Retailers should be gearing up for a more price-sensitive consumer and should expect consumer demand to contract into 2023. So says Deloitte in its Consumer Confidence Index which reveals that reduced consumer spending power has pushed the Index to a new record low at -20% in Q3 2022. However, it’s not all doom and gloom as the ‘lipstick effect’ takes hold and there are still opportunities for forecourts to make money.
The Deloitte figures – taken from a survey of more than 3,000 UK adults – show that for the second consecutive quarter consumers have reduced their overall expenditure by cutting spending in both the day-to-day and non-essential categories. And they are starting to adopt more recessionary behaviours. The data shows that consumers are not only cutting down on larger expenses, they are also trading down by buying cheaper brands including supermarkets’ own labels or buying more items on promotion. Nearly half of consumers (46%) are now choosing cheaper brands or stores, more than twice as many compared with a year ago (21%), and more than a quarter (28%) are taking advantage of sales or discounts. And more than one in three (35%) consumers are now doing their main food shop at a discount store, up from 29% a year ago.
Food sales down
According to the Office for National Statistics (ONS), food sales volumes were down 0.8% in Q3 2022 and have fallen every quarter since Q2 2021. Deloitte says that while this, in part, is due to people eating less at home as offices and restaurants reopened, it also points to the impact of rising food prices on the cost of living. Grocery inflation is at its highest level since the 1980s which means that while lower fuel prices at the pumps have brought some relief, shoppers are paying hundreds of pounds more for their annual grocery bill.
The data also shows that nearly two-thirds (59%) of consumers believe they will have less money to spend on Christmas this year compared with 2021. As a result, 39% of consumers are expected to spend less overall this Christmas compared with last year. Consumers will take affordability into consideration when spending on gifts and get-togethers this year. Nearly half (46%) intend to buy more gifts on discounts or on sale this year.
And 34% of consumers intend to spend less on socialising this Christmas while 39% intend to reduce travelling during the festive period compared with Christmas in 2021.
The lipstick effect
But there is some good news. The lipstick effect is the idea that when consumers are facing economic woes, they switch to buying less expensive luxuries. So instead of a new handbag they buy a lipstick. You may ask what’s that got to do with grocery and convenience shopping but it will be the little affordable treats that shoppers will hopefully go for. That might be a frothy coffee, a bar of chocolate or a pot of fruit salad – something relatively inexpensive that can brighten their day.
Leisure and entertainment spending is also being reined in which can only be good news for forecourt stores, particularly those that dedicate space to ‘Big Night In’ products. A so-called ‘boring’ night in front of the telly at home can instantly be made more exciting with a takeaway and some snacks – which will be way more affordable than a family night out at the cinema. Deloitte’s data shows spending on eating out was down by 27 percentage points in Q3, with substantial declines also seen in drinking in pubs and bars (-17 percentage points), drinking in coffee shops (-17 percentage points) and culture and entertainment (-19 percentage points). While some of the people making these savings will do nothing instead, overs may well opt for a family night in.
More good news
While it’s good to know what’s going on and while companies keep churning out this rather depressing data, we shouldn’t forget the plus points for the forecourt store.
Most people still drive petrol and diesel powered cars and therefore need to use a traditional forecourt, Yes, some will be going green with their EVs or switching to other modes of transport but the sheer cost of EVs and the regular rail strikes make cars and vans still the most popular mode of transport.
Most people are lazy; if they can get all that they need in one place, they’ll do it. So that could be filling the car with fuel, grabbing a coffee; getting something for lunch or something for dinner or a treat to cheer themselves up or something ‘naughty’ to eat while they are watching Netflix. To borrow from that oft-quoted line from the film Field of Dreams: stock it and they will come.