Consumers cut back on non-essential supermarket, convenience store purchases

Posted by Daniel Palmer on 29th July 2008

The recent combination of increased fuel prices and interest rate hikes is taking its toll on in-store spending by consumers in the convenience trade, a report released today by The Nielsen Company has revealed.

Close to three quarters of Australian consumers (74%) say their lifestyle has been negatively affected by fuel price increases, with two of the top three responses to rising fuel prices being to stop buying non-essential items at the supermarket and at petrol stations.

According to the 2008 Nielsen ShopperTrends Report, growth for packaged merchandise sales in the convenience channel has plummeted to below two percent in February this year coinciding with the latest interest rate rise and when fuel prices peaked at an Australia metro average of $1.37 per litre. Just six months earlier, in August 2007, convenience sales were growing at a healthy nine percent when fuel prices averaged at around $1.23 per litre.

The ‘Nielsen ShopperTrends Report’ reveals that the convenience channel has recorded declines in consumer patronage over the past year with only around 42 per cent of consumers claiming to have visited a convenience outlet in the past seven days in 2007, compared to over half (53%) in 2006. Convenience store patronage on a four-weekly and occasional basis had also recorded declines.

It is not all gloomy news, however, with previous trends indicating that consumer confidence can return quite quickly. “While the outlook for the convenience channel currently looks a little grim, our research trends show that consumers initially react quite dramatically to external shocks, but they are usually quite buoyant and their spending habits bounce back pretty quickly,” advised Kosta Conomos, Executive Director, Pacific Retailer Services, The Nielsen Company. “We saw this happen when fuel prices initially peaked in the second half of 2005 and convenience growth fell quite dramatically. Consumers proved to be fairly resilient, and after a couple of months, growth in packaged merchandise sales in the convenience trade recovered despite the fact that fuel prices continued to rise.”

The length of time before consumers get over the economic issues is difficult to ascertain though, due to the fact that more than one issue is playing on their minds. “The difference with the recent fuel price hikes is how long it will take for consumers to recover from these external shocks given that it has been coupled with rising interest rates,” Conomos added.

When it comes to retail channels outside of the convenience trade, supermarkets continue to be the retail channel where consumers spend the most money and visit most often. However, the popularity of gourmet food stores continues to rise as consumers demand better quality fresh produce and increasingly support their local community retailers.

In 2007, around one-third (31%) of consumers claimed to have visited a gourmet specialty food outlet in the past four weeks – up from just 23 percent in 2006. Occasional use had also increased from 41 percent in 2006 to 52 percent in 2007. “The latest Nielsen report shows that in terms of overall consumer trends – freshness and quality of fresh produce, as well as products that are healthy and convenient continue to grow in importance. Consumers are willing to shop around and pay a premium for fresh produce that they perceive to be of superior quality,” noted Conomos. “We have already seen the key supermarket chains start to take advantage of these trends with some of their recent campaigns e.g. Woolworths Fresh Food Kids, Aldi’s Just Organic range and IGA’s Food for Life. The focus on fresh will continue, particularly as manufacturers also start to make inroads in this area.”

“Certainly in the convenience trade retailers are also putting a huge focus on improving the quality of convenient, fresh and healthy snacks they offer. If manufacturers and retailers can work together to modify store layouts and products on offer to better engage and tempt the consumer and take advantage of these growing trends, this will ultimately help to drive a speedy recovery in the convenience channel,” Conomos concluded.