Economic doom and gloom: SA consumers cut back on spending with 87% saying they’re financially stretched

South African consumers are cutting back on spending as 87% of them say they are financially stretched.

They are substituting branded products with cheaper alternatives but are also moving to healthy eating and sustainability and buying locally sourced products.

According to the latest McKinsey Global Consumer Sentiment Survey, South African consumers are changing their behaviour as they respond to the high economic uncertainty, stretched household budgets and the pandemic.

Value is now top of mind for South African consumers.

Consumer confidence subdued

Local consumer confidence was subdued even before the pandemic with only 24 percent of South Africans saying they are optimistic about the economy in 2019, but according to the latest survey, 21% are optimistic, while 17% were optimistic in 2020.

Although consumer sentiment is now higher than it was in 2020, it is still below the values for other emerging economies such as India (57%), China (48%) and Brazil (31%). Only Japanese consumers are less optimistic at 13%.

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Pessimistic, financially stretched consumers

South Africa has the highest share of pessimistic consumers (29%), ahead of France (24%) and Japan (23%).

Local consumers are not only worried about the economic future of their country, but also their current personal economic situation as they become more financially stretched:

• 87% describe it as stretched
• 13% of these say they are in crisis
• 32% say they find it hard to make ends meet
• 42% say they have to make adjustments.

It is also now becoming clear that it is not only low-income consumers who are suffering from financial stress.

Only 28% of the most affluent respondents with a household income above R500,000 per year say they are doing fine or very well.

Only 35% of them believe that their financial situation will further deteriorate in 2022, but 71% report that their ability to make ends meet has declined over the last 12 months.

It is therefore no surprise that 61% are cutting back on spending, the highest of all countries surveyed on par with Brazil and well above the cut-back rates in India of 48% and China of 45%.

Again, all income levels are affected with 51% of consumers in the highest household income tier cutting back as they become financially stretched.

The financial stress has also ensured that 70% are paying more attention to prices, 69% are looking for sales and promotions and 61% are delaying purchases.

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How financially stretched consumers are changing their behaviour

Although there is a slight improvement from 2020, household budgets remain constrained, with 32% of local shoppers substituting branded products with cheaper alternatives, an increase of 10 percentage points since the pandemic started.

Very few South Africans (4%) are trading up, with only Brazil with a higher trade-down rate (40%) and a lower trade-up rate (3%).

While trading down cuts across all categories, household cleaning supplies are at the top of the list.

Financially stretched consumers are trading down with 54% doing so because they believe that private labels offer the same quality as branded products, 42% because cheaper alternatives are good enough for everyday use and 41% choosing them because they are often on promotion.

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The move to online shopping

With many consumers choosing to buy online during the pandemic, brick-and-mortar shops remain the key channel.

Online shopping has become much more popular over the course of the past two years, with online sales in South Africa more than doubling since 2018.

In 2018 online sales totalled R14 billion and R30 billion in 2020.

Online shopping now makes up 3% of total retail sales in South Africa, up from 1 percent in 2018.

Now 13% South African consumers have moved online since the pandemic started with 12% in the low-income tier, 14% in the medium and high-income tiers moving online.

What do people buy online?

They buy non-perishable products, such as cosmetics, laundry supplies and household cleaning supplies because 48% like the convenience, 38 like the easy price comparisons, 33% like that they can avoid contact with other people and 33% like the lower prices.

When asked why they would not order grocery and household products online, 57% said it is too expensive, 46% worry they will get faulty items and 43% concerned that products may differ from how they appear online.

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Healthy eating habits even with little money

The survey also showed that South African consumers are increasingly choosing healthy eating and sustainability although they are financially stretched.

The survey shows that two-thirds of South Africans value companies that offer healthier choices and they are prepared to pay more for healthier, more nutritious and organic options.

According to the survey, 51% buy locally sourced products, up from 47% before Covid-19) and 41% buy natural or organic products, up from 37%.