The cost of living is rising at its fastest rate in 30 years and shopper confidence is at rock bottom. Plus, economic recovery is fragile, with little room to absorb new shocks. IGD CEO, Susan Barratt, examines how the rest of 2022 might play out for shoppers and the food and consumer goods industry.
UK food and consumer goods businesses performed well over Christmas, despite ongoing operational challenges. However, despite this welcome uptick, 2022 started on a more downbeat note with food and drink sales struggling to match those of January or February 2021. In foodservice, businesses did less well, especially with renewed COVID-19 fears in the run-up to Christmas. Many operators reported fewer bookings and high numbers of no-shows.
How the rest of 2022 will play out remains hard to predict; on top of COVID-19 and UK relations with the EU, food and consumer goods businesses face uncertainty in several areas; not least of all from the impact of the Ukraine crisis on food supply.
Our economic recovery from COVID-19 continues but is slowing and we expect future growth will be weak with little margin to absorb new shocks. Therefore, risk remains high. Inflation and labour supply are the biggest challenges facing our industry. All in all, it isn’t going to take much for the UK to tip back into recession.
Our latest Viewpoint report examines how far inflation will go. With many official UK forecasters continuing to suggest that current inflation will ease quickly from Q2, rather we expect inflation to remain high through the year, impacting many households and businesses.
As such, our Shopper Confidence Index has reached its lowest level since the index started in 2013. Prices, especially food and fuel prices, play a powerful role in shaping confidence and with the cost of living rising at its fastest rate in 30 years, our ShopperVista insight reveals that 90% of shoppers expect food to get more expensive in the year ahead, and 40% expect prices to get much more expensive, a rise from just 13% in February 2021.
Shoppers are under increasing pressure as inflation continues to bite, with the least affluent particularly affected.
Some 41% of lower affluence shoppers expect to be worse off in the next 12 months, more than the double the level in June’21 (20%). Tightening spending and saving money is understandably a bigger focus for this group, with 28% of lower affluence shoppers telling us they expect to focus more on saving money, compared to 18% in June’21.
However, with such big hikes in the cost of living, we can expect all shoppers to increasingly focus on tightening their spending in the months ahead. Many will shop around much more, switching products and retailers more readily to maximise value. Businesses will have to focus strongly on retaining and attracting shoppers to try and mitigate this risk.