In May 2023, CommIQ released their latest Cost of Living Insights Report, which leverages insights from 7 million Australians spend habits to assess how the cost of living crisis is affecting people across Australia. Whilst overall economic data points to a significant slowing of the Australian economy, the CommIQ report shines a light on the uneven pain being felt in the economy – meaning that it is not all doom and gloom for businesses and brands who are attuned to where the opportunities lie.
Boomers and GenX living large
The CommIQ study shows that whilst the cost-of-living crunch is real for many, the older consumers are, the more likely they are to be spending (broadly speaking).
The insights shows that those aged of 55 and over are spending 9 – 13% more than the year prior. What’s more, whilst younger demo’s are cutting back in a number of discretionary spend areas, those over the age of 35 are still increasing spend in discretionary areas including dining out (up a whopping 18% YOY for Q1), and splashing out in retail services like hair and beauty (up nearly 10% YOY). Both the hangover from the pandemic and improvement in financial returns on savings are enabling certain consumer segments the ability to continue to spend. However, as inflation continues to rise as interest rates balloon, we are likely to see more consumers run out of puff on the spending front.
NEOs are also propping up the economy
Defined by mindset not age, NEOs (new economic order), are a subset of the Australian population that represent approximately 5m Australians. These Australians are more optimistic and confident about the future and are driving in the fast or premium lane according to the CommBankIQ report. These NEOs are propping up the economy- enabling Australia to avoid a recession for the moment (note that there is overlap in demos and NEOs).
Whilst NEO consumers are also cutting back, they are cutting back in different ways, including on essentials, whilst maintaining spend in areas that they see adds value to their lives, e.g experiences and lifestyle products and services. For instance, in these tougher times, NEOs are more likely to be reducing spend in areas like insurance (essential) through increasing their excess, whilst maintaining spend in experiences that they perceive to be “necessary essentials” to keep them emotionally happy.
So for the moment at least, we see pockets of the population still have the means or willingness to spend. But are brands missing out on tapping into potential opportunities?
Misconceptions holding brands back from exploiting opportunities in a downturn
As growth becomes more difficult to come by, brands are going to have to think differently about how they drive growth as headwinds make it harder to maintain current levels of sales, growth and customer engagement- particularly in categories competing for discretionary spend. Whilst digital is not the silver bullet to remaining relevant and successfully navigating the landscape, observations and discussions we are having with various leaders in market have shone a light on the common misconceptions and assumptions that may impact a brand's ability to tap into the opportunities available to them via digital.
1. Assumption that older consumers don’t engage with digital
One of the most common misconceptions we are often challenging is that older consumers simply don’t engage with digital. Whilst older consumer don’t consume digital at the levels of younger consumers, they still consume at high levels, with those aged over 55 globally accessing the internet more than 5.5 hours a day. The big difference between older consumers and younger consumers is not if they access the internet, but their literacy and level of trust in information and sites online. Brands working on the assumption that older consumers aren’t online could be limiting their ability to drive acquisition and effectively engage with their core audiences.
2. Belief that value is the only driver of decision making (food delivery)
In the grocery and food sector, the belief that consumers will naturally stop engaging with food and grocery delivery services due to cost is also an unfounded misconception. The way people eat has fundamentally changed over the past 5 years globally and locally. In 2022, delivery drove 30% of total restaurant sales, with over 5.5 million Australian consumers aged 14+ (26.5%) ordering food online. This was a drastic 66% increase from 2018. Whilst utilisation of these services may soften, behaviours have been engrained over long periods of time and as we see with data, NEOs are still actively engaging with the services and products that they see as essential to their lifestyle. Equally, we see that those over the age of 35 are still indulging in takeaway and dining (up 18% YOY)- so the likelihood of this collapsing is unlikely.
3. Belief that all innovation must be to deliver value
In a cost-of-living crisis, it is easy to default to a “value first” product and services strategy in order to best serve the market. But as we have seen with the data from CommIQ, whilst there are parts of the market seeking value- and brands will need to pivot to best serve those segments or risk declining sales- so too are we seeing the continued importance of premiumisation in this current economic climate. Personalisation strategy is more important than ever in the current market to effectively engage consumers with the right product and service, to meet their need and budget - including those who want to indulge and aren’t necessarily feeling the pinch. Also, vitally important to consider is the role digital plays to deliver premiumisation and access to different value and different tiers.