Foodservice spending remains strong despite rock-bottom consumer confidence

If a downturn is coming, we have yet to see its effects on consumer spending habits.

Consumer spending in the Australian consumer market in late 2022 is a picture of contrasts, with economic indicators not aligning with recent retail results.

Macroeconomically, there are strong indicators of an impending downturn. Consumer sentiment is now at rock bottom, with the Westpac-Melbourne Institute dropping 6.9% from 83.7 in October to 78 in November. This print of 78.0 is now below the low point of the GFC (79.0) and only slightly higher than when the COVID pandemic first hit in April 2020 (75.6). Before this, you would have to go back to the deep recession in the early 1990s to find a weaker read.

Concerns have largely been driven by cost-of-living pressures, with inflation at the highest rate since in 30 years, with CPI of all groups 6.9% higher from October 2022 at the same time last year. Food and grocery was a significant driver at 8.9%, while fruit & vegetables did come back slightly. This has prompted the RBA to bring it’s blunt instrument of cash rate rises to bear, with 8 successive cash rate rises seeing interest rates rise by 3.00% in repayments for mortgage holders.

In a vacuum, numbers such as these would typically inform of poor consumer spending, though this is incongruous with recent retail results. In particular, food retailing is up $53m according to the ABS, at its highest point since the panic buying of 2020.

Even more surprisingly, Australians continued to eat out of home, spending at food service for October, up 35% on last year. While there is likely some post covid resistance to restricting movement involved, the food service sector has continued its strong growth over the pandemic period. This points to a solidifying culture shift, where consumer expectation is to eat out of home on average 1-2 times per week.

In this shifting landscape of consumer spending dynamics, likely, past settings will not reflect the future. With inflation not yet under control, ANZ, Westpac and NAB are predicting peak RBA cash rates of 3.6%-3.85% in mid-2023. These further increases will continue to increase the cost-of-living pressure on the 35% of Australians with a mortgage. As a result, consumer value sensitivity is rising, with discount retailers’ performance up through the September quarter.

If a downturn is coming, we have yet to see its effects on consumer spending habits.

Follow the dynamics of the Australian fruit and vegetable retail market with Freshlogic.

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