10 minute read 7 Aug 2020
Woman buying groceries wearing face mask in the supermarket

Future Consumer Index: How to thrive in the age of affordability

Authors

Kristina Rogers

EY Global Consumer Leader

Global leader for consumer industries. Marketing strategist. Worked in 20 countries. Harvard MBA. Photographer. Scuba diver. Canadian fiction reader. Mother of two.

Andrew Cosgrove

EY Global Consumer Knowledge Leader & Lead Analyst

Consumer futurist. Strategist with global FMCG experience. Storyteller. Photographer. Father.

10 minute read 7 Aug 2020

The EY Future Consumer Index on behavior and sentiment is tracking a fundamental pivot away from brands to private label products.

In brief
  • Consumers globally are becoming more careful with their money as the pandemic continues.
  • Willingness to consider private label products is growing fast and is far higher than current penetration.
  • Five actions will help brand owners deliver superior products that connect with the changing consumer’s values and priorities.

We’ve been tracking the impact of the COVID-19 pandemic on consumers around the world for four months now, and it’s clear that the road to any kind of post-pandemic normality will be a long and winding one. Some countries are continuing to move forward, but only in small and tentative steps. Yet in many places the steady groundswell in consumer confidence we were seeing has slowed, stopped or slipped into reverse.

In this edition of the EY Future Consumer Index, we are focusing on the possible implications for consumer goods companies of this faltering confidence. Specifically, we want to highlight the growing mood of financial conservatism we’re detecting and the potential this creates for a significant pivot to private label (retailers’ own brands).

We’d expect to see the appetite for private label grow whenever the economy struggles; the Index shows that this is happening, but it also suggests that the pandemic might be driving deeper changes in the attitudes and habits consumers have regarding private label. A remarkably high percentage of consumers globally are telling us they would now consider a private label product – far higher than the market penetration for such products would suggest.

Consumer sentiments about value for money

60%

of global consumer will be more focused on value for money in the future.

Some of these consumers have had to change their buying habits out of necessity. Their regular brands simply weren’t available, so they tried something they wouldn’t normally consider; now they’re willing to consider private label more widely (we explore how widely below). Some are reflecting on how they spend their money, and whether premium brands justify the cost. And others are looking for ways to save money as the threat of recession makes them worry about their finances. We see these sentiments expressed across all the consumer segments we’re tracking, not just those that represent the more value-conscious consumer.

These insights lead us to ask whether private label is about to experience a tipping point. We’ve already seen how COVID-19 has transformed the willingness of global consumers to shop online. Is something similar about to happen with private label? And if it is, how should brand owners respond?

Consumer optimism is fragile

When we published the third wave of our Index in July, we noted growing levels of consumer optimism around the world. Lockdown restrictions were beginning to relax in many places. Indicators that act as a proxy for anxiety – such as the percentage of global consumers very or extremely concerned about the health of their family – were falling.

Overall, those falls have continued, but only marginally. Media headlines are dominated every day by stories about local outbreaks, new restrictions, higher infection levels, job losses and economic gloom. When we ask consumers how they feel about their personal finances, the percentage saying they are very or extremely concerned is still falling, but that fall has slowed. In some markets, both health and financial concerns are rising again.

Consumers are more conservative with their spending

Some consumers are gradually getting more comfortable about going back to normal activities like trying on clothes in a store. But progress is slow and not universal. In the US, for example, consumers feel as uncomfortable about using public transport or sending their children to school as they did in May.

And a cautious return to necessary activities, like paying the hairdresser a visit, doesn’t imply any increase in discretionary spending. In fact, 61% of consumers say they will be more aware and cautious about their spending now. And 48% want to postpone the purchase/replacement of big-ticket items, such as automobiles, furniture and appliances, until after the pandemic is over.

For many people, that longed-for return to normality will take much longer than they hoped. As a result, they are deeply worried about the impact of recession. Globally, 54% of consumers say price is a more important purchasing criteria than it was just a month ago.

Importance of price

54%

of global consumers say price is a more important purchasing criteria than it was one month ago.

These concerns are reflected in our consumer segments, which are tilting towards those that represent higher degrees of spending conservatism. Globally, the percentage of consumers in our “Stay calm, carry on” segment doubled between May and June, but it’s now stuck at that level. Likewise, the percentage in our “Cut deep” segment was falling fast, but this has now stabilized.

Many governments are urging consumers to get out and spend, but many consumers are deciding they’d rather not – or not yet. When we ask consumers about their future intentions, there’s no significant change in those planning to “Keep cutting” or “Stay frugal.” Overall, 64% of consumers say they won’t buy products that they don’t feel they need, even if it means they miss out on the latest trends. And 45% expect that buying what they want won’t be an option for them – they will just buy the essentials. This suggests that many consumers are hunkered down for the duration of the crisis.

Consideration of private label is much bigger than its penetration

What could this mood of financial conservatism mean for consumer products companies? One critical thing we feel needs to be highlighted is that the scope for private label to take market share away from branded products is significant in all the categories and geographies we are tracking.

Even in markets where private label penetration is high, there is scope for expansion. For example, 67% of consumers in the UK would consider buying private label in the packaged foods category, where private label currently has a market share of 37%, according to Euromonitor.

The gap between consideration and penetration is even wider in some geographies and categories. For example, 41% of US consumers say they would consider buying a private label product in beauty and personal care, a category where private label currently has a market share of just 4%.

Importantly, it’s not just the value-conscious consumers worried about the impact of the pandemic today who are expressing a significant interest in private label. Even consumers defined by their desire to prioritize experience, or to put the planet or society first, show high levels of interest in private label products.

The shift to private label is deeper than it looks

The Index is pointing to a pivot towards private label products that is likely to prove deeper and more lasting than we’d normally see in a downturn.

The surge in at-home consumption looks to be with us for some time; 41% of consumers still feel uncomfortable about going out to eat; 45% plan to keep their cupboards stocked with an excess supply of household staples like cleaners, paper products and basic groceries.

The Index suggests premium pricing will become harder to maintain. As more consumers shift their focus to price, they are less willing to pay a premium for most attributes, such as whether a product is ethically or sustainably sourced.

How should companies respond?

Many consumer products companies have underprioritized investment in brand building and product innovation over the last decade. During the same period, retailers have significantly increased the quality and range of their private label products. Against this background, the consumer’s increased willingness to consider private label products and the current economic fragility could lead to a significant pivot. Is this a market pivot that brand owners need to respond to in a defensive way, or is it an opportunity they can shape to their advantage?

Consumers who say they will consider private label won’t necessarily follow through with that intention, and very few consumers would buy only private label. But we believe it is more important than ever that company portfolios have the right products, in the right packaging, in the right channels, for the right price, targeted with the right marketing against the right consumer. Here are five actions for consumer goods companies:

  1. Track how consumer decision hierarchies are changing and assess how well products perform against both traditional competitors and private label brands.

    In our experience many brand owners underestimate how much price elasticities have changed and overestimate how favorably the consumer perceives their products versus private label alternatives. To understand which brands are most vulnerable to private label switching, it’s critical to identify and consolidate data across categories and markets and make it visible across functions.

  2. Invest in points of competitive difference and revise price pack architecture and assortment strategy to optimize local mix and margin.

    Innovation frequently falls short because functional silos do not work together effectively. Sales and marketing must work closely with supply chain to adapt value propositions, develop innovations in product and packaging, and arrive at the right marketing and pricing structures that will lead to consumers choosing the brand.

  3. Revise demand forecasts across the portfolio and develop the supply chain agility to dynamically respond to different scenarios.

    Backward-looking data from before the pandemic is inadequate. What changes in demand will be permanent and which will be temporary? By planning for different scenarios, tracking the current state, and responding quickly, companies can ensure the right products get to the right shoppers/consumer. This will maximize volume and revenue and minimize the risk that consumers will turn to alternatives.

  4. Re-allocate resources and investment behind priority retailers and channels to drive mutually beneficial outcomes.

    The distribution landscape has changed and will continue to change. Companies need to reconfigure their route to market and understand how this affects cost-to-serve. Investing appropriately behind customers/channels will drive increased supply chain and inventory efficiencies and reduce the need for retailers to accelerate their own private label alternatives.

  5. Redesign consumer engagement to maximize brand perceptions across the new path to purchase.

    Companies need to identify which of their brands can successfully differentiate beyond price, and when and how to influence the shopper. This is challenging as consumers increasingly blend their use of digital and physical channels; the marketing levers are similar, but the way they work together is different and requires a new marketing capability set. Making promotional planning more focused and insight-driven will limit revenue leakage and drive enhanced return on investment.

The consumer’s increased willingness to consider private label products and the current economic fragility could lead to a significant pivot. Is this a market pivot that brand owners need to respond to in a defensive way, or is it an opportunity they can shape to their advantage?

Responding to the impact of the pandemic is requiring significant resource and attention. Consumer goods companies are having to re-examine every part of their value chain at a speed that is unprecedented. They are busy adapting to a channel shift away from physical stores; some large players have reported e-commerce sales up 50% or more in the first half of the year. They are also responding to a boom in at-home consumption, and higher spending across personal health and household hygiene.

The shift in preference toward private label is yet another disruption for consumer products leaders to have on their radar. The Index has identified a clear statement of intent – 60% of consumers say they will be more focused on value for money in the future, with 32% saying they plan to buy more private label staples. But will they follow through?

Price is increasingly important to the consumer, but as demonstrated by our Beyond-COVID-19 segments, it is not the only thing that matters. Brand owners can limit the pivot to private label by delivering superior products that speak to the changing consumer’s values and priorities: 39% of consumers plan to buy more from organizations that benefit society, even if their products/services are more expensive. The reassessment of consumer priorities that the pandemic is driving will work against complacent brands, but it favors those that offer more than price.

  • Methodology

    We surveyed 13,519 consumers across the US, Canada, Brazil, UK, France, Germany, Denmark, Sweden, Finland, Norway, India, UAE, Saudi Arabia, China, Indonesia, Japan, Australia and New Zealand during the week of 20 July 2020. The survey questionnaire covered current behaviors, sentiment and intent.

Summary

The EY Future Consumer Index has been tracking a return to optimism, but that’s now slowed. In some key markets, it’s reversed. Worried about their finances, consumers are increasingly turning to private label products. The pivot that’s happening here could be deep and lasting. In response, brand owners must deliver superior products that speak to the changing consumer’s values and priorities.

About this article

Authors

Kristina Rogers

EY Global Consumer Leader

Global leader for consumer industries. Marketing strategist. Worked in 20 countries. Harvard MBA. Photographer. Scuba diver. Canadian fiction reader. Mother of two.

Andrew Cosgrove

EY Global Consumer Knowledge Leader & Lead Analyst

Consumer futurist. Strategist with global FMCG experience. Storyteller. Photographer. Father.