The research from McKinsey & Company shows a “hardening of attitudes” and a strong intent to pull back spending from almost all types of consumers.
As a result, key impacts are:
- price consciousness is on the rise
- just-in-time consumption will be depressed for some time
- spending capacity will continue to be radically and unpredictably affected as government support is progressively wound back
McKinsey found that short-term supports — including government assistance, interest relief or super drawdown — are delaying the full consumer impact of COVID-19’s economic impact.
It said that while consumption and confidence rose in May and June, hours worked did not, creating a gap between consumer perception and employee reality. For example, the research pointed to a 10.3 per cent reduction in hours worked among employees that shows headline unemployment figures tell only part of the story.
In addition, while recent announcements to extend more targeted, lower-value JobKeeper payments until March 2021 will smooth the withdrawal of stimulus, the research said this will not cushion the full impact of COVID-19 on household incomes, and households are tightening spending in anticipation.
“The cautious consumer is not a passing phenomenon, it’s here to stay,” Jenny Child, leader of McKinsey’s consumer packaged goods and retail practices in Australia and New Zealand.
“Concern over the health of our finances is having an impact on sentiment, which will deepen and broaden over the rest of the year, as lagging economic effects from lockdown impact more individuals and households.”
4 types of consumers amid COVID-19
The McKinsey research found four distinct segments emerging among Australian consumers:
- Making ends meet: those who were struggling pre-COVID-19 financially and continue to struggle
- Optimistic but cautious: those who worry about health and the economy but are more secure financially
- Stable and consistent: the highest income segment, having experienced a small amount of financial impact, but relatively stable in mindset and behaviours
- Income in jeopardy: those who have had a significant change in household income as a result of COVID-19, with a fear of it worsening
“These segments help us gain more granular insights and implications of how to respond,” Ms Child said.
“However, there’s a strong intent to pull back spending across almost all segments of consumers.
“There’s no question that when consumption tracks downward, and consumers become more price-conscious, it becomes very tough to navigate. But businesses prepared to build a new ‘playbook,’ and move nimbly and get ahead of the changing needs of consumers, stand the best chance of creating growth plans out of a challenging period.”