As the rising cost of living continues to eat into discretionary income, Australian consumers are buying more house brands, cheaper cuts of meat and fewer treats.
However, a grocery industry expert asserts that consumers’ quest for value is opening new opportunities for supermarkets – and brands.
Neil Moody, GM for Australia and New Zealand at Focus Insights, says since inflation growth took hold and mortgage interest rates began to rise, consumers have become more and more price-sensitive. Focus Insights’ latest annual study into Australians’ grocery-buying behaviour out this month “reinforces the fact that budgets are very, very stretched”.
“A large number of people are impacted, and the tactics that they’re employing to save money are pretty consistent and have become quite normal and are now entrenched behaviours,” says Moody.
“One of the key initial takeaways from this year’s report shows that people are looking for specials and deals, trading down to cheaper proteins, buying less overall, and limiting discretionary purchasing.”
For example, Focus Insights found that 38 per cent of grocery shoppers are buying cheaper meat options. “They are trading down from steak to mince, and chicken is more affordable for a lot of people compared with some red meats. Some people are commenting that they think seafood is too expensive now.”
Moody has more than 25 years of experience in the FMCG industry across a variety of sales, analytic and commercial roles, working with manufacturers including Yakult and Kellogg. That makes him well-placed to monitor and interpret trends. He worked for Nielsen for almost 15 years before taking the helm of Focus Insights’ Australasian business a year ago.
He says that while the trend towards private labels – along with a growing number of people shopping at Aldi – was evident in last year’s survey, those factors are even more so this time around.
“Private label is again among the top five tactics that people are looking to save money and spread their budget further. That’s a big growth area for retail in Australia. People are looking at everyday low pricing, especially for some less basic products, where – if they feel the quality is right – they are happy to make the trade-off,” says Moody.
That trend is interconnected with the consumer shift towards Aldi where the vast majority of products carry the retailer’s own brands. The research shows 14 per cent of Australian consumers are doing most of their shopping at Aldi versus Woolworths, (44 per cent) and Coles (34 per cent). “IGA has really dropped off … reflecting a shift in terms of people consolidating their shops somewhat more amongst the big three,” Moody says.
As shoppers face rising costs, discretionary products have been taking a hit – particularly confectionery and soft drinks, as revealed in last year’s report. This year, consumers said they are also buying fewer health and beauty products or trading down by brand.
Shrinkflation, where manufacturers reduce the size or weight of products but maintain the same price point, is another trend (both here and overseas) as manufacturers manage rising costs, although Moody warns brands to beware of how that tactic might resonate – or not – with consumers.
“People feel like it is sneaky because it is not obvious when it happens. With new products coming onto the market that are smaller than the existing ones – as part of a range extension – there are times when shrinkflation may be tolerated a little more, but when you are replacing an existing product with a smaller one, people often won’t like that.”
Such dissatisfaction is particularly strong in the confectionery and snacking categories, often influencing people’s purchasing decisions. “Sometimes there’s a real turn-off because people don’t feel like there’s transparency there, so they might look for another product that hasn’t undergone the same drop in grammage.”
It’s not all bad news: How supermarkets can prosper in tough times
While the report shows customers are tightening their purse strings, retailers can take heart in knowing there are still opportunities to grow sales and respond to consumer needs.
“It’s not all bad news. From a supermarket’s perspective, grocery is a great place to be. Even if there are challenges in terms of people buying fewer discretionary products or trading up less, you are still seeing and capturing a significant number of people who shop regularly and who see supermarkets as the main place to meet their food and beverage and other product needs. Supermarket operators should be maximising those touch points when people come in, and help them feel like they’re making more savings.”
For example, if people are eating out less or buying fewer takeaways, the supermarket is an ideal destination to replace that experience with more affordable options.
“Consumers can buy frozen convenience meals and other dinner options like pizzas or dumplings, for example, at a supermarket instead of from a takeaway shop. That’s significantly more cost-effective than getting takeaway or eating out and people still want to be able to treat themselves and not feel like they’ve got to do all the work and have no fun,” says Moody.
“Offers that are focused on eating tonight, or potentially have something available which doesn’t require as much preparation – certainly on a weekday – are becoming more and more popular, and there’s a lot more ranging of these products near the front of the stores.
“What it comes down to is whether consumers feel like that’s an adequate replacement or a really positive option. They certainly seem to be happy for supermarkets to be an option for lunches. Things like sushi bars and more fresh packaged sandwiches or salads are becoming popular because they offer an alternative to eating out in a restaurant or a cafe.”
However, he believes supermarkets could do better in talking up the opportunities to encourage consumers to have more meal occasions at home and become known for those occasions.
They should recognise that in the current economic climate, they are not only competing with rival chains, but takeaway outlets, cafes and quick-service restaurants as well. While people are using such out-of-home venues less often right now, supermarkets have an opportunity to really highlight how much they can be an alternative. For example, a seasoned rotisserie chicken might cost half the price at a supermarket compared with a charcoal chicken chain.
“With the ability to drive volume and have very sharp pricing, supermarkets could certainly market and drive that further at a time when people are looking for solutions and trying to manage their budgets better.”
* Focus Insights is a dynamic, full-service market research and consumer insights agency partnering with FMCG, pharmacy, and hardware companies across the globe. Its purpose-built qualitative and quantitative research solutions combined with first-hand industry experience deliver valuable shopper and consumer insights in days and at a fraction of the cost of traditional agencies. The company can reach more than 130 million consumers across 94 countries and deploy research in local languages.
