This article first appeared in Businesstech.co.za / 23 August 2022.
Just as the world was returning to some kind of ‘normality’ it didn’t take long for war in Europe, surging inflation, soaring fuel and energy prices, along with severe bouts of load-shedding to cast a particularly dark shadow over the first half of 2022.
Now, in an increasingly stressed economy and shrinking middle class, retailers and big businesses will need to re-think their strategies if they want to remain competitive, said Marilu Smit, research director at Red Fox Insight, the consumer research division of Red Fox Group.
Retailers and brands, she said, need to sharpen the saw when it comes to their responsiveness to consumers’ changing needs. “As the world is buffeted by one crisis after another, the resilience that consumers have shown during Covid times is being put to a longer test.”
“Keeping tabs on what consumers are putting in their baskets is not enough to understand the drivers as consumers dynamically adjust priorities and shift aspirations in reaction to ongoing disruptions and uncertainties.”
The FNB/BER Consumer Confidence Index (CCI), which surveys 2,500 South African households dropped from -13 in the first quarter of 2022 to -25 by the end of the second quarter, suggesting that South Africans may well tighten purse strings even more in the upcoming months.
Mike Schüssler, a consulting economist for Brenthurst before his passing earlier this year, warned that the country’s middle class would have to deal with rising inflation and rising interest rates, more severe than previously expected, due to the impact of the Russia/Ukraine war.
“This will lower the standard of living once again and, much like a bad 1980 horror movie rerun, the middle class will not be able to carry the coming burdens in both taxes and government spending. The middle class will see higher real taxes in future as the debt burden grows, and it will remain under pressure,” he said.
Already well-documented in the media, petrol price hikes, along with rising electricity and food prices, have put consumers in the country behind the eight ball financially.
Marketers, faced with increasingly cautious, budget-conscious consumers will be challenged when it comes to sorting knee-jerk reactions from what might become long-lasting behaviours.
Andrew Harrison, head of sales at Alpen Foods has observed consumer patterns of retail customers over the past months.
“Supermarkets are seeing a marked increase in large month-end shops in store, with by far the majority of their revenue being generated between the 25th and 7th of the month. This is the time they need to be sure to have their pricing strategies fully implemented to gain a maximum share of wallet,” he said.
Online shopping is being used for pantry top-ups during the week to save on fuel and time. Harrison further highlights the need for retailers to have excellent e-commerce platforms, a strong digital presence, and efficient delivery systems.
“Stores catering to lower-income families have started to act as collection points for Sassa grant recipients. This allows them to increase staff numbers over this time to accommodate the influx of people and offer value through special offers, so they shop at their store once they have received their grant.”
Smit added that other consumer patterns that have emerged or intensified as a crisis response have endured. For instance, there was an accelerated uptake of online shopping which has now become a preference, highlighting the importance of offering seamless omnichannel customer experiences for both retailers and brands.
Health and wellness became a stronger priority in many households. While the current global crises aren’t delivering the same overwhelming threat to our physical health as Covid-19, they are still impacting significantly on mental well-being which has become an important aspect of the health and wellness trend.
In response to sharply rising prices over the past months, consumers have been quick to react. Brand loyalty has weakened as consumers are increasingly trading down by choosing cheaper own-label brands. Many report putting their plans to spend on big items on hold, while more South Africans than ever are price-checking and shopping for deals.
At the same time though, consumers’ expectations of both their in-store and online retail experiences are elevated. “Consumers across all markets are embracing the experiential retail concept, and even in these tough economic times, they still want an appealing experience at their local retailer,” said Nathalie Schooling, CEO of customer experience company, nlightencx.
“Customer experience is no longer a nice-to-have, it’s an imperative for retailers who want to stay competitive.”
The abilities to be fast, flexible, and agile are underpinning this responsiveness to current consumer needs and priorities. “This is the big challenge for brands and retailers in these uncertain times. Consumer insights focused on understanding the underlying psychology and need-states can help to identify, and even anticipate fast-changing consumer behaviours,” said Smit.
“With consumers in a hyper-cautious mode, being capable of identifying and quickly acting on new opportunities and new emerging gaps can help to drive much-needed business growth.”