Optimism and opportunities for consumer brands going into the new year

Finding value and optimism in a challenging market

The trading conditions for consumer and leisure brands is undoubtedly challenging now, but there is room for optimism; while consumer sentiment is low, it doesn’t appear to be getting worse, despite what the headlines might tell you.

As we enter the new year, brands need to refocus efforts on the pockets of value (where sentiment is stronger) and develop propositions to meet the changing behaviours of price-sensitive consumers. Whether that be targeting the millennial or grey pound (less impacted by high mortgage, utility, and child-care bills) or introducing cost-saving initiatives (such as loyalty schemes, targeted offers, and value range alternatives).

The outlook

Consumer’s future spend intention remains low but there are signs of improving sentiment across the majority of discretionary spend categories. While across the non-discretionary categories, most impacted by inflation and interest rates, there appears to be a net positive movement from today’s sentiment.

“Across the following categories, how has your spending changed in the past 6 months?”, “Looking ahead, how do you anticipate your spending to change in the next 6 months?” (n: 1,000)

New essentials

Petcare continues to look resilient, entrenching its promotion to ‘evergreen’ status. The humanisation of pets is making them a priority spend category for owners; of those expecting to increase spend (on their pets), a third are planning to reduce spend on drinking & eating out, clothing and leisure activities.

Despite headlines of the stagnating growth of streaming platforms, entertainment subscriptions look less at the mercy of tightening budgets than other forms of leisure. This may indicate a shift back-to-the-home, as a cost saving measure, and towards home entertaining, eating, and drinking – to the benefit of supermarkets and meal-kit providers but to the detriment of restaurants, pubs, and bars.

The lipstick effect

History shows that consumers tend not to forgo selected indulgent items completely in economic downturns (the ‘lipstick effect’); aspects of this can be seen across categories, particularly with the millennial and grey pound:

• Beauty (services & products): The young are more positive on beauty services looking forward, when compared to their peer groups, while beauty and personal care products remain relatively high on the agenda for those 65 yrs and older.

“Across the following categories, how has your spending changed in the past 6 months?”, “Looking ahead, how do you anticipate your spending to change in the next 6 months?” (n: 1,000)

• Clothing, footwear, and accessories: With the winter season upon us and the festive event spree, 25–44-year-olds and the over 65s look more likely to upgrade their wardrobes, to the benefit of retailer’s inventory-glut.

“Across the following categories, how has your spending changed in the past 6 months?”, “Looking ahead, how do you anticipate your spending to change in the next 6 months?” (n: 1,000)

• Big ticket items: Usually one of the first categories to see a sales decline in the face of economic headwinds, these items see a more positive swing of intent possibly driven by young professionals (25-34yrs) who may have moved house recently and are looking to capitalise in the January sales.

“Across the following categories, how has your spending changed in the past 6 months?”, “Looking ahead, how do you anticipate your spending to change in the next 6 months?” (n: 1,000)

Note: Big ticket items are high-priced items that last a relatively long time e.g., furniture, car, or house.

Closing thoughts

In an environment of downbeat sentiment, where household budgets are increasingly under threat from rising costs, new pockets of spending have emerged where consumers are not willing to compromise on their existing standard of living. For categories outside of these pockets, consumer brands need to be more strategic in who they target and how (sticking to the basics and delivering to the customer needs around product, price, place, and promotion) to maintain demand and control customer acquisition costs.

 

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