Australian Consumer Sentiment Snapshot #5

The COVID-19 Australian Consumer Sentiment Snapshot series shares insights drawn from a BCG consumer survey undertaken with our coding and sampling partner, Dynata. We design this research to uncover how consumer perceptions, attitudes, and spending behaviours are impacted by the evolving COVID-19 crisis. This snapshot presents insights from Round 5 of the survey, completed in the Australian market from 28 October to 2 November 2021. We have drawn comparisons with research completed in Round 1 (20 April to 24 April 2020), Round 2 (21 May to 25 May 2020), Round 3 (2 July to 5 July 2020) and, Round 4 (30 October to 5 November 2020). We have also drawn comparisons with research completed in the USA and China in August 2021 and May 2021 respectively when consumers in both countries were out of lockdowns.

Australia was hit by the surging COVID-19 Delta variant after a period of relative normality for consumers compared to other parts of the world. Australians reacted quickly to the renewed threat of the Delta variant. As of 8 November 2021, 80.5% of Australians over 16 were fully vaccinated, a rate that surpasses countries that started the earliest vaccine rollouts. We conducted Round 5 of our consumer sentiment survey in late October 2021, when consumers in Victoria and NSW were looking forward to new freedoms. Restrictions in NSW had started to ease, and Victoria was about to announce loosening of their restrictions. We asked consumers to fast-forward to a “post-COVID-19 Australia” and share their insights with us.

As consumers shift to new-normal world, they are:

1. Full of optimism that we are moving past COVID-19 compared to this time last year but are moving to the new-normal at a different pace
2. Adopting healthier and more sustainable options, supporting small businesses and local products at reasonable pricing.
3. Cautiously optimistic in their spending intentions, with a wide variety across categories
4. Planning for significant elevation in spending for leisure travel, with domestic interstate flights and road travel continuing to dominate travel plans
5. Keen to return to instore shopping, although online shopping will remain an integral part of purchasing
6. Showing increased trust for supermarkets and health providers, while government, media and financial institutions lose trust from consumers in 2021
7. Showing interest in the property market despite fluctuating confidence, signaling sustained growth of property related investments post COVID-19

1. Moving to a new-normal at a different pace: A mix of optimism and apprehension among different demographics and states

• Australian consumers are more optimistic about macro and economic recovery than our previous survey (Round 4, October 2021).
• Victoria and NSW are more optimistic than other states as they exit the lockdown although Victorians claim the largest shift in lifestyle for the worse.
• Lockdown has had a mixed impact on saving and spending.
  

With easing restrictions and high vaccination rates, Australian consumers are more optimistic than the last year. Consumers’ concerns that the worst of COVID-19 is still ahead declined by 7ppt from 39% in October 2020. On the back of this confidence, only 55% of consumers believe that there will be an economic recession compared to 78% of consumers a year ago. Australian consumers are much more confident about economic recovery than consumers in the USA, with 79% of consumers concerned there will be a recession due to the coronavirus in August 2021 (Vs. 73% in May 2021).

We have also seen a marginal increase in consumers’ expectations of improving their personal financial situations. Now, 6% fewer consumers are worried about their personal finances compared to Round 4 survey results, a trend diverging with the USA where 5% more consumers in August 2021 were worried about their personal finances than in May 2021 (35%). See Exhibit 1.

A de-averaged view of consumer sentiment by state shows a distinct pattern of concerns and planned behavioural changes. NSW and Victoria, impacted the most by the recent Delta variant, show higher confidence for the future. The other states show more apprehension about the future, reflecting the reality that borders can’t stay closed forever and that there are likely to be COVID-19 outbreaks in these states as they slowly open. See Exhibit 2.

Tasmanian consumers are the least likely to claim to have returned to normal spending patterns. Despite not going through the harsh lockdowns of those in other states, Tasmanian consumers also claim that their lifestyle has changed for the worse, potentially related to their inability to travel outside of their State. At the time of the survey, Victorians were still under restrictions, and the lingering lockdowns (the world’s longest) have transformed Victorians’ lifestyles for the worse.

Due to the perceived economic risks of the pandemic, consumers seem to have adopted a ‘save to be financially safe’ strategy, with employment status during COVID-19 a key determinant of saving. 55% of consumers claimed that they were able to save from their household income. Those who were able to save from their income during recent lockdowns were not impacted in their employment status (73%) and 46% of them are full-time employed professionals. Demographics played an important role too. Of those who were not able to save, 57% were women and 73% said that their employment had been negatively impacted by COVID-19. See Exhibit 3.

Of the consumers who were able to save from their income, 32% stated that they are saving for their next leisure trip whereas 17% to 19% of these consumers show a structural shift towards saving and cautious spending, mostly on essentials and savings. See Exhibit 4.

The path to a new normal is not going to be easy for everyone. 66% of consumers stated that their finances will be impacted negatively post COVID-19 (either minimally or materially), as well as their saving and spending behaviour. Consumers in WA (22%) and Tasmania (24%) intend to be more cautious, spending less money compared to consumers in other states. 21% of consumers in Tasmania reported they expect to have difficulties in meeting regular household expenses, potentially due to a big fall in tourism (-27% tourism spending in 2020-21) - a higher proportion of the state’s GDP and employment than in other states.¹ 1 Visitor Statistics - Tourism Tasmania Corporate Notes: 1 Visitor Statistics - Tourism Tasmania Corporate

Australian consumers show high optimism and strong spending intentions. However, the path to new normal needs to be guided with financial, health and mental support addressing the needs of different demographic segments. 62% of Australian consumers stated that they will need support post COVID-19, with 17% of consumers needing mental health support or counselling. Approximately 80% of younger consumers (18 to 35 years) and 66% of women need post COVID-19 support. Younger consumers look for financial assistance and budgeting advice, while women are seeking more social connection opportunities.

2. Consumers will invest in exercise and continue to buy products that promote health, well-being, community, and social responsibility at reasonable pricing

• Consumers are less keen on buying luxury products relative to other activities, however, spend intentions are picking up compared to October 2020.
• Consumers add new dimensions such as social responsibility, locally grown brands to define the value of products yet still demand reasonable pricing.

COVID-19 has taught us the importance of health, with a positive net shift of 18% of consumers who plan to do more exercise than before COVID-19. Approximately 20% of consumers expect to use exercise equipment at home more post COVID-19. This is likely to sustain as a cost-effective and convenient way of staying fit. 15% of consumers intend to use health and well-being apps, a new trend that emerged during COVID-19.

There will be a radical shift in product purchasing decisions too. Consumers will increasingly buy products that promote health and well-being, as well as products from small local businesses and fresh produce.

Despite higher consumer confidence, activities such as purchasing luxury brands and products, consuming alcohol, and buying from overseas will see a decline compared to pre-COVID-19 levels but are increasing since the last survey in October 2020. A +5% positive net shift in purchase intention of luxury brands and products is expected post COVID-19 (-9% net shift) compared to today (-14% net shift). Consumers expect to be less experimental in the post-COVID-19 world, buying fewer branded products and not trying new brands. See Exhibit 5.

COVID-19 has set long term megatrends with consumers intending to purchase more locally grown products, wanting to support small local businesses, and wanting to buy products from brands that show concern for the environment and sustainability.

3.  Shift in consumption patterns as we transition to a post-COVID world

• Consumers show a desire to splurge in categories that experienced decline during COVID-19, such as leisure travel, cinema, spa, theme parks, clothing, and cars.
• Categories such as luxury, cosmetics, jewelry, personal care are showing signs of life but follow a slower return to normal than leisure travel and entertainment categories.
• Spending on essentials has been steady and shows no signs of slowing.

As reported in earlier snapshots, during the pandemic, consumers have been spending less of their income on categories perceived as nice-to-have or non-essential, such as clothing, shoes, make-up, jewelry, and electronics. In the near-term, spend is expected to stay at lower levels, however, consumers show a significantly improved appetite to buy compared to Round 4.

As we transition to post-COVID-19, luxury products, consumer electronics and cosmetics is expected to show an overall 5% positive net shift. Mid income earners (household income of $50k – $150k per year) plan to revive spending on luxury with +4% net shift, and baby boomers (age 52 to 66 years) plan a +30% net shift from -37% to -7%. High income earners (more than $150k per year) have been steadily making luxury purchases pre-COVID-19. See Exhibit 6.

Based on responses across 70+ categories, we have categorized spend behaviour in the following groups:

Upshift – Demand in some product categories has accelerated since the onset of the pandemic and some of these categories are expected to sustain growth following COVID-19. For example, demand for preventive healthcare, fresh fruits and vegetables, and organic products. An increasing need for financial security has created long-term demand for savings post COVID-19.

Mountain –Spending patterns in some categories showed temporary growth during COVID-19. As consumers begin their ‘new-normal’ journey, their demand for these products is expected to normalise to pre-COVID-19 levels. For example, consumers who did forward buying of groceries, during COVID-19 now expect to return to their pre-COVID consumption patterns, as demand-supply gaps are perceived to narrow.

Steady flow – Spending patterns in these product categories were agnostic of COVID-19 surges. Consumers spent consistently in these categories such as mobile SIM connections, insurance, and education. Consumers also plan to spend steadily on over-the-counter medicines.

Valley – Demand for these categories is recovering, signaling Australia returning to a ‘new-normal’. Categories such as leisure travel, spa, theme parks and fashion are likely to show temporary bubbles with immediate significant pent-up demand. Categories such as jewelry and luxury will recover more slowly as they began to show growth since our previous survey, although net shift in each survey remains negative.

Downshift – Consumers re-evaluated their spending on these categories at the beginning of the pandemic and intend to cut their spending on these categories post COVID-19. As consumers head out of the home, they are less likely to use in-home entertainment, direct to home services, apps, video games, and wi-fi. They also plan to cut down on alcohol and tobacco products as they shift to healthier activities. These categories, plus kitchen appliances and indoor furniture, look set to continue loss in demand post COVID-19.

As we approach the festive season, discretionary spend is likely to increase . Roughly 20% of consumers intend to buy clothing, sportswear and equipment, gifts, alcohol, toys, and plants. More than 40% of consumers who had postponed the purchase of these categories until last month now want to make up for lost time. Even though demand for simplicity is a key theme emerging from the pandemic, approximately 30% of consumers claim that they have already returned to their usual spending.

4.  Closer look at leisure travel plans post-COVID-19

• Consumers are excited to make up for lost time and resume leisure travel.
• Domestic tourism set to continue strongly as most consumers intend to fly interstate or take a road trip.
• International travel may take a little longer to recover with consumers citing lower confidence in the COVID-19 situation in overseas countries.

Leisure travel sees signs of life as consumers take the leap and plan travel. Although only 13% of consumers today claim that they travel more than pre-COVID levels, that number is likely to grow by 29 ppt in 2022, showing consumers’ determination to resume leisure travel.

Since our last survey, consumers are showing a shift in their attitude for travel. Fewer consumers (17% net drop) think that it is irresponsible to travel until things are normal, and fewer (27% net drop) believe that they will not take long-haul international trips. See Exhibit 7.

With a sense of life being too short and desire to make up for lost time, consumers intend to take longer holidays than pre-COVID-19. At the same time, they are being cautious when planning their next trip, opting for domestic travel until the end of next year with road trips being most popular followed by interstate flights. See Exhibit 8.

Approximately 60% of consumers feel confident traveling overseas with vaccine passport rules but there are multiple factors that deter many from making long-haul travel plans. 33% of consumers are concerned they will contract the virus while traveling, 36% of consumers lack confidence in quarantine measures in the country of visit and are worried they might not be able to return to their native country. 31% of consumers are also worried about government rules and regulations in the country of visit.

Approximately 50% of consumers plan to make at least one leisure trip by Easter. States that feel the relief from lockdown show higher propensity to resume leisure travel. For example, 56% of NSW residents will go on a trip by Easter 2022 while states with border closures or less visibility on border re-openings (TAS, SA and WA) show lower intentions to travel until December 2022

5.  Significant shift towards online spending continues, but in store spending will rebound, channels bifurcate by categories

• 22% of first-time digital buyers, 88% of pre-existing digital buyers intend to increase their digital purchases post COVID-19.
• In-store spending will rebound with +14% positive net shift expected post COVID-19 Vs. pre-COVID-19.
• Services categories are expected to pick up online. Product purchases are likely to rebound in stores.

The COVID-19 pandemic has shifted consumer behaviour in several ways that are likely to endure, such as the expanded use of digital tools and e-commerce channels.

While a large proportion (88%) of pre-COVID-19 digital buyers will continue to increase digital purchases post COVID-19, only 22% of first-time digital buyers will buy more using digital channels in the future. Moreover, the growth of categories will not be the same post COVID-19. Consumers intend to continue using digital channels for services such as utilities and food-delivery. Categories which declined during COVID-19 are also expected to pick up online, such as leisure travel, and cinema tickets. Physical product categories are likely to see fewer digital purchases as customers return to stores to buy these products. See Exhibit 9.

The COVID-19 pandemic forced the closure of physical stores, leaving many retailers in flux - especially those who prioritise face-to-face engagement over omnichannel and digital. As Australians set their sights on a new normal, they look forward to the in-store experience while keeping digital relevant. Our latest data shows that there will be a 23 ppt positive net shift in spending offline. We expect a decline in buying from digital channels compared to pre-COVID levels, though the net spend in digital channels remains positive. Refer exhibit 10.

Convenience is a major driver for 42% of consumers who are willing to spend more online. Conversely, 27% of all consumers prefer shopping in-store because it helps them with physical and mental well-being. Shopping at stores also helps them avoid shipping charges (27%) and they can touch and feel the product (27%).

In describing their ideal online shopping environment, consumers expect digital channels to offer variety, everyday products, and easy purchase steps. In terms of product range, 91% of consumers prefer a broad range, compared to only 9% of consumers who prefer a curated exclusive range online. Similarly, 69% of consumers would prefer to see an everyday product range online. Only 39% of consumers prefer to see a premium exclusive range online that is not available in stores. 71% of consumers wanted quick and easy purchase experiences rather than detailed blogs or reviews.

Consumer sentiment in the property market is fluctuating yet there is sustained demand in the post-COVID-19 world

• During COVID-19, 26% of consumers moved to a different property. 62% of them moved for a better lifestyle and more space, 38% moved to downsize or because of reduced income.
• Younger consumers moved to semi-urban and rural areas. 19% of consumers who intend to buy a property decide to move to non-metropolitan area.
• Consumers’ varying financial stability has resulted in a mixed response to the expected time of purchase signaling sustained growth of the property market post COVID-19.

Rapid growth in property prices has left the consumer spirit in flux in Australia. While ultra-low interest rates attracted many to enter the property market, the financial impact of COVID-19 forced many consumers to make hard decisions about their living situation.

Today, 26% of consumers are in a different property than pre-COVID-19. Reasons for moving were mixed. Of those who moved to a different property during COVID-19, one in three stated better quality of life as a primary reason for move. One in five consumers moved to enjoy a bigger property or more space, while 38% of these consumers said they needed to downsize, because of a change in employment status of self or spouse and affordability issues with rent payments. 9% of consumers moved from urban to semi-urban regions. These consumers primarily are from NSW and Tasmania. The move to semi-urban areas is more prevalent among Gen-Z and Millennials with approximately 15% of this segment moving. Full-time employed professionals who cut down their working hours during COVID-19 or took leave of absence also showed a higher shift to semi-urban areas (18%).

Looking forward, 50% of consumers claim that COVID-19 has had a material impact on their decision to buy property. 30% of these consumers stated that they have postponed their decision. and19% of consumers are actively thinking about buying a property outside metropolitan areas. The impact is evident not only in property investment but also in other spending behaviours. 30% of consumers stated that they had to cut down regular household expenses in order to save for property.

Consumers’ varying financial stability has resulted in a mixed response to the expected time of purchase:

• 9% of consumers who intend to buy a property are likely to make a purchase within the next one to two months
• 28% of consumers intend to buy within the next six months
• 23% will make a property purchase decision between six months to one year
• 17% consumers are likely to take two more years
  

6. Institutions face challenges in retaining consumer trust after Delta variant

• Consumers continue to show a net increase in trust in supermarkets and health service providers.
• Trust in federal and state governments, and banks has declined significantly since Round 4.

On the positive side, consumers continue to show a net increase in trust in supermarkets and health service providers, but to a lesser degree than in Round 4 in October 2020. Consumers are still relying on these essential providers to tide them through the pandemic, but the high positive uplift in trust in these industries has tapered compared to last year. See Exhibit 11.

Consumers show reduced net trust in all institutions compared to this time last year.

• Trust in the Federal Government has declined significantly and is now net 12% negative, compared to net 16% positive in Round 4, and 23% positive in Round 2 in June 2020.
• Net trust in state governments is better, but is only net 0%, suggesting mixed views on how they have handled the latest developments in the pandemic. ACT and WA win their consumers with 26% and 19% net positive trust respectively. Queensland, Victoria and Tasmania fail to gain trust with net loss of -5% in trust. NSW residents’ trust in their state government remains neutral with +1%.  
• Banks have lost the positive net trust that they had gained late last year with a -5% decline.

Implications and actions for companies

There are unique opportunities for companies to address shifts in consumer demand in the post-COVID-19 world. Companies can make the most of these opportunities with the following strategies.

1. Create a seamless omnichannel experience. COVID-19 has pushed offline retailers to the online realm, many of which were not ready for this speedy transformation. As consumers plan to return to normalcy, retailers need to address how to best embrace the shift in consumers’ spending behaviours bifurcated by channels. Companies must swiftly adjust their channel strategy and optimise online-offline channels, marketing and other resources. For example, Zara launched three new channels for European consumers in 2020-21 on their app:

• Click & Go to allow consumers to see what is in their local store and collect the item in 30 minutes
• Click & Find to provide consumers with an instore guide of where to find the product they are looking at online
• Click & Try to allow consumers to book a fitting room through the app.
• Zara also launched digital receipts in their app to streamline returns and refunds. Zara credits 2020 growth in digital sales of 73% to their use of omnichannel strategy.² 2 Omnichannel will define 2021 retail: the return of the physical store (imd.org) Notes: 2 Omnichannel will define 2021 retail: the return of the physical store (imd.org)

2. Welcome consumers back to stores and create experiences in a safe environment. Consumers have embraced online shopping during lockdowns, but they look forward to returning to bricks and mortar stores for certain categories, especially household products. Stores can provide a welcoming environment that engages tactile, visual, and auditory senses that consumers have missed while at home. Consumers also expect companies to provide a safe environment for shopping, and it is critical for companies to continue investing in health and safety protocols post-COVID-19. For example, Hamleys toy store ran a competition in the lead up to England reopening in April 2021 and planned a range of activities to lure customers back into stores. With regards to safe environment, the COVID-19 trend of social distancing and fast get in-get out shopping have accelerated Macy’s plans to create smaller stores that are away from malls, allowing customers a faster shopping experience away from crowds.

3. Respond to consumer megatrends – health and well-being, sustainability, local products and cautious spending. Brands should consider how they can improve sustainability in their current operations and provide scope for local suppliers to contribute to their product offering. Customers appreciate honesty and integrity, so brands should admit to shortcomings, communicate how they are changing, and let consumers know they’re working to help them achieve their goals too. https://www.bcg.com/en-au/publications/2021/the-consumer-sustainability-journey. For example, Banco de Brasil is the most environmentally sustainable bank in the world. Its corporate sustainability initiatives include offering more green loans than any other bank. Green loans are given to environmentally focused projects and a third of Banco de Brasil’s loan book consists of green loans. It’s a simple, yet powerful, way to put more money towards sustainability. Similarly, Ebay pioneered the idea of reusing goods instead of throwing things out to buy something new. The company is going even further by partnering with the U.S. Postal Service to provide green shipping options and offering local places to sell goods to further reduce the environmental cost of shipping.

4. Provide an easy-to-follow customer journey to make the most of pent-up demand in short term. After a long pause during COVID-19, spending on face-to-face entertainment categories such as leisure travel, spas and salons, theme parks and movies look set to rebound – and companies need to respond fast to cater to this demand. For example, consumers cannot wait to go back to theme parks but are worried about catching COVID-19. Legoland Florida managed to accelerate a lot of their operational and health and safety innovations because of the needs that came out of the pandemic. They implemented mobile food and beverage ordering, contactless hotel check-ins, and Amazon Alexa-integrated services. Theme parks and tech companies were working on these initiatives long before COVID-19, but accelerated these efforts to make most of pent-up demand. Companies need to swiftly plan Black Friday and other mega sale events to make most of these opportunities.

5. Embrace the opportunity of consumers taking leisure travel trips, with government and industry to partner in the recovery. Leisure travel is set to quickly rebound for domestic when borders open nationally, but international travel is likely to remain subdued as consumers fear health risks and government protocols. It is important that government, travel marketers and travel providers come together to help remove friction from the traveller journey (e.g. quarantine requirements, documentation requirements, seamless journeys) and provide more targeted campaigns to drive the recovery. Many countries including UK, Singapore and New Zealand are investing in national data platforms to drive end to end customer travel journeys (e.g. with clear protocols), travel insights (e.g. cohort attractiveness) and marketing effectiveness (e.g. smart targeting). For example, Singapore’s Tourism Information & Services Hub (Singapore TIH ) is a strong example of government and industry collaboration that empowers travel businesses to market their products to more consumers, in a more personalised way with >150 APIs for websites, recommendation engines, smart itinerary planners, and navigation features to power visitsingpore.com, connecting consumers with businesses.

In summary
Australian consumers are entering into the new-normal with a mix of optimism and apprehension. Consumers have a newfound value of health and wellbeing, are informing themselves before their purchases, and look forward to returning to spending. While some look forward to making up for lost time, the pandemic has left others pausing their plans to buy property and travel. Companies are faced with the challenge of catering to shifting consumer behaviour and building consumer trust after the Delta variant. Embracing digital tools to create relevant in-store and online experiences and adopting environmental and sustainable practices that draw consumers to their brand will be winning strategies.