Update on the consumer products sector
The Deloitte Consumer Tracker Q2 2024
A look back at Q2 2024
With consumers’ personal finances improving and inflation back on target, our spending sentiment data for Q2 shows net spending on essentials has eased while net spending on discretionary items has grown compared with Q1 2024. Overall net spending on day-to-day categories was down marginally (by -0.4 percentage points) in Q2 compared with Q1 2024. Slower spending growth on essentials points to easing inflationary pressures, especially on food costs, and also coincides with a reduction in energy consumption as consumers turn off their heating after the winter, spending significantly less on utility bills (-15.6 percentage points) in Q2. At the same time, net spending on non-essential goods and services rose by 3.8 percentage points to -1.3%. A rise in discretionary spending is to be expected in Q2 as it coincides with a period characterised by higher levels of socialising as the weather improves. The data shows increased spending in categories such as alcoholic beverages and tobacco (+4.5 percentage points) and clothing and footwear (+8.5 percentage points). Q2 also coincides with the start of the getaway season with two bank holidays in May driving strong growth in spending in the holiday and hotel category (+7.7 percentage points).
In a sign of consumers adopting more expansionary behaviours as their spending power gradually improves, manufacturers are seeing a return to volume growth as indicated by recent performance results in the sector. Among consumers who indicated they spent more compared with the previous quarter, while fewer said it was because prices have gone up, a higher proportion said they spent more because they bought more items and activities than usual.
Consumer spending in the last three months by category
Net % spent more by category over the last three months
Even when they do spend, consumers continue to focus on value, as seen by the performance of own label products. Indeed, our data on attitudes to spending and finances is further evidence of consumers’ prudence with their money. In Q2 2024, our data indicates that consumers remain frugal including trading down by buying cheaper brands or supermarkets own brands, buying goods on discounts, sale or promotion, buying groceries from cheaper supermarkets or making use of loyalty schemes or cards and coupons to save money.
Overall, it is hard to predict to what degree consumers will remain cautious despite their finances improving, and whether they might choose to replenish their savings rather than splurge. Official data shows that consumers have been saving more recently. The household saving ratio rose to a nearly two-year high of 11.1% in Q1 2024, a sign that consumers might still be apprehensive and are saving some of that additional income.
Outlook for Q3 2024
After two years of economic uncertainty and consumers’ purchasing power coming under sustained pressures, there are signs that market conditions are improving as a result of lower commodity and energy costs. With inflationary pressures expected to continue easing, our Tracker data shows that consumers plan to spend less on day-to-day categories in Q3.
Despite consumers intending to spend less in essential categories, they remain cautious as they plan to reduce their spending in the non-essential items and services categories too compared with Q2 2024.
However, the start of summer this year has coincided with a series of sporting and cultural events in the UK and abroad. According to our data, over one in two consumers surveyed (58%) said they intend to attend or watch a cultural or sporting event this summer. Of those one in ten expect to incur spending that will be in addition to their typical household expenditure. Summer events such as the Euro championship or the Olympic games will be driving incremental spend at home or at venues. Off trade will be competing with fans heading out of the house to watch the football, pubs especially could benefit from a boost. Throughout the last tournament held in 2021, sales of food and non-alcoholic drinks in pubs soared by 60% compared with the average month that year. 1
While the signs of more expansionary spending behaviours seen in Q2 are encouraging, caution remains and cost pressures on businesses persist. For the last few years, with high input costs, consumer products companies have been focused on controlling costs to limit passing price increases on to consumers. Premiumisation helped justify what they charged but businesses resorted to other mechanisms such as ‘shrinkflation’ – reducing the size or weight of products to avoid passing on these additional costs to consumers while protecting product quality and the brand. To achieve profitable growth businesses also had to increase their prices to near-unprecedented levels and leading companies did relatively well by using that strategy. However, the ability to raise prices has been quite limited this year and companies have shifted their focus to increasing volumes instead. That means a renewed focus on volume growth through an innovative and more profitable product mix while also protecting price levels. In our 2024 consumer products industry outlook we discuss some of the strategies available to deliver ‘profitable volume’. Finding the right balance between growing volumes and increasing profits will be key to the continued success of consumer products companies in the coming months.
Consumer spending in the next three months by category
Net % intending to spend more by category in the next three months
