Beyond cutting back on driving, Australian households are delving deeper into their budgets, with some even foregoing essential healthcare services. As petrol prices surged in response to the Middle East conflict, many Australians, already grappling with high living costs, swiftly altered their spending patterns.
Here are four significant shifts in consumer behaviour observed by businesses nationwide:
1. **The Rise of Cheap Drinks**
Australia has long seen a trend of consuming less alcohol but of higher quality. However, this is now changing as consumers actively seek out cheaper alternatives. Orora, an ASX-listed alcohol packaging company, has noted a global pivot towards more affordable spirits since the onset of the Iran war. Sales volumes are also lower than previously forecast, reflecting a decline in customer confidence.
Steven Fanner, executive director at Spirits & Cocktails Australia, attributes this to Australians “trading down” amidst escalating living costs. “They are opting for something a little bit cheaper, or choosing lower alcohol content, not necessarily as a responsibility measure, but primarily due to cost,” Fanner explains. This consumer trend is creating difficulties for businesses that would typically raise prices to offset rising operational costs like freight and fuel.
“The challenge for businesses is how to keep product prices contained for the consumer, as they have no additional money to spend, even if the cost of producing and bringing the product to market is increasing,” Fanner adds. Similar pressures are being felt by cafes and restaurants, which are contending with rising costs and financially strained customers, many of whom are reducing their takeaway coffee purchases and dining out.
2. **Bypassing Healthcare**
The ASX was trading near record highs shortly before investors lost confidence in a clear exit strategy for the US-Israel war on Iran that could stabilise the oil trade. While many stocks have weathered the subsequent market downturn, Cochlear, an Australian-headquartered medical device company, saw over 40% of its market value evaporate in a single trading session on Wednesday.
The company downgraded its profit outlook after global demand for its cochlear implants, designed to assist people with hearing loss, weakened amidst deteriorating consumer sentiment. Cochlear informed shareholders that poor sentiment “appears to be affecting discretionary healthcare decisions,” as more prospective patients, particularly in the US, are unable to afford treatment. Analysts at Morningstar noted that Cochlear faces long-term headwinds, with adults “deprioritising implants.”
3. **Bedding Anxiety**
The decline in consumer confidence has been swift. Many households were already paying more on their mortgages before rising petrol prices took hold in March. The closely watched Westpac-Melbourne Institute consumer sentiment index reveals that anxiety over jobs has reached levels not seen since the pandemic.
Households have responded by deferring purchases of furniture, bedding, and home appliances. Over the past two months, shares in furniture retailer Nick Scali have fallen by approximately 20%, Harvey Norman is down more than 25%, and homeware stockist Adairs has dropped by over 30%.
Richard Hemming, editor at Under The Radar Report, states that retail is “at the forefront of your discretionary dollar.” He adds, “People don’t like war; it’s a confidence killer. You’ve got a lot of headwinds at the moment. The environment is one of consumer constraint, and retail is at the front of that.” Despite this, there are some brighter spots in retail, with Scentre Group reporting strong foot traffic at its Westfield centres, suggesting Australians still enjoy shopping outings.
4. **Consumed by Worry**
As the Middle East conflict enters its third month, the repercussions of the oil crisis are beginning to ripple across the Australian and global economies, impacting the prices of a surprising array of products. Karex, the world’s leading condom producer based in Malaysia, intends to raise prices by up to 30% if supply chain disruptions persist, while several Australian building suppliers have announced similar price increases for PVC pipes.
Soaring fuel, fertiliser, and transport costs will inevitably translate into higher prices at supermarkets. Spending data from Zip indicates an increased reliance on its buy now, pay later platform over the past three months for essential items, including utilities, insurance, education, and health.
While Australia’s jobs market remains robust, the sheer speed of the deteriorating global situation and concerns over prolonged disruptions to energy supplies are causing widespread worry. This stands in stark contrast to the optimistic outlook evident less than a year ago when inflation seemed under control and interest rates were falling.
Kirsty Robson, a senior financial counsellor from Consumer Action law centre, reports that more people are contacting the national debt helpline due to anxiety about their future, whereas traditionally, they would only seek help after a financial event like job loss. “Mortgages are now the top presenting issue,” Robson says. “People have very future-focused anxiety because they are unsure how they will afford to pay for things. They are panicking, and perhaps rightly so, about how they’re going to manage in a couple of months’ time because they are reaching their financial capacity now.”
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