Circana, the world's leading advisor on consumer behaviour, has released the latest installation of its highly respected 2023 FMCG Outlook report series, Shifting Shopper Behaviours, and the report identifies some clear challenges and opportunities for the sector as Australian shoppers change their buying habits in response to the cost of living pressures.
The latest Shifting Shopper Behaviours report outlines that shopping behaviours have changed rapidly post-COVID era. With inflation skyrocketing, petrol prices peaking and household costs continuing to soar, Australians are responding to these challenges with changes in their shopper habits.
Circana's Head of Product and Solutions, APAC, Alistair Leathwood, said that people are responding to the soaring cost of living as best they can.
"We are already seeing rapid changes in their behaviour as inflation bites. How shoppers behave will continue to change swiftly as household budgets squeeze tighter, and price and value become even more intrinsic to shopping decisions. Loyalty will be tested. Values will be tested too," said Leathwood.
He continued that based on Circana's research and engagement with shoppers through the Circana Shopper Panel, 93 percent of Australians are 'somewhat or extremely concerned' about the effects of inflation. For the FMCG sector, this means that shopper insights will become even more critical for manufacturers and retailers as they recalibrate, develop and execute new strategies to address the changing behaviours of the market.
The report covers several key focus areas for brands and retailers, including the concern over inflation, unplanned spending and value-seeking, value versus sustainability, and more.
Ninety-three percent of Australians are worried about the impact of inflation, with three-quarters of shoppers concerned about the cost of general household bills (72 percent), food and groceries (77 percent). Finally, half are worried about the cost of petrol (54 percent) and their rent or mortgage payments (46 percent).
As Australians continue to brace themselves against the impact of inflation, a clear pattern has emerged of shoppers allocating their spending towards purchasing essentials instead of discretionary items.
Leathwood stated that Australia's grocery channel was an AUD 120 billion industry, and dollar sales were up 6.8 percent compared with the prior year. Unit prices are up 8.6 percent, reflecting the broader inflationary narrative of essentials now recording faster price increases than discretionary items. This demonstrates the degree of financial pressure that households are experiencing and shows why shopper behaviour is changing so rapidly across the country.
Seven out of ten shoppers are now making unplanned purchases to buy products on special, and 56 percent of shoppers will change brands and stores to find value.
Value is now the overwhelming priority when Australians make decisions to change brands. Seven in 10 Aussies are now likely to make unplanned purchases after seeing products on promotion or discounted (68 percent) or switch to a new brand if it offers new features or benefits that appeal (69 percent). Eighty percent now actively stock up on products on sale, and two-thirds believe that retailer/own-label products are an excellent alternative to branded products. Fifty-six percent of Australians have tried a new store or brand due to perceived value.
"Retailers and manufacturers need to show shoppers that they are going through this difficult journey with them. Honesty and transparency underpin a solid relationship, especially during disruptive times."
Leathwood explained that the cost-of-living crisis was hitting Australian households hard.
The CommBank Household Spending Intentions retail spending index fell by 21.3 per cent in January 2023, suggesting the rising weakness in the retail space. In retail, the most significant lifts were in specialty retail, alcohol goods, family clothing and discount stores, with a spending decline at department stores, home supply warehouses, household appliance stores and furniture stores.
Australian spending habits are similar to global shopping trends. Circana quarter one global research shows that 96 per cent of global consumers intend to adopt cost-saving behaviours over the next six months; meanwhile, 40 per cent who intend to increase in-store and decrease online shopping say it's because the delivery costs are too high.
As a result of the increased cost of living, Australians are in line with the global trend towards prioritising affordability over sustainability for the first time since the middle of the pandemic.
While Australian households with lower incomes' desire to live sustainably today is higher than the overall pre-pandemic average, the 2022 shopper research highlights challenges to shopping more sustainably.
Forty-one percent of shoppers believed that sustainable products were priced too steeply, while 21 percent believed that the quality of sustainable products was not consistent. The cost-of-living crisis in Australia is inadvertently forcing many people to think more sustainably, especially as soaring energy prices force a review of household energy consumption and practices; however, this is not necessarily translating into the purchase of 'green' products at the supermarket checkout.
Circana's research also indicated that half of Australians will still try to buy environmentally friendly products if possible. In contrast, 68 per cent try purchasing locally grown and made products over imported products when available. All Australians are concerned by the ethical status of the products purchased and the companies that these products were purchased from.
In particular, seven in 10 Gen Z consumers would pay higher for products aligned with their purpose and core beliefs.
Overall, affordability tends to be a leading factor in the decision-making for Boomers and Gen X, who are the bulk of the consumer market.
"Overall, affordability tends to be a leading factor in the decision-making for Boomers and Gen X, who are the bulk of the consumer market."
Gen Z and Millennials include the sustainability of a product and company core values as an added deciding factor when making purchases. However, affordability increasingly impacts buying behaviour as the cost of living bites. Finding ways to deliver sustainability affordably should be the key priority to achieve a greater share of wallet."
The COVID pandemic ushered in a new era of online purchasing trends that continue into the post-COVID current era, showing that omnichannel purchasing is a permanent fixture in society today. Grocery retailers reported that omnichannel shoppers were particularly highly valuable, spending more than double compared with in-store-only or online-only customers.
Leathwood added that retailers and manufacturers must treat and analyse online channels as shopper-led businesses using data and technology as more shop online. Brands and retailers must put shoppers at the heart of everything they do. Circana's research showed that omnichannel shoppers are highly valuable. Fast-tracking smart investment in data technology and shopper solutions will provide a clear 360-degree view of who shoppers are and how to satisfy them.
Globally, shoppers are increasingly savvy at using various channels to inform their purchases. Physical retailer websites are most frequently used for product information, online marketplaces and e-tailers for price comparisons, retailer apps for seeking out promotions, and social platforms for future purchase inspiration.
"The whole umbrella experience considers every engagement, thought and feeling your customer has with your brand, including how they engage on your platform, from the search function to the shopping cart, and it's vital to deliver and connect on every touchpoint. Online shoppers are also more loyal to retailers, so winning the omnichannel shopper is critical to capture their tendency to spend more share of wallet with a single retailer."
As Australians adapt and change how and when they shop, their expectations of retailers and manufacturers are likewise changing. Brands and retailers that respond to individual shopper needs, especially during the current cost-of-living crisis, will come up on top. Australian consumers expect value-based shopping, so successful brands and retailers must differentiate their customer types and quantify their sales contribution to prioritise initiatives.
"Through understanding the factors influencing or disrupting shopper behaviour, manufacturers and retailers can more confidently adapt their strategies to address specific needs better and influence shopping behaviours to suit various shopper types on different occasions. The balance of power has shifted from retailers and manufacturers to the shopper. Knowing the shopper's attitudes and driving behaviours is key to unlocking loyalty and acquisition."
Circana's Shifting Shopping Behaviours report concluded that the COVID-19 pandemic initiated many pandemic innovations that drove brick-and-mortar shops to diversify their business model to include or improve their e-commerce channels. In a post-COVID world where inflation is skyrocketing, Australian consumers are in sync with global trends towards prioritising affordability when purchasing products for themselves and their families.
This can cost companies because values such as brand loyalty are now being compromised in favour of value for money, with many consumers comparing prices and choosing more affordable options.
According to the research, sustainability continues to be a value many consumers hold dear to their hearts.
However, in light of the soaring cost of living, consumer values are faltering as they are faced with choosing between a more affordable product versus a more expensive but environmentally friendly one. While Millennials and Gen Z consumers continue to emphasise sustainability as a deciding factor in their purchases, older Boomers and Gen X, consumers are still forming most of the world's buying power, and their decisions are based more heavily on affordability.