The burden of uncertainty: The need for brands to respond as consumers brace and adapt

In the most recent EY Future Consumer Index, a quarter of Australians (25%) said they felt worse than they did earlier this year. This figure is comparable, and slightly up, on what we were seeing in October last year, at a time when lockdowns were still a reality with Covid running rife and life constrained. While 61% still felt about the same, this is not necessarily a positive given the hope of that time hasn’t transpired. We have also seen a decline in many of the metrics that capture sentiment and future outlook.

When we look at how people feel about their financial future and segment Australians into four categories, we see there is only an optimistic few, with 7% defined as feeling confident and largely unaffected. Caution and concern prevail for the majority, with one in 10 Australians pessimistic and deeply worried about what is to unfold through the balance of 2022 and beyond.

The long journey out

A sharp decline in consumer confidence and financial outlook invariably takes much longer to recover, particularly around shopping behaviour in discretionary areas. The decline is almost always steeper than the recovery.

Australians can also be more pessimistic than those in other major economies like the US and UK, even when the conditions may not be as harsh as those experienced elsewhere. For example, during the Global Financial Crisis, Australia braced for a big hit and confidence declined, but the impact was low level compared to that elsewhere. Similarly, we saw Australians more worried about their financial future in the early days of the pandemic than those in some other comparable countries despite Covid being under control in relative terms, economic conditions comparatively stable and government support prevalent.

The direct impact of the current environment is a consumer weighed down heavily by the burden of uncertainty. This constrains and reshapes shopping choices, tempers spending and ultimately ushers in a new era of austerity – even at a time of low unemployment. We asked Australian consumers about their spend intentions over the next four months across 24 categories and 58% planned to spend less in three or more categories. When we look across the board, a sea of red indicates pending belt tightening and the impact of higher prices. Areas where consumers are likely to spend more is a function of inflation rather than an increase in volume.

Four trends to watch

Four shifts reflecting the conservative and constrained mindset are worth keeping an eye on in coming months:

• Decreasing: There is an emerging compression of the shopper repertoire. For example, 46% of Australians say they are now purchasing only the essentials. This is well ahead of what we are seeing in the UK (36%) and the US (38%). A similar number (52%) say they are spending less on non-essential items like fashion, cosmetics and homewares.

• Downshifting: One-third of Australians (33%) say they are trying new brands to reduce costs, with the generation most concerned about the cost of living, Millennials, leading the charge. A harder-line, even mercenary, mindset is emerging as consumers trade down food and groceries to options that are considered better value in the current environment.. The focus on value has elevated interest in home brands and private labels, with 19% having switched from a brand to a private label product in the past few months. The shift in consumer behaviour was noted in a recent update by Proctor and Gamble (P&G), the largest global consumer packaged goods company by sales. Despite strong sales in the first half of the year, P&G warned that belt-tightening is underway and the full impact is coming.
• Diverting: Adding further complexity are the stock shortages and supply chain challenges that have hampered consumer rituals and rote purchases. One in two Australians (49%) have found products they wanted unavailable in store, particularly in fresh food, packaged food and household staples. They have been forced to switch out their preferred products and this can erode brand loyalty and encourage more brand promiscuous behaviour to emerge.
• Deferring: Early signs in the US indicate that constrained consumers are slowing down or delaying repayments in subscription-based areas like telecommunications. In July, telco giant AT&T reported that more customers were falling behind and consumers were paying their monthly bills an average of two days slower than a year earlier. This is potentially a portent of what is to come and the cashflow implications for organisations are significant.