Managing Director & Partner
This survey represents the first in BCG’s series of regular studies of consumer sentiment and purchasing behaviour in New Zealand, and is part of our ongoing efforts to help businesses understand their customers.
Rising inflation and continued COVID wariness have dampened New Zealand consumer sentiment. In BCG’s inaugural issue of the New Zealand consumer sentiment series, we compare New Zealand’s consumer mood with our global consumer sentiment survey conducted in in the first half of 2022.
All things considered, it’s easy to understand why consumer sentiment is declining and spending behaviour is changing. With inflation reaching levels not seen in 30 years, New Zealanders are increasingly concerned about rising prices, particularly essential goods and services. As salaries fail to keep up, many consumers are reducing discretionary spending and looking for cheaper alternatives or promotions to control their household expenses. Kiwis are also wary of a potential resurgence of COVID, the impacts of Russia’s invasion of Ukraine, and a broader global economic downturn. This report seeks to outline what companies can expect from post-COVID consumers by tackling questions such as: what categories are expected to be winners and what categories are expected to struggle? What consumer trends can be expected? And, how has consumer shopping behaviour changed now that most restrictions have been lifted?
This survey collected responses from 1,000 New Zealand adults. It represents the start of BCG’s regular reporting to support New Zealand businesses and measures changes in consumer income, saving and spending for the last six months and the six months ahead. It also explores consumer attitudes towards inflation and global events.
Inflation stood out as the primary concern of New Zealanders with 90% of respondents saying they are ‘concerned about the recent price increase of goods and services’. The New Zealand Consumer Price Index as of June 2022 is 7.3%, the highest since 1990 (Exhibit 1). This level of concern about price increases is higher than survey results from across Europe and the United States, despite 8.6% inflation in Europe, and 9.1% inflation in the US (Exhibit 2).1 Notes: 1 RBNZ Consumer Price Index March 22
The concern, however, is unsurprising given New Zealanders are already pinched at the checkout, with New Zealand being a top ten cost of living country according to the World Bank, and now facing the highest inflation levels in 30 years.2 Notes: 2 World Bank International Comparison Program. Accessed 4 July 2022 Inflation is also highly noticeable in daily life: at the supermarket checkout as the price of food and essentials rises, at the pump with petrol prices, and at home with rising rents and mortgage rates.
Looking ahead, more than 80% of respondents expect the price of groceries to continue to increase in the coming year at the same or faster rate than recent months (Exhibit 3). This would put further pressure on consumers’ weekly budgets and on the grocery sector to provide a competitive offering. Additionally, consumers are more aware of increasing food and essentials prices due to ongoing media attention and a government enquiry into competition within the grocery sector.
The broader consensus is that inflation is here to stay, with 80% of respondents expecting inflation to extend beyond the coming six months. This expectation is lowering consumer sentiment.
Though the annual Labour Cost Index (LCI) rose 3% in March 2022, which is above the ten-year average of 2%, wage growth is being outpaced by inflation.3 Notes: 3 Statistics New Zealand Labour Cost Index March 22 The LCI has likely been positively impacted by a 6% increase in minimum wage to $21.20 an hour as well as increased demand for staff across multiple sectors. However, in our survey, 80% of respondents had not received an increase in pay in the past six months, and 70% were not expecting that to change in the coming six months.
In response to decreased purchasing power, consumers are changing their consumption and spending behaviour by tightening their purse strings. Spending on luxury goods and services is set to decrease, with the top 5 categories respondents expected to spend less on being women’s clothing, savings, dining, fashion accessories, and luxury brands (Exhibit 4).
With the rising cost of essentials, respondents expected to spend more on fresh foods, utilities, staples, packaged foods, and beverages. However, many are seeking to counteract this, with 46% looking to buy more affordable brands and 45% stating they will be seeking promotions.
The rare exception to this conservative spending is leisure travel, where 18% of respondents expect to spend more in the coming months. This is the largest expected travel increase across all countries surveyed. It may reflect New Zealand’s recent relaxation of border restrictions and pent-up travel demand.
Two-thirds of New Zealand respondents expressed concern of a resurgence in COVID and believe if we are not careful, cases will spike again. This wariness is leading to half of respondents saying they are avoiding public spaces such as bars, concerts, and indoor sports, due to the risk of catching COVID. This level of caution is lower than in East Asian countries such as Japan and China but higher than European countries such as the UK and France, which seems to reflect COVID normalisation between countries (Exhibit 5).
With people still wary of public spaces, 63% of respondents said they had shopped online in the past six months, and a 6% net increase in online shopping is expected in the coming months. Likewise, New Zealanders continue to embrace digital payments with 82% of respondents using digital payments in the past six months and 24% expecting a net increase in their use.
Roughly three-quarters of New Zealand respondents agreed or strongly agreed that negative impacts of Russia’s invasion of Ukraine are being felt in New Zealand. These likely include uncertainty from the evolving geopolitical situation, Russian sanctions impacting New Zealand exports, global supply chain disruptions, and rising fuel prices. Yet, less than half of respondents expected these negative impacts to be a driver of recession in New Zealand, far lower than countries that neighbour the conflict, where 60-75% of respondents believe it will lead to a recession in their local economy.
Given current global conditions, three-quarters of New Zealand respondents are worried that the world will struggle with a long-term economic recession, in line with respondents globally. More than half the respondents expect the local economy to get worse over the next 12 months, and 60% are worried about their personal finances as a result.
Many are looking to the New Zealand government to promote a business environment that will drive a sustainable recovery from COVID and turn the current economic outlook. However, only 36% of our survey respondents believed the government was delivering on this.
We expect 2022 will shape up to be a year of continued disruptions resulting in a host of challenges as well as opportunities for New Zealand businesses. As we look ahead, it is important that businesses prepare for the ‘next normal’ of consumer preferences to attract and retain this new consumer profile.
Consumers are reducing their non-essential spending (except for leisure travel) and the sectors at greatest risk are hospitality, and fashion and luxury retail as consumers reduce non-essential expenditure. Across essential categories, consumers are hoping to mitigate the impacts on their personal finances by spending wisely and seeking wage increases.
To respond to this changing consumer landscape, businesses need to:
The authors are grateful to a number of colleagues for their support and assistance. They include Indira Zaveri, Marius Chiasseu and Aditi Bathia for supporting the survey, Anna Leonidas for editing and storylining, Paul Sutherland and Janelle Cook for marketing, and Bec Diepenheim and Matthew Santos for visual services. In addition, BCG thanks research partner Grail Insights for fielding the survey and assistance in collecting data.