Jun 11, 2018

Grocery, health are bright spots in sluggish Australia: Nielsen

Net disposable income is down and consumer confidence remains flat—but there is room for cautious optimism in some corners of the Australian market.

Online grocery shopping is growing and will remain a bright spot in Australian markets, predicts Nielsen.
Online grocery shopping is growing and will remain a bright spot in Australian markets, predicts Nielsen.

As part of our Asia's Top 1000 Brands deep dive into Australia's top brands, Nielsen has provided this look at the market's economic and consumer backdrop.

With continued flat wages growth and pressure on household spending, the Australian market continues to experience challenges with a sluggish growth rate. Australian GDP growth slowed in late 2017, driven by construction and exports.

According to the Australian Bureau of Statistics (ABS), although there was actually an uptick in household spending, this was driven by experience-based discretionary spending and rising health costs. Ultimately, real net disposable national income per capita (a measure of living standards) actually went backwards versus the prior quarter. 

Unsurprisingly, consumers in Australia remain cautious—with consumer confidence flat in Q4 2017 vs same time a year ago at an index of 91 below the regional and global average, as well as other comparable markets like the UK and United States with indices of 96 and 98 respectively. 

Concerns around employment remain a key driver behind this cautiousness in Australia, with only 39% of Australian consumers feeling positive about job prospects. It is likely that this is being influenced by on-going underemployment challenges, particularly for younger people—which when combined with rising household costs is reducing consumer disposable income.  This cautiousness has flowed into FMCG spending with nominal value growth in for 2017 sluggish down at +1.9%, compared with 2016 (+2.6%).

Despite these challenges in the business environment, there are three key areas of growth potential.  Private Label continues to grow in this cautious spending environment which is unsurprising given the pressure on household income, as switching to Private Label has become a key way of reducing grocery spend.

Another bright spot of growth is online grocery shopping. As consumers become more connected and confident with online spending, the grocery e-commerce channel will continue to boom. It is a channel that is driving substantial growth relative to its share of sales today. The Australian grocery e-commerce channel saw a growth increase of 23.8% for the year ending December 2017, compared with the previous year. E-commerce is growing faster than the total market (1.3%), key retailer bricks and mortar stores (1.9%) and discounters (6.5%), despite only representing 3.0% share of sales today. It is important now more than ever for Australian brands and retailers to have an e-commerce strategy for 2018, especially with the competitive arrival of Amazon in 2017.

Health and wellness also continues to be a key trend on the radars of consumers, businesses and governments. Health and wellness aspirations are increasingly influencing shopper grocery behaviour. Australians are taking a greater interest in low or no sugar alternatives when grocery shopping. Overall, the shift towards low sugar health and wellness products shows a decentralized pattern with both lower and higher affluence driving growth. The growth is also scattered across a range of demographics, demonstrating that the search for low sugar is not confined to one type of consumer, but instead a new Australian mainstream behaviour.

The introduction of a sugar tax in Australia is a hot topic of debate but highlights there is a big opportunity for manufacturers to better leverage consumer needs and meet the demand for low sugar alternatives in the Australian marketplace. Despite a slower growth environment, areas of opportunity exist if you scratch below the surface to unlock emerging trends.

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