Jul 13, 2017

Australia market snapshot: economic concerns knock consumer confidence

Australia's shoppers are buying with caution today – but strong avenues for growth are on the horizon.

Australia market snapshot: economic concerns knock consumer confidence

Australia's shoppers are buying with caution today – but strong avenues for growth are on the horizon.

Australia’s slowing economy made headlines with an unexpected decline in GDP to 1.7 percent in Q4 2016, the country’s biggest contraction since the global financial crisis. Investments in private dwellings were a major cause. Unsurprisingly, concern over the economy was reflected in consumer confidence—Nielsen’s global Consumer Confidence Index recorded an index of 91 points for Australia in Q4 2016 compared to 101 globally.  The majority of Australian consumers are taking a cautious approach to spending and just two in five consumers (42 percent) believe it is a good time to buy the things they need and want, taking into account their personal finances and living costs.  While some economic indicators are positive, particularly the unemployment rate of 5.6 percent, retail environment continues to present ongoing challenges for brands to succeed.

Looking ahead, a number of bright spots are appearing on the horizon. Australia’s population is forecast to grow by 13 percent to 26.9 million by 2025. The silver generation (consumers aged over 65 years) will represent an increasingly important part of society accounting for 18.5 percent of the population in 2025, up from 15.5 percent in 2015.  Retiring with enough money to live comfortably throughout their golden years is a dream that is taking longer to achieve for many Australians, with more than two in five (41 percent) planning to work past the current retirement age of 65. While seniors will become an increasingly important part of society in the future, more than two in five (44 percent) Australians say they do not see advertising messages reflecting the needs of older consumers, signalling a need for brands to bolster their efforts to reach and cater to an ageing demographic.  Larger fonts on product labels and signage, easier accessibility to age-related products, or offering friendly personalised service are tactics that can go a long way in building loyal patronage among this key demographic group.

Millennials (aged 20-35) and ethnic Australians also represent a strong avenue for growth over the next five years. Millennials could generate an incremental $6.1 billion in FMCG value sales in the next five years, while a strategic focus on ethnic consumers could deliver growth of $4.8 billion in sales. Within the FMCG sector alone millennials account for 7 percent of grocery spending, and this spending is projected to increase to 17 percent by 2021. Notably, millennials are tipped to spend twice as much online as any other generational group which will further fuel the growth of e-commerce.

Australia is known for its cultural diversity and ethnic Australians currently spend around $14.6 billion per year on groceries. This is expected to rise by 33 percent to $19.4 billion in 2021 primarily due to growth in the ethnic population. As a consumer group, their growth in grocery spending is four times faster than others. Compared to the average Australian consumer, ethnic Australians are 30 percent more likely to spend more on fresh, 55 percent more likely to spend more on health and beauty, and 13 percent less likely to shop at major supermarkets

E-commerce continues to outstrip other channels, growing 15.8 percent in 2016. However, with only 10 percent of people purchasing groceries online, shopper acquisition remains a huge opportunity for this channel. Rapid change in the Australian retail market with new e-commerce players emerging will ensure both manufacturers and retailers alike need to be nimble to keep up.

Sources: All population and urbanisation figures come from United Nations Urbanisation Prospects 2015.

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