Consumer Compass: Q2 2022
Results from our Q2 Consumer Compass reveal that the cost of living crisis has had a profound impact on the economy – more so than any other crisis in the past 15 years – including Covid-19.
Confidence in the economy is now as low as it was during the Covid-19 pandemic, but is not as much of a problem as it was during the Great Recession
Here are the key findings from our latest study:
Confidence is at a record low
- The cost of living crisis is having a major impact on consumer confidence – we are seeing record lows for consumers’ confidence (buying attitudes and spending plans) in their personal financial situation and their levels of disposable income
- Overall consumer confidence is now lower than it was at any point during the Covid-19 pandemic, or during the aftermath of the Great Recession in 2008
- The drop in confidence is significant across all regions, age groups and social groups
Crisis in disposable income
- Confidence in the economy is now as low as it was during the Covid-19 pandemic but is not as much of a problem as it was during the Great Recession
- More consumers say their job situation is worse this quarter than last, but the labour market is staying relatively resilient with this level of satisfaction not any lower than historical averages
- Inflation’s effect is clearly most felt in consumer’s wallets and is therefore going to have a direct impact on the levels of spending we see in different consumer sectors
The impact on spending appears to be widespread
- Only 12% of consumers say they are ‘insulated’ from the current economic environment – everyone else is either cautious, squeezed or suffering. As a result of this, consumer spending is becoming depressed across all sectors
- Sectors which were heavily impacted during the pandemic are eating out and entertainment outside of the home – they are at risk of sliding into crisis once again, as consumers deem these activities as ‘not necessary’ and therefore reduce the frequency of these to optimise spending
- However, even sectors resilient to Covid, such as takeaway/delivery and DIY, are suffering declines in spending. 52% say they are spending less on Eating in during Q2 2022 – a 15% increase since last year
Spending on grocery and holidays see no change
- The impact of inflation is high but it has not yet converted to a significant reduction in spending across the grocery and holiday sectors
- The high levels of consumer spending on holidays during the first half of this year look set to slow down in Q3 as the inflation impact worsens
Importantly, grocery is the sector with the highest inflation impact (88%) but has not seen any change in aggregate spending.
This is because it is a polarised sector: some people are biting the bullet and spending more (30% of consumers), others are spending less (33%), while the rest say they are spending the same amount (36%) on grocery shopping as they were last year. Value brands are also proving useful: half of consumers (49%) say they have switched to cheaper brands for at least some of their grocery shopping, while one in four (27%) have actively changed supermarkets to save money
As a result, market data available from Kantar Worldpanel (20/03 vs. 12/06), shows German discount supermarkets, Aldi & Lidl, have gained 0.9% market share in Q2 2022
Looking forward to the autumn
- Moving into the second half of the year, recreational sectors (such as days out and entertainment out of home) and eating out appear to be most at risk, with 50% of consumers anticipating spending to keep declining in those areas
- Younger consumers – Gen Z’s and Millennials – also have relatively less affected spending habits than older audiences. This is unlikely to continue through to the autumn as they continue to be impacted by the rise in cost of living across sectors
In summary
It’s impossible to ignore the ripple effect of the cost of living crisis on the economy. It is having a profound impact on consumers’ confidence, making them feel uneasy and unsure about the future. These low confidence levels will act as a weight on growth as consumers are more and more hesitant to spend money.
