Consumers getting close to affordability tipping point

Consumers are getting close to the tipping point of affordability in confronting higher prices, with clear evidence that they are becoming far more vigilant about what is a ‘must have’ in their shopping baskets.

According to the newly released NielsenIQ South Africa State of the Retail Nation report, fresh milk, Vienna sausages, breakfast cereals, margarine, cheese, soaps, skin care and deodorant are all on the chopping block.

The highest inflation in 13 years has a stranglehold on consumer purchase patterns, with 12 out of the Top 40 grocery products showing double-digit inflation.

Cooking oil, the product with the highest product inflation (38%) in the four weeks ending on 1 June, saw a correlating decrease in the number of units sold for the first time since the onset of the war in Ukraine.

According to Ged Nooy, MD of NielsenIQ South Africa, this trend is also reflected in other products experiencing high inflation, such as frozen meat – which experienced 22% inflation and a 17% decline in unit sales and snacks – which experienced 19% inflation and a subsequent decrease in units sold.

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Buying less due to affordability

The report also shows total annual retails sales for fast moving consumer goods (FMCG) of R523 billion, representing a 12% annual increase and for the latest month, the data indicates sales of R4 billion, representing a 9% increase between May 2022 and May 2021.

“It is interesting to see that one of the products experiencing a positive impact of consumers forgoing other staples is bread, which despite its 10% inflation figure for the latest month, had unit sales increase by 17% in contrast to another staple, maize meal, which also experienced price inflation that resulted in a 2.3% decline in pack sales and fresh milk, which saw a 9% decrease in units sold,” Nooy says.

These key NielsenIQ panel data points are complemented by the findings of the NielsenIQ Mid-Year Consumer Outlook Update – Enduring Inflationary Times, a study which surveyed consumers in 17 countries including South Africa.

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Watching affordability

The study found that 85% of South Africans say they are “consciously watching what they spend compared to a year ago”, compared to 76% who said so in December 2021.

“It is, therefore, no surprise that the proportion of consumers who recognise that their weekly shop has increased ‘compared to six months ago’ has increased from 70% to 80%.”

Consumers cope with these pressures on affordability by scaling back, with the top action “cooking at home”.

This is followed by spending less on discretionary items, such as clothes and grooming, as well as having fewer takeaways/dining out and socialising.

“As South Africans faces a tsunami of utility and grocery price hikes, our research also shows that consumers are spending less on discretionary items, such as home-delivered meal kits, pre-prepared instant meals and snacks or luxury and new products.”

The study also showed that more than half of those surveyed said they choose the best-priced product. South Africa has been ranked as one of the most price sensitive nations in the world for a long time.

Half of South Africans buy whatever brand is on promotion, while 44% have gone as far as stopping to buy certain products to reduce the cost of their shopping basket.

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What consumers look for now

“The current wallet squeeze means shoppers are on the lookout for authentic, known and trusted products that represent ‘security of purchase’ in terms of providing everything they need at the lowest price possible.

“This is no time for radical, knee-jerk reactions or hurried product executions, but rather a measured, data-driven response that offers consumers consistency, certainty and value during the current price crisis.”

As an unbiased retail data and analysis provider, NielsenIQ is subject to contractual terms which prevent it from releasing specific manufacturer and retailer data points.

NielsenIQ monthly inflation is based on the difference between Rand value sales growth compared to unit sales growth, in other words how much more consumers are spending in terms of rands paid per pack than they were the month before.