5 minute read 29 Aug. 2022
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The burden of uncertainty: The need for brands to respond as consumers brace and adapt

By Marc L’Huillier

EY Oceania Customer Strategy and Consumer Insights Leader

Customer Strategy. Accelerating Growth. Consumer Insight Expert. Thought Leadership Author.

5 minute read 29 Aug. 2022
Related topics Future consumer index

In brief

  • In our latest Future Consumer Index, we see 25% of Australians feeling worse than they did a few months ago and high levels of caution and concern emerging around how the next 12 months will unfold.
  • 2022 may have promised more clarity about what lies ahead, but increasing pressure on household finances and a subdued disposition sees caution dominating at the expense of optimism.
  • Large tranches of Australians are expecting to spend less in coming months across a wide range of categories as they look to buffer the instability in the economy. Their mood and mindset continues to shift and is reshaping purchase behaviour.
  • Our research identifies 4 consumer trends to watch and six steps consumer facing organisations should embrace to respond.

Australian consumers are dismayed and pensive. Their hopes of accelerating out of the pandemic have been frustrated by the slowing economy and they are anxious about what lies ahead. The decline in consumer confidence has been acute and the recovery will be far slower than the fall.

Large tranches of consumers are edging towards much more frugal – and in some cases austere – behaviour as the mindset of constraint takes hold. The key emerging shifts reflecting the new discerning consumer include:

  • Decreasing their repertoire to focus more on the essentials over discretionary goods and services
  • Downshifting to products that are cheaper and considered better value in the current environment, with private labels and more generic offers in consideration
  • Diverting to new options as product unavailability, coupled with increased prices, sees rote purchasing give way to greater brand promiscuity
  • Deferring or delaying repayments in subscription-based areas as the pressure increases

Consumer-facing organisations must adapt quickly to embrace this change. Critical to success will be:

  • Stress testing the product portfolio
  • Evolving pricing strategies while not eroding long-term value
  • Ensuring brand presence and brand equity are elevated in the minds of wavering consumers to reaffirm loyalty and protect market share
  • Maintaining alignment with the pandemic’s ‘new normal’ consumer values, particularly in the area of sustainability as a harder-line consumer attitude gathers pace
  • Modelling to manage risk in subscription and contract categories with the incidence of slower payments, default and cancellation likely to rise
  • Planning for the rebound when confidence returns, driven by even greater pent-up demand accrued over the last few years.

A collapse in consumer confidence

Feeling in control is a universal aspiration, but the quest for certainty and stability has proven more elusive than ever in recent years. For Australians, 2022 promised more clarity about what lies ahead as impact of the pandemic on day to day life tapered and freedoms were rediscovered. However, this has been counterbalanced by escalating anxiety about the economy and intensified pressure on household finances.

Concern about the direction of the economy has seen consumer confidence collapse. All of the major consumer confidence indices have shown an acute decline in recent months and are likely to oscillate at that level for months to come. Confidence is at close to a three-decade low, matching a time when the country was last in recession. It’s confronting data, with many Australian households deeply concerned about the cost of living as they are hit by accelerating inflation and interest rate rises while wage growth stagnates.

A hit to the hip pocket

  • Inflation hit 6.1% in Australia for the June quarter, according to the Australian Bureau of Statistics, with the Treasurer forecasting it will get close to 8%
  • Prices are rising at their fastest rate since 2001
  • Inflation is increasing in 65 of the 87 goods and service categories used to calculate CPI, Australia’s Consumer Price Index
  • The sharpest increases are in non-discretionary areas, like fresh food and household staples
  • Petrol prices are at historically high levels
  • The Reserve Bank of Australia is forecast to continue to raise the cash rate which will see financial institutions increase home loan interest rates
  • The Organisation for Economic Co-operation and Development (OECD) ranks Australia’s current inflation rate at 27th, below a wide range of economies including the United States (9.1%), the United Kingdom (8.2%) and New Zealand (7.3%).

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.

Six steps for consumer-facing companies

As consumers buffer their households from economic uncertainty and constrain their spending, brands need to move quickly. Six imperatives need to be top of mind:

  1. Review the product portfolio and operations to deliver on affordability: As consumers are increasingly likely to trade down in a wide range of categories to get the products and services they want at the prices they can afford, there is an immediate need to optimise product portfolios. The areas in the spotlight include ranging, pack sizes, packaging materials and alternative ingredients. Importantly, while constraint will be a dominant driver in many categories, other categories will see an uplift as mass-market consumers look for accessible indulgences. Understanding the prevailing and emerging dynamics around consumer demand is critical in an environment characterised by instability.
  2. Evolve the current pricing strategy: The amount of flux in cost of products and services in the eyes of consumers has created a significant opportunity to review the pricing strategy to adapt to the new environment. Sophisticated and dynamic pricing strategies can deliver value to retail customers and end-consumers now, while also maintaining long-term brand value. Aligning with consumers’ need to save money without diluting brand equity is critical.
  3. Reinforce brand presence and empathy: As consumers consider other options, brands need to stay top of mind, reinforcing their values and connection with loyal shoppers. Brand familiarity and engagement in a time of uncertainty are powerful, and brands that show empathy and connect with their customers will build loyalty. Unilever understands this, and boosted its marketing budget by USD$200 million for the first half of this year to keep higher priced brands in the mind of consumers
  4. Align with customer values: The emotional impact and deep introspection provoked by the pandemic have sharpened consumers’ focus on ‘what matters most’. Even at a time of heightened and sustained price sensitivity, consumers are not willing to abandon the values they have embraced through the pandemic. At the top of the list is sustainability – economic, social and environmental. It’s imperative to be recognised as ‘doing the right thing’, balancing purpose and profit, as consumers are now taking a harder line in scrutinising sustainability claims and the social contract.
  5. Model to manage risk: Consumer-facing organisations with subscription and contracted products and services, like mobile phones and streaming services, need to model the risk around slower repayments or default, alongside the impact of attrition as consumers more assertively manage discretionary spend.
  6. Ready for the rebound: While the economic conditions cast a pall over coming months and the recovery will be slower than the decline, the return of consumer confidence will be amplified by the deprivation and constraint experienced over an extraordinary few years. Alongside the immediate need to adapt to the conditions, brands must think future-back and plan for the second half of the decade when there is likely to be a more spendthrift and indulgent consumer.


Consumers hear about the CPI on the news, but they experience it firsthand in the supermarket aisles and at the petrol bowser. While many households may have a buffer on paper and can absorb the changes to prices in the short term, as well as adjust to the impact of interest rate rises, collectively it has a sustained and deep impact on consumer sentiment. While Australians are still spending, no brand will be impervious to the pending shift, and all brands must take immediate steps to respond.

About this article

By Marc L’Huillier

EY Oceania Customer Strategy and Consumer Insights Leader

Customer Strategy. Accelerating Growth. Consumer Insight Expert. Thought Leadership Author.

Related topics Future consumer index