets (see graph above).

This has resulted in a number of ‘new’ shopping behaviours:

1. The average number of store visits is down (exception: online) and shoppers are visiting four or more stores to fill their shopping needs. Whereas before consumers may have visited the most convenient store, they are now shopping around to find the best available offer.
2. Shoppers are increasingly looking for value, and the major supermarkets are attracting more and more shoppers with promotions, at the expense of convenience stores, independent supermarkets and specialty outlets.
3. Shoppers are buying more private label goods.

What’s a retailer to do?

Shoppers cutting back obviously present challenges for retailers and suppliers alike. Cutting prices and increasing promotions is a start, but often has limited impact as each retailer almost immediately matches the prices of others.

Private label (PL) is one area where retailers can differentiate themselves. Nearly two-thirds (64%) of Australian households already think that PL products are as good as name brands, with the overall spend on PL accounting for nearly a quarter (24.6%) of total grocery spend in the most recent quarter—up from 24.1 percent in the preceding quarter and 23.1 percent in the same period a year ago. This growth has been driven by lower prices and improved, consistent quality, resulting in volume growth from all shopper demographic groups.

Nielsen’s latest Retail Barometer survey indicates that the success of a retailer in today’s volatile trading environment is not just measured on the best product and price offerings, but the extent to which retailers can leverage their existing trading relationships with suppliers, and how well they can execute their strategies in driving efficiencies and balancing the promotional mix, leading to increased footfall and profits.

Despite a constantly shifting retail landscape, one thing is certain: retailers and suppliers must adapt to the changing habits of Australian shoppers who are becoming increasingly skittish about the state of affairs in their country. According to Nielsen’s latest quarterly global consumer confidence survey, Aussies have indicated that even when economic conditions do improve they will continue to be frugal. This means that getting the right value proposition is of paramount importance and will most likely be achieved through continual innovation. Those retailers and suppliers that understand how consumers are feeling – and adjust their strategies accordingly – should be well positioned to capitalise on these trends.

Source: Nielsen