Study: Rising cost of living forces consumers to tighten grip on finances and get creative with sustainability
Consumers globally are preparing to hunker down for a long financial squeeze, as the increasing cost of living and geopolitical uncertainties push them to seek financial control amid low economic confidence, according to the latest EY Future Consumer Index (FCI).
The global research of 18,000 consumers, conducted between 18 May to 7 June 2022, finds that 79% of consumers say their finances are a concern, with 62% expecting their living costs to increase even further over the next six months. These concerns over personal finances are affecting the majority of all income levels, from low income (87%) middle class (77%) to high income (64%).
With consumer confidence shrinking, the research reveals a significantly pessimistic economic outlook from the Western markets when compared to emerging/other markets. Many more consumers from the US (54%), UK (65%) Germany (84%) and France (85%) state they believe life will remain the same or worse over the next three years, compared to Brazil (21%), India (24%), Saudi Arabia (37%) and China (38%). With this continued “always-on emergency mindset” adopted from the pandemic, consumers globally are increasingly focusing on controlling their spending and re-adjusting priorities to maintain their values and lifestyles in the face of disruption.
With living costs spiraling each week, the FCI research shows that consumers are demanding affordability, as more than one in three consumers (35%) say they are worried about having enough money to spend on things other than living expenses. Consumers are not simply trading down on their essentials to cut costs, but instead are trying new brands (33%) and switching to private label or “owned brands” (21%), ultimately exposing one-third of a brand’s addressable market to risk.
Sustaining sustainability versus trends
Despite increasing momentum and pressures to live in a more environmentally friendly way, consumers’ efforts are being stunted by the rising cost of living. Sixty-seven percent of global respondents say the high price of sustainable goods and products is significantly putting them off from buying them. However, consumer sentiment toward sustainability has improved compared to May 2021: fewer associate sustainable products with low quality (67% May 2021 vs. 58% May/June 2022) or poor durability (58% vs. 50%) and more are increasingly trusting the information about sustainable products from the companies that make them (lack of trust decreased from 59% to 51%). Consumers are seeking new methods of conscious consumption with 87% of respondents trying not to waste food and 36% saying they will buy more secondhand products, up from 30% in February 2022.
Driven by the current demand for affordability, consumers are substituting non-essential spending categories and looking for alternatives, making what they have more sustainable. Sixty-four percent of global respondents state they no longer feel the need to keep up with seasonal fashion trends, and more (69%) are attempting to repair their belongings rather than replace them, presenting a challenge to fast fashion retailers as they target a more conscious consumer. Sixty percent of respondents say they are more comfortable in their own skin, relying less on beauty and cosmetics to boost confidence, up 7% from October 2021.
“The consumer goods sector is once again at a crossroads. As consumers seek to take control of their finances and cope with rising inflation, manufacturers and retailers alike will need to act swiftly and nimbly to address consumer fears, especially price fears, using private brands as an anchor for customer loyalty. Consumer loyalty will help suppliers reap the benefits when customers can return with more disposable income.
Another challenge for the consumer goods sector is to ensure the sustainability of the products at affordable prices. Last but not least, with the expansion of online over offline, retailers will need to invest in cybersecurity across all elements of their business to capture the benefits of access to consumer data and preferences – the distrust of data protection shown even among younger consumers, with a greater appetite for digital consumer experiences, raises a red flag for online commerce and an area of focus for companies operating in this area,” says Georgiana Iancu, Partner, Consumer Products & Retail Leader, EY Romania.