There is no question that we are living through extraordinary times. Broad megatrends such as climate change, technological disruption, demographic shifts, a fracturing world, and social instability, are reshaping the global business environment. According to PwC’s 26th Annual Global CEO Survey, nearly 75 per cent of CEOs believe that the global economy will see declining growth in the year ahead, with inflation and macroeconomic volatility the key threats to their businesses in the short-term. However, when asked about the forces most likely to impact their industry’s profitability over the next ten years, the number one factor cited by 56 per cent of surveyed CEOs was changing customer preferences.
The state of consumers is uncertain. Globally, many consumers are financially worse off due to the economic slowdown, increased costs of living and adapting to ongoing COVID-19 pandemic disruptions. According to the NielsenIQ 2023 Consumer Outlook report, 39 per cent of global consumers say they are in a worse financial position this year compared to last year. The global majority are feeling constrained by recession, with 62 per cent believing they are currently living in recession. This sentiment is stronger in Europe compared to the United States and Australia. However, despite inflationary highs and global wage lows, there is a strong majority who are prioritising and spending on categories they feel will propel them ahead in the long-term. The report shows that the most important areas for consumers in 2023 are:
- mental wellness (46 per cent)
- physical wellness (46 per cent)
- financial/job security (46 per cent), and
- saving for unforeseen circumstances (44 per cent).
Globally, inflation of consumer goods continues to rise. The result is consumers are spending more but purchasing less volume. For example, in November 2022 the dollars spent globally increased by 11 per cent but volume declined by 2 per cent. Trading down means private label products and discounters will take market share of certain categories.
As financial stability is under threat, people must decide between paying more for everyday essentials, trading down to lower-cost alternatives or forgoing items entirely. The NilesenIQ report shows that consumers intend to spend more on utilities, education and groceries and household items but significantly less on out of home dining/eating and entertainment (down by more than 20 per cent). Within the groceries and household items category, spending on alcohol is expected to fall by the most (down 14 per cent), offset by increased spending on fresh produce, home essentials, health and wellness, dairy and fresh meat.
Businesses are also obviously feeling the pressure too. According to Euromonitor, 66 per cent of retail professionals said the rising cost of raw materials had an extensive impact on their company in the past 12 months. Higher production and operational costs spill over into retail prices. Profit margins are shrinking, and some players will be pushed out of the market. SKU rationalisation, updated pricing strategies, restructured investments and supply chain optimisation are measures taken to respond to new shopping habits.
One of the shifts that was supercharged through the pandemic and will continue to be important as consumers spend less on out of home dining and entertainment is the digital space, including apps. Apps have taken centre stage across all facets of life. However, the sheer number of platforms at our disposal has a downside. Too many options leave consumers frustrated. Euromonitor International’s Top 10 Global Consumer Trends 2023 reports that in 2022 more than one-fifth of consumers deleted social media accounts they didn’t use very often, and 57 per cent of consumers deleted apps on their smartphones. Consumers are increasingly focused on functionality and efficiency. Most consumers aren’t planning to decrease screen time but are more discerning about how that time is spent. They’re taking stock of apps or subscriptions and opting out of platforms that don’t prove valuable. While people are discarding their devices, screen time is more selective. Consumers want content and products filtered to their interests. Brands that save consumers’ time will ultimately gain their attention. This is also supported by the NilesenIQ research, which showed that there was 32 per cent more interest in “convenient or saves me time” as a brand purchase factor.
While safety took precedence over sustainability during the COVID-19 pandemic, sustainability remains high on the minds of consumers and businesses. NilesenIQ reports that consumers want to be more sustainable, and governance and cost will drive business focus in 2023. These drivers will force companies to transform and commit to real sustainable business models within the next five years if they want to mitigate short- and long-term risk. Stricter governance and mandates will drive the change to more sustainable business models more rapidly than growing consumer sentiment has been able to.
Euromonitor International reports that while saving is taking precedence over sustainability in the current economic conditions, increased cost of living is creating a new sustainable behaviour. Consumers will continue switching to energy-saving products, eating at home, reducing appliance use and limiting travel. However, less than one-fifth of consumers were willing to pay more for household essentials with sustainable features last year. While 45 per cent of professionals said investing in sustainability initiatives is a strategic priority for their company in the next five years, 41 per cent said a lack of consumer willingness to pay more for sustainable products is the most significant challenge. Consumption patterns are less about purchasing and more about reduction to positively impact the planet.
While increased cost of living is forcing consumers to cut back, they don’t want to be set back. People made significant sacrifices over the past few years to deal with economic instability while abrupt government shutdowns and mandates during the pandemic halted life as we knew it. And consumers became accustomed to the unexpected. Euromonitor International’s report highlights the “here and now” trend; it’s about living in the moment – consumers don’t know what tomorrow brings and aren’t wasting anymore time. While financial stability is important, time, health and bliss are equally important. Price is still relevant, but the emotional benefit also justifies discretionary purchase decisions. Productivity, personal growth, and joy are reasons to buy. Smart splurges and affordable luxuries let consumers reasonably indulge to unwind or cope with the world.
In terms of demographics, Gen Z is an emerging economic force and accounts for nearly one-quarter of the global population. The pandemic shaped their most formative years, which translates into higher resilience and expectations than preceding cohorts. Many of these consumers are on the cusp of financial independence, and their unconventional upbringing will transform business as usual. Euromonitor International’s research suggests Gen Z is immune to traditional advertising. Authenticity and social impact make a difference. They want to feel a genuine connection when engaging with brands. And these outspoken shoppers aren’t afraid to voice concerns; more than one-third shared their opinions on social or political issues on social media last year. Furthermore:
- 48 per cent want to engage with brands to influence product innovation
- 30 per cent make purchase decisions based on brands’ social and political beliefs, and
- 24 per cent boycott brands that don’t share their social or political beliefs.
Empty promises or staying silent on social causes can wreak havoc on reputation. Trust is created when companies live up to their commitments. Transparent, honest, and relatable communication resonates with Gen Z. This is where Australia may have a distinct advantage on the global stage. Research conducted by Fiftyfive5 on international perceptions of Australia on behalf of Brand Australia shows that fairness and trustworthy are Australia’s most differentiated and influential values and are key drivers in consumers choosing Australian products, services, and offerings.