Consumer Market Bites

Transcript

Anthony Goldsworthy:

Welcome to the first episode of PwC's Consumer Market Bites series, where we'll regularly be serving up some of the latest insights from both PwC and our clients' brightest industry minds in a bite-size, digestible format.

My name's Anthony Goldsworthy, and I'm a Director in our Assurance practise who's been focused on the consumer markets industry for my whole career. That's why I'm super excited to bring you this series, which is focused on the Australian consumer markets sector, as well as the Australian consumer.

The topics that we'll cover will always have the consumer at the core. That means they'll be applicable to a broad range of businesses across the sector, from telcos to techs, to media, all the way through to retail and consumer goods manufacturers. Our subject matter experts will be ready to provide you the latest insights on the most current topics, giving you the information you need to make real time decisions. I'd really encourage you to interact with the comment section and follow the links below to provide us feedback around what you'd like to hear in future episodes.

Today, I'm really excited to introduce our three guest speakers. Firstly, we have Birger Maekelburger, a Partner in our Strategy& team who leads our consumer markets practise. He'll be giving insights into how consumers' behaviour is changing in Australia. Secondly, we have our Chief Economist, Jeremy Thorpe. He'll be providing a prediction bravely on what the 2022 economy looks like for Australia and what this means for you. Finally, we have Sally Woodward, who'll be tackling some of the employment law issues currently facing businesses. I know this has been a really important topic for consumer markets clients over the past few months. With that, I'm going to pass over to you, Birger.

Birger Maekelburger:

So there's really four key elements and four key trends that we see on the consumer behaviour front that will shape the way consumers interact with retailers and the way that they purchase in the year 2022. These are the following. Number one, consumers will be more digital. Number two, consumers will be more price oriented. Number three, consumers will be more sustainability-focused. And number four, consumers will shop more locally.

The first topic of consumers being more digital. If you look at the numbers, it's quite striking. One in four Australians stated in our survey that they purchase a product on a daily basis through a virtual channel. We see that consumer behaviour is actually habitual. So online has the benefit of higher convenience than many other shopping channels. And we would expect consumers to continue buying online and staying in the online channel.

The second important trend that we see and that we foresee for the year 2022 is that consumers will be more price oriented. 51% of Australians said that they would look be more price oriented going forward. 57% said that they look more into saving money, putting money aside. What we expect for the year 2022 is with the prospect of potentially higher interest rates going up and through that, obviously mortgage payments going up, that consumers actually put some more money into the repayment of those, of their houses rather than purchasing new products or even investing into experiences.

The third trend that we're looking at is that consumers will be more sustainability focused. 44% of Australians say that they will shop more eco-friendly and 38%, a little bit less a degree of respondents said that they're looking at improving their health or being more health conscious. It's especially the middle range, so the millennials for who sustainability is quite an important factor. They are typically high-income earners. So we typically see here a correlation between those workers or consumers that focus on sustainability with also higher income.

Lastly, we expect Australians to be more local and decide more locally. 44% of Australian respondents stated that they are more likely to shop at retailers that are local to them. And this is both actually in the physical world, but also online. It's especially the younger generations, so Gen X and Gen Z, especially that focus on supporting independent local businesses.

Is that all bad news for the bigger chains? Not necessarily. So a lot of consumers actually come to use the highest street stores as service points, Click & Collect stations for their online orders or to return their online orders. What does it mean for the big retailers? They will need to really think through their store network and the purposes that the different parts of their store network serve.

While we will see COVID variants come and go, much of the COVID-induced consumer behaviours is here to stay. Retailers will have to accept the new normal of customers being more digital, customers being more price oriented, customers being more sustainability focused and customers shopping more locally.

Jeremy Thorpe:

2022 should be a really interesting year from a retail perspective. On one hand, there's a lot of reasons to be positive. We come out of 2021 with households cashed up. There was a lot of savings during 2021, built off the back of 2020 and all the government's fiscal support. Consumers are ready to spend, but it is going to be a year of disruption. Some of that is just positive disruption and some of it may be less so.

The first area of disruption is just the economy settling back to what we might have expected in some form pre COVID. That has a couple of different drivers to it. One is we expect to see consumer spending shift away from goods towards services. During the COVID lockdowns in the last couple of years, what we saw is consumer pattern switch. We saw spending switch towards particularly household oriented goods. People bought more sofas, people bought more computers and televisions and furniture and everything to do with the household. We've all bought those now. You don't need two exercise bikes. And so what we are going to see is that spending switch now, as people re-engage with the services sector.

What we also see is that spending is going to shift from a geographic perspective. Because we closed our international borders, we didn't have international tourists, people holidayed domestically, and we saw spending shift at some level to the regions. And so some regions have done remarkably well. That is now going to shift back again. We're going to lose about $20 billion in net terms of spending as the borders open up and as Australians go overseas. And so that means that is a loss of that retail expenditure, but it's going to shift therefore to airlines and travel agents. And those, again, those service sectors should be expected to rebound over the next year.

Related to the international border issue is just the disruption we expect to see in the workforce. And that's certainly going to be an issue for the retail sector. We've had a couple years where people have been tired, they haven't been able to travel overseas. Every survey that we see says there is an incredible pent up demand to travel overseas. The limitation might actually be the number of seats available on flights and the degree to which COVID restrictions and proof of COVID-free travel is a real burden on people travelling. But we expect 2022 to really start to see that migration pick up. And it's particularly in the young, who've not been able to travel in that right of passage. We expect that to be a significant issue. Equally, we expect baby boomers who've had their cruises before to flock back to that. So, at either end of the age specturm we expect to see a challenge. That's a challenge for the workforce. If people are exptected to leave, we're going to be relying on people coming in to fill those jobs. Most of those people coming into Australia are likely to be students so there's a skills-match challenge for many. But maybe the retail sector is slightly less exposed in that environment. What it means though, is retail businesses are going to really have to be on top of supporting staff to have leave to regenerate but managing it in a way where there's not a great exodus of staff.

So, overall 2022 looks like a positive year. It's a year of good expenditure, but it's going to see a realignment within the retail industry geographically and also the nature of that shift between goods and services. A lot to look forward to, but a lot of disruption also.

Sally Woodward:

Employers really need to remain agile and prepare contingencies in their COVID-19 management plan, because one thing that's been absolutely apparent from the last two years is that COVID-19 pandemic has a tendency to deliver some unexpected twists and surprises.

First of all, of course, employers must comply with any applicable public health orders. Now those public health orders will differ throughout states and industries. As we've seen, over the last month and indeed the last 12 months, they change regularly, which has been of challenge for many employers. But more broadly, in addition to those obligations under any applicable public health orders, employers do have an overriding obligation to ensure the physical and psychological safety of their employees at work. So that will lead to additional measures that employers have to take.

In order to do this, an underlying risk assessment of the risks of employees contracting COVID that are specific to the business and the individual roles that the employees perform is required. Those risks that have been identified, the employer then needs to take steps to mitigate them so far as is reasonably practicable. And then to assess the measures that it's implemented to ensure that they're working. This is particularly important in retail and the consumer industry, where many employees have consistent exposure to members of the public and there is a higher risk of contracting the virus.

In relation to the consumer industry, just really focusing the ability to remain agile is absolutely key. As we've seen already, as Omicron is increasing, there's going to be ongoing staffing shortages, and impacts on supply chains. Employers need to be prepared for this as much as possible, considering revisiting roster arrangements, building up the casual workforce, increasing part-time hours. All of these may be of assistance to an employer, but of course, it's got the potential to increase labour costs either through the payment of casual loadings, additional overtime, et cetera, all of this needs to be balanced.

From a compliance perspective, employers need to be really certain that they are complying with any underlying industrial instruments, particularly for example, in retail, with the use of part-time hours. If employees who are working on a part basis, their hours are being increased, then the appropriate documentation should be completed. Otherwise, there's a risk that any additional part-time hours may be payable as overtime hours. So this all needs to be considered.

Anthony Goldsworthy:

I hope you've found those insights from Birger, Jeremy, and Sally valuable. I personally did. I took three key things out of them.

Firstly, in terms of consumer behaviour, we're now getting enough information to see how consumer behaviour is going to change in the long term because of the COVID pandemic. Therefore, it's time to start making those important strategic decisions. In our latest global M&A report, we're predicting that 2022 will be focused on demergers and divestments when it comes to this consumer markets industry.

Secondly, it's not all doom and gloom when it comes to the Australian economy. While inflation and supply chain risk looms large, household savings are at record levels and business and consumer confidence is really high. This means we're still expecting to see above average growth in 2022 for the economy.

Finally, in sport, the teams that have been most successful recently are the ones that are able to keep the best players on the park for longest. I think there's some parallel to business. The companies that are going to be able to manage the COVID-19 risks in order to keep their key talent in the workforce for longer and motivated are going to be the ones that are most successful in 2022.

Thanks for joining me for our first episode. As I mentioned before, please use the comment section below as well as links provided to provide some insight around what you'd like to hear in the future. I'm really looking forward to seeing you in the second episode where we'll be focusing on technology and digital innovation. I know two topics that you are definitely spending a lot of time, power on as a business. Thanks for your time and see you soon.