Managing Director & Partner
The New Zealand Consumer Sentiment series shares insights from a BCG consumer survey undertaken with our coding and sampling partner, Dynata. The survey aims to uncover how consumer perceptions, attitudes, and purchasing behaviors are impacted by the evolving COVID-19 and inflation crisis. This snapshot presents insights from Round 2 of the survey, gathered from 2 November to 8 November 2022. We have drawn comparisons with research completed in the previous survey round (April 2022) and our surveys in other countries.
This survey collected responses from 1,800+ respondents in New Zealand. It represents BCG’s ongoing effort to support New Zealand businesses, measuring shifts in consumer income, saving and spending for the last 6 months and the 6 months ahead. It also explores consumer attitudes towards inflation and global events and attempts to understand consumers’ intentions to support climate and sustainability in an inflationary environment.
With uncertain economic conditions and the after-effects of the pandemic, consumer behavior and sentiment continue to evolve rapidly. We are seeing 7 trends emerge from inflationary environment and receding COVID-19 impact:
Two years after the onset of the pandemic, inflation has become a persistent concern for consumers in New Zealand and around the world. CPI increase annually was measured by the RBNZ at a record-high 7.2% in September 2022 and price rises continue to surge in the UK and across Europe, exacerbated by the Russia-Ukraine conflict. Consumers in New Zealand continue to express concern over rising prices and personal finances; 87% are concerned about price increases and 69% believe there will be an economic recession in New Zealand (up 5pp from April 2022). As an impact of the inflationary environment, 53% of consumers feel financially worse off today (up 24pp from April 2022). Consumers from all developed markets surveyed in April 2022 and November 2022 show similar levels of concern. See Exhibit 1.
More than 50% of consumers in New Zealand say they are earning and saving less compared to 6 months ago. Despite this, there has been spike in overall spending; 34% of consumers say they are spending more than they were 6 months ago (up 13ppt from April 2022). See Exhibit 2.
We studied the drivers of this increased spending. More than 61% of consumers attributed it to the increased cost of essentials, 32% attributed it to the increased cost of non-essentials and 30% stated the Russia-Ukraine conflict as the primary driver. Notably, approximately 20% of consumers also gave higher interest rates and pent-up demand to do things there were not able to do during COVID-19 as drivers of increased spending.
Despite inflationary pressures, this economic environment is unique. There are 2 positive shifts that come to consumers’ rescue. Firstly, New Zealand is without the high unemployment rates typical of past recessionary or inflationary periods. The unemployment rate steadied at 3.3% in September 2022 and 93% of consumers are confident about their employment. Secondly, consumers are more confident—benefitting from the receding impact of COVID-19. While 69% of consumers believe that COVID-19 will be present in their community for the rest of their life, 57% feel less worried about the COVID-19 impact now. This boost in consumer confidence is demonstrated by increased intention to travel overseas; 36% of consumers intend to take a long-haul international flight for leisure travel. While this is lower than other markets we surveyed, it is positively trending—up 5ppt from Round 1 of the survey. See Exhibit 3.
Our survey shows a correlation between inflation and consumers’ intent to spend on different categories. Rising interest rates and inflationary pressures have caused consumers to reset their spending to prioritise the essentials. Consumers in New Zealand expect to increase their spending on essentials such as utilities, food and groceries, mortgage and insurance. Despite this focus on essentials, consumers also expect to spend more on leisure travel over the next 6 months, suggesting a steady ‘travel-itch’. Predictably, consumers plan to reduce net spending on non-essentials such toys and games, recreational activities and eating out. The category that consumers most consistently point to as an area where they are likely to reduce their spending is luxury brands and products. See Exhibit 4.
Consumers have shown unprecedented resilience during COVID-19 by adapting their spending to endure the current economic circumstances. More than ever, consumers are looking for more affordable substitutes and better deals. We found that 50% of consumers are checking prices on the internet more before they buy and approximately 41% are choosing more accessible and affordable brands and buying based on deals and promotions than they were a few months ago. This deal-hunting behaviour is most prominent in categories such as kitchen appliances, cosmetics, make-up and perfume. We expect more consumers to turn to sale events such as Boxing Day; 49% of respondents plan to shop on Black Friday this year and 30% plan to shop on Boxing Day. This strong deal-hunting sentiment means there is opportunity for brands to penetrate the New Zealand market through sale events.
Digital channels show sustained growth among purchasers. At the same time, consumers are embracing the receding impact of COVID-19 and spending more in physical stores. In great news for in-store retailers, 65% of consumers will buy as usual or more from physical stores in the next 6 months, compared to 59% of consumers who will buy as usual or more from digital channels. See Exhibit 5.
On average, 20% of consumers intend to use digital or online channels (website or app) for purchasing more than they did before COVID-19. This intent is even higher for categories including utilities (40%), mortgage or rent (33%) and leisure travel (29%), suggesting a greater incentive for providers in these spaces to strengthen their digital offerings.
In August 2022, New Zealand completely re-opened its borders and consumers’ pent-up demand to travel is strong. We found that 32% of consumers in New Zealand intend to spend more on leisure travel in the next 6 months as the category emerges among the top 15 categories set to gain consumer spend (of 74 categories surveyed). Fewer consumers express concern to travel—the number of consumers ‘not concerned’ about travelling internationally has increased 12ppt since April 2022 to 37%. Likewise, the number of consumers not concerned about travelling domestically has increased 18ppt since April 2022 to 53%. This is great news for New Zealand airlines.
When it comes to types of travel, New Zealand consumers remain more inclined to stay within the country. For their upcoming travels, 35% of consumers intend to travel by road, 18% intend to fly domestically, 37% intend to fly internationally and 5% intend to take a cruise. This presents good opportunity for the local tourism industry as there is still a strong preference for domestic travel as we head into the holiday season.
New Zealand is one of few countries with the 2050 net-zero target enshrined in law via the Zero Carbon Act. While this net-zero pledge is received positively, companies need a strategy that inspires consumers to take the action that is needed to help reach our climate ambitions.
Despite impacts of inflation, sustainability remains among the top 3 issues for consumers of New Zealand. This brings a great news for companies who have bold ambitions and net-zero pledges! However, while up to 79% of consumers are aware of sustainability in their day-to-day use of products, only 6% are willing to pay a premium for sustainable products and services.
Company leaders often interpret this gap between ‘awareness’ and ‘action’ as a signal that consumers are not ready to translate their awareness to action. However, this is an incomplete picture of the consumer sustainability journey—which we have mapped out in Exhibit 6.
We examined every stage of consumer behavior in our research and identified 2 other important groups of consumers, the ‘adopting’ consumers and the ‘actioning’ consumers, who are on the threshold of embracing sustainable products and services. The key question for companies is how do we encourage more of those consumers to cross the threshold and make sustainable choices?
There are ways to reach and motivate these consumers by aligning sustainable offerings with their core needs. Companies need to understand what deters consumers from fully embracing sustainable choices and what will motivate them to pay a premium. Then, companies need to create products and services that resonate with consumers.
We also found there is marked variation across the product and service categories we examined. Some categories are more advanced on the consumer maturity curve, offering significant opportunity for companies to step up. See Exhibit 7.
The question remains how long employment and confidence in employment will hold up in the face of inflation and shrinking GDP—and when changes in those metrics will impact average and high-income consumers. Given the prevailing uncertainty, companies need to prepare for declining consumer spending and closely monitor consumer sentiment and behavior. At the same time, supporting consumers to act on climate and sustainability provides opportunities for companies to encourage spending around a strong cause.
We see 4 key actions for companies:
1. Strategically plan in an inflationary environment. Strategic planning is more important than ever, but companies need to take an agile approach. Companies need strategies that provide a clear ambition, prioritise resource allocation, can react to material opportunities and provide clear and timely guidance to investors. While strategy often works well in stable environments, uncertainty can help companies build a more resilient strategy. To drive faster and more agile strategic planning, companies can ask:
2. Win the customer in new reality. This inflationary environment is like no other. Price increases are resulting in spend increases but for the moment, consumers have employment security, savings and confidence as COVID-19 impacts recede. Winners need to understand market dynamics, their competitive landscape and the ‘shape of demand’ to succeed in these difficult times.
Let’s take the example of leisure travel. Customers are looking for new experiences, deals and discounts to make up for lost time during COVID-19. While there is still some uncertainty regarding COVID-19 impacts, they are ready to take the leap if they get assurance on refund and health protocols. Winners are those who remove the frictions, provide good deals and minimise perceived risks.
3. Take green to the mainstream with consumers. There’s a big gap between consumer concern about sustainability and action for sustainability. With consumer-centric data, companies can:
4. Create a channel ecosystem that aligns with consumers’ expectations. COVID-19 accelerated consumer digital journeys and many of those behaviours have stuck. To realise the benefit of this, companies must continue to digitise their customer journeys, front to back.
Only 30% of companies navigate a digital transformation successfully. And navigating it in uncertainty is especially difficult as new behaviors and expectations evolve. By taking a bionic approach—blending digital and human capabilities—companies can kick their digital transformation into gear and keep the momentum going.