Financial strain on households Europewide has triggered a consumer confidence decline.
“Consumer sentiment – the statistical measurement of the overall health of the economy as determined by consumer opinion – has fallen to its lowest level in 2024, seeing the biggest quarterly decline since Spring 2022,” said a spokesperson for accountancy firm, PwC.
What’s more, it appears to have been trending down for some time, with financial forecaster Trading Economics reporting consumer confidence in Europe has been declining steadily for 10 years.
And this plummeting consumer confidence is leading to a spending drop.
“Consumption has mainly been held back by high inflation and falling real incomes in the last 12 months,” says a spokesperson for global financial forecaster, Oxford Economics. “But we think tight monetary policy has now taken over as the main drag on household spending.”
But this impact is not just limited to European consumers, it’s a worldwide shadow.
“The cost-of-living crisis is having an impact on consumers across the globe,” explained Will Cowling, marketing manager of FMCG Gurus, while speaking at IFE 2024.
And the outlook for the immediate future remains negative.
“We expect weak consumer spending in the eurozone to persist,” says Oxford Economics.
So, what does this mean for food and beverage and what can the industry do to meet changing consumer demand?
How is the decline in consumer confidence affecting food and beverage?
One of the biggest changes in consumer spending on food and beverage, is the switch to lower cost versions of the same products. This is proving to be a big win for retailers’ private label ranges, and a major challenge for independent brands.
“Many are downgrading their choices across categories and opting for lower-cost private label (PL) products,” says Carmen Morales Garcia, partner for consultancy firm, LEK.
But where private label might once have been perceived as the second-rate option, increased consumer interest has led to increased investment from retailers, with a focus on quality and variety.
Read more on the success of private label brands.
“Retailers have worked hard to invest in their private label strategies and shift the perception beyond basic value-for-money options,” said a spokesperson for market insight firm NIQ. “This has included introducing wider ranges of products.”
Retailers are also noticing a rise in consumer downtrading. This is the consumer shift towards more economical products and alternatives categories. One area where this downtrading trend is particularly evident is in meat, with the rise in sales of cheaper protein categories such as chicken and frozen pork, at the expense of more expensive proteins such as fish and beef. Another big switch retailers are seeing is from increasingly costly olive oil to more affordable alternatives such as sunflower oil.
How can food and beverage adapt to reduced consumer spending?
Though a decline in consumer confidence and spending might seem like bad news for the industry, it is creating opportunities, which private label is already taking advantage of. Although there are still further opportunities for growth in this sector.
Consumers and retailers are seeing the value of own-label products,” said a spokesperson for food and beverage merchandiser Dee Set. “Because of this, retailers will continue to expand their efforts expanding and freshening up their offerings.”
But now is the time for all industry to act, focusing on innovation and NPD, to tempt consumers and encourage growth.
“For beleaguered fast-moving consumer goods companies, now is the time to re-strategise, placing innovation, consolidation and internationalism at the top of their agendas,” says LEK’s Garcia.
Diversification is also fundamental to continued success, and some brands already proving successful in this approach.
“Spanish food processor Campofrío stands out for their product diversification capabilities,” says Garcia. “In response to the financial crisis, the company strategically expanded their product line from predominantly pork to include more affordable turkey-based offerings.”
Consumers are also increasingly demanding value for money and, when it comes to purchasing decisions, “good value for money is more important than low costs,” says FMCG Gurus’ Cowling. That’s not to say that cost is not important and that consumers are not sensitive to price, but they want to feel the product they are purchasing is worth it.
“No matter how much a product costs, people will not purchase or repurchase it if they associate it with poor quality,” says Cowling.
Financially challenging times often lead to increased M&A activity in food and beverage. And acquisitions are a fast and effective way for larger brands to increase their product ranges, along with a whole host of other benefits.
“Consolidation can support firm performance during economic downturns by helping streamline operations, diversify offering portfolio, cut costs, access new markets and eliminate redundancies,” says Garcia.
And while this may not be the first choice for the acquired brand, it does provide a viable solution to financial struggles.
In short, these are challenging times for the food and beverage industry, and not just because consumer confidence is dropping, but there are plenty of opportunities for the industry too.