During a period of both disposable and discretionary income growth, declining consumer confidence has had an interesting effect on premium goods consumption. Although the consumption of premium food items has increased, this trend has not been reflected in other luxury product segments.
The COVID-19 pandemic has had a varied effect on Australian consumer behaviour. Among other economic effects of the pandemic, consumer sentiment fell dramatically in 2019-20. Consumer sentiment is measured as a point average of responses to a survey regarding Australian households’ financial situations. Accordingly, a lower index indicates widespread economic doubt and reduced confidence in economic conditions.
As consumer sentiment fell, real household disposable income and discretionary income both increased considerably in 2019-20. Disposable income refers to the earnings households have available to spend on both necessary and other goods and services, while discretionary income refers to a household’s remaining earnings after all necessary purchases have been made. Decreased spending on discretionary services, due to industry shutdowns, and increased government assistance have supported Australian incomes through the pandemic.
All dressed up and nowhere to go
For much of the pandemic, Australians have been subject to intermittent government-mandated mitigation strategies, such as mask mandates, service and retail venue closures, capacity limits, and restrictions to interstate and intrastate travel. These measures have reduced the opportunities available to Australians to spend their hard-earned dollars. As a result, many Australians were able to increase their savings and shifted their focus to the food retailing sector.
The Supermarkets and Grocery Stores industry has also greatly benefited from the COVID-19 pandemic, having been largely unaffected by lockdown mandates. Industry revenue grew by 5.1% alone in 2019-20, at the onset of the pandemic. Overall, higher income households increased their spending on premium and gourmet products during the pandemic, due to the ongoing disruption to the food services sector.
Premiumisation at any cost
Australians have increasingly sought premium staple food items that boast a range of benefits and selling points, including:
- Nutritional and healthy recipes
- Ecologically sustainable production methods
- Premium Australian ingredients
- New and exciting flavours and textures
This trend has accelerated during the pandemic. For example, the Pasta Production industry’s more expensive product segments, such as stuffed fresh pastas, have grown as a share of industry revenue during the pandemic. Typically, consumption of cheaper staple products, such as dry pasta, increases during periods of reduced consumer sentiment. However, many Australians’ higher real household discretionary income has enabled them to spend more on high value-added items.
A similar trend has occurred in the Bakery Product Manufacturing industry. Consumers have increasingly sought greater quality, freshness and variety of bread, and this trend has endured throughout the pandemic. Sales of artisanal, wholemeal and seeded breads and gourmet-style savoury pies and quiches have increased over the past five years, despite difficult trading conditions for the industry overall. Both of these industries’ premium product segments have increased in sales during the pandemic. These increases have occurred despite the food manufacturing and retail sectors generally operating under constrictive conditions over the past two years.
Other luxury goods
This uptick in premium product consumption during the COVID-19 pandemic has not extended to non-food items. Typically, declining consumer sentiment closely correlates with declining consumption of luxury goods. For example, although the Fine Jewellery and Watch Retailing industry retails high value-added items, the industry’s revenue contracted by 7.6% in 2019-20. Additionally, the industry’s second and lowest household income quintile market segments have declined as a share of revenue through the pandemic, despite the increases to both real household disposable incomes and discretionary incomes over the period.
Outlook
The increase in premium food purchases during the pandemic provides useful insight into the behaviour of consumers under considerable economic stress. The pandemic did not cause the trend towards premiumisation, but certainly exacerbated it. Consumer sentiment, real household disposable income and real household discretionary income are all forecast to increase over the next five years, in excess of pre-pandemic values. Accordingly, trends towards premiumisation are projected to continue over the same period.
Alfabank-Adres industry reports mentioned in this release:
