Retail and Consumer Insights (Quarter 4 2023)

Introduction

PwC’s Retail and Consumer Quarterly Insights provides the latest trends in consumer behaviour both in New Zealand and globally. We analyse data from the PwC Retail and Consumer Dashboard (focusing on electronic spending by industry in New Zealand) to equip you with valuable insights to support your business decision-making. Our commentary also covers our observations on changes in the ANZ-Roy Morgan Consumer Confidence Index, Stats NZ, and other relevant local and global sources.

Key highlights from this edition include:

The ANZ-Roy Morgan Consumer Confidence Index improved from September to December, but remains historically low. Retailers are continuing to be put under pressure in the current economic environment and we are seeing an increasing amount of businesses in distress.
House price expectations have increased compared to Q4 2022 and are predicted to rise further in 2024. However, opinions on buying major household items fluctuated during this quarter.
Consumer spending declined during significant retail events like Black Friday and Boxing Day, as high interest rates continue to decrease disposable incomes and impact consumers’ spending patterns.
When comparing the seasonally adjusted value of retail electronic card transactions from September to December, there was a decrease in spending across retail by 0.8% (fuel and vehicles) and core retail industries by 1.1% (consumables, durables, and apparel).
The Hospitality industry is growing due to increased travel and higher operational costs that have been passed on to consumers and the market.
The latest Reserve Bank announcement has kept the official cash rate at 5.5%. Central banks are expected to maintain or lower interest rates in 2024, which should boost global investor confidence.
According to the 2024 PwC Global Annual CEO Survey, 52% of global CEOs in consumer markets plan to make at least one acquisition in the next three years.

To explore further, select the buttons below.

Consumer confidence

New Zealand households faced ongoing challenges in the fourth quarter of 2023. Inflation continued to decrease, the New Zealand economy is facing a difficult mix of high interest rates, stubborn inflation, and a new coalition Government. Retailers were disappointed that the Christmas months did not bring the level of spending they had anticipated, as many households faced increasing cost pressures.

In the fourth quarter, the ANZ-Roy Morgan Consumer Confidence Index showed a gradual increase, rising from 86.4 in September to 93.1 in December (index numbers). Despite this positive trend, consumer confidence levels have remained historically low. The decrease in fuel prices has had an impact on inflation expectations, with the two-year outlook dropping below 4% for the first time since October 2020. More New Zealanders are optimistic about the next 12 months for themselves and their families, as indicated by the rise in this sentiment from 16 in September to 25 in December. The newly elected National-led Government may have contributed to the increase in consumer confidence, particularly among middle-income earners, as there is potential for tax relief under the new Coalition.

“Retailers are continuing to be put under pressure in the current economic environment and we are seeing an increasing amount of businesses in distress and coming to PwC for advice. Businesses still recovering from the impacts of COVID-19 are facing high interest rates, rising input costs and low discretionary spending from consumers. While these economic conditions are slowly easing, there is likely to be tough times still to come for Kiwi businesses in 2024.”

Richard Nacey, Partner in Business Restructuring Services, PwC New Zealand

The portion of people who believe it is a good time to buy a major household item, still considered the best indicator of retail spending, was -25 in December. This measure was volatile throughout Q4, reaching a low of -38 in October. While retail spending increased by 1.6% in November compared to October, both Boxing Day and Black Friday saw declines of 0.6% and 10% in the prior year respectively. Stats NZ reported that total retail sales declined by a seasonally adjusted 2% in December compared to the previous month, marking a difficult year for New Zealand retailers. Unfortunately, the retail forecast for 2024 presents challenges as there is no immediate relief in mortgage rates.

Despite the annual Consumer Price Index (CPI) increase of 4.7% for the December quarter, which is the lowest in two years, New Zealanders are still grappling with the cost of living crisis. Rent prices increased 4.5% for the year to December 2023, while household rates increased 9.8%. On a positive note, December marked the fourth consecutive month that food prices have dropped. Stats NZ reports that the price changes observed in recent months are similar to those seen before 2020.

House price increase expectations have also gradually risen over the quarter, with November and December showing expectations of 4.2% and 4.1% respectively. These figures are significantly higher than the negative expectations observed in the fourth quarter of 2022. This has been partly fuelled by New Zealand’s highest population growth surge in decades with net migration of 100,000 over 2023. Economists from Westpac and Kiwibank are forecasting a 7% to 8% increase in house prices in 2024.

Spend trends

The Stats NZ electronic card transactions series data provides insights into changes in consumer spending habits, including all debit, credit and charge card transactions with New Zealand-based merchants. Using our Retail and Consumer Dashboard, we can compare year-to-date (YTD) retail-related electronic spend data by sector with the corresponding periods in 2020, 2021, and 2022.

Inflation appears to have a significant impact on the value of card transactions. As seen in the chart below, the percentage change in quarterly volume of electronic card transactions has consistently decreased in 2023 for both the core retail (consumables, durables, hospitality and apparel) and retail industries (fuel and vehicles).

The chart provides valuable insights for retailers regarding underlying consumer activity. Unlike previous years, there has been a consistent decline in the volume growth rate of electronic card transactions in 2023. Westpac economist Satish Ranchhod attributes this to slowing economic growth, anticipated rise in unemployment in 2024, and deceleration in wage growth. Consequently, the risks for spending over 2024 are heightened.

ASB senior economist Kim Mundy shares similar sentiments, noting that the tightening of RBNZ’s monetary policy has significantly impacted households’ budgets due to rising debt servicing costs and overall cost of living pressures. She also highlights that the rise in the unemployment rate in late 2023 has further dampened consumer willingness to spend. While population growth has been strong and supportive of retail spending, it is not enough to offset the impact of rising living costs and constrained household budgets.

This is supported by the December 2023 electronic spend data (released by Stats NZ on 17 January 2024), which shows a 2% decrease in seasonally adjusted spending in both the core retail and retail industries compared to November 2023.

Within the retail industries category, movements in spending on a seasonally adjusted basis between November and December 2023 were:

Durables, down $33m (-2.0%)

Motor vehicles (excluding fuel), down $4.6m (-2.2%)

Fuel, down $19m (-3.4%)

Consumables, down $1.6m (-0.1%)

Apparel, down $10m (-2.9%)

The number of electronic card transactions within core retail (excluding motor vehicles) in December 2023 remains similar to December 2022 at 138 million transactions. However, the transactional value has dropped by 0.3%, indicating that consumers have shifted to more affordable options, despite a 4.7% increase in the CPI.

Using the PwC Retail and Consumer Dashboard, we also analysed YTD electronic spending and year-on-year growth by retail category. As shown in the graph below, the hospitality and consumables industries have experienced the highest growth.

Hospitality spending has seen a yearly increase of 11.08%, rising from $13.5bn to $15bn. This aligns with the tourism industry’s growth of 12.1%. The tourism industry has faced significant disruptions due to border closures and lockdowns, making these spending statistics a strong indicator of recovery. The influx of tourists after the pandemic has been an important factor for the recovery of restaurant spending as many eat out for all their meals while travelling.

Similarly, annual spending on consumables increased by 7.1%, from $29.2bn to $31.3bn in 2023. A major contributing factor to this increase is the shift away from heavy discounting of staple products, which has been a feature of the industry for most of the past decade. This is due to increased import costs and extreme weather events. As a result, consumers are now spending more. Additionally, the industry is facing higher transport and purchase costs due to factors such as increased expenses from upstream growers and ongoing logistical constraints.

International insights

2024 Outlook: Global M&A Trends in Consumer Markets

Over the past two years, dealmaking within consumer markets has been significantly impacted due to economic challenges. Both the volume and value of deals have decreased significantly compared to the highs of 2021 (by 7% and 31% respectively). Most of the deals in the consumer and retail sectors have been focused on the mid-market.

As inflation data shows a downward trend, there are expectations that central banks will either hold or ease interest rates in 2024. This is anticipated to renew global investor confidence. According to the recent PwC Global Annual CEO Survey, 52% of global CEOs in consumer markets plan to make at least one acquisition in the next three years.

“While M&A in consumer markets may take longer to recover, it remains a powerful - and, indeed, essential - lever to transform, accelerate growth and give companies a competitive edge as they face tomorrow’s challenges.”

Hervé Roesch, Global Consumer Markets Deals Leader, Partner, PwC UK

Key M&A themes for consumer markets in 2024:

Portfolio optimisation

Consumer companies will continue to create value through selling off non-core assets, streamlining operations, reducing costs, and freeing up resources that can be used elsewhere.

Cost of capital

Companies are reducing their debt levels and divesting capital-intensive assets due to the high cost of capital.

Distressed M&A

As interest rates remain high, further distress and insolvencies in consumer markets are expected in 2024, particularly in the retail and hospitality sectors. However, the level of activity is not expected to be significantly higher than in 2023, when the number of retailers filing for bankruptcy surged.

Recent news

A new commerce commission investigation has been launched into both Woolworths and Foodstuffs, examining whether pricing and promotions comply with the Fair Trading Act. Claims include misleading multibuys where individual purchases are cheaper, specials priced higher than the regular price, and consumers being charged more at the checkout than advertised.
Black Friday sales fell 10% this year as the high interest rate environment continues to decrease disposable incomes and impact retailers' spending patterns. Advocacy group Retail NZ, reported that while consumers were still shopping, their purchases were considerably reduced.
Online grocery retailer, Supie, was placed into voluntary administration due to cash flow issues after a key investor withdrew funding. The company's owners cited a slowdown in growth and an inability to achieve the necessary scale for profitability. Staff were made redundant without receiving owed wages, and Supie owes over $2.1m to creditors. PwC New Zealand has been appointed as administrators.
Supie is not alone - according to a report by Centrix Credit Bureau of New Zealand, nearly one in four online retailers in New Zealand have gone into liquidation since 2020.
The parent company of Mitre 10 recorded a $67m loss following a significant information technology upgrade, resulting in a 27% rise in expenses for FY23.
After operating for over 90 years, Godfreys Group in both New Zealand and Australia has entered voluntary administration. With 141 stores across New Zealand and Australia, and over 600 employees, it is expected that some Godfrey’s stores will close. PwC New Zealand has been appointed as administrators.

Recent deals

Foodstuffs South Island and Foodstuffs North Island have applied to the Commerce Commission for clearance to merge. If approved, the merger would combine the two separate co-operatives, including 332 stores in the North Island and 198 stores in the South Island. The proposal is yet to be finalised and will be put to a vote by member stores in mid 2024.
Oceania Meat Processors, a global producer of pet industry ingredients, has reached an agreement to be acquired by Ridley Corporation, an Australian animal feed manufacturer listed on the stock exchange. The acquisition is valued at NZ$57m and involves Oceania Meat Processors' operations in Timaru and Melbourne.
Pacific Helmets has been purchased by Lakeland Industries, a personal protective equipment manufacturer from the United States. Production of helmets will remain in Whanganui as the international safety standards accreditation requires the specific production location.
Inspiresport, a British company offering sports development tours for schools and clubs, purchased the New Zealand family-owned business Tour Time for an undisclosed amount. Tour Time specialises in tours for sports teams, music, education and special interest groups. The acquisition makes Tour Time a part of Destination Sport, the parent company of Inspiresport that operates in 15 countries worldwide.
Zuru Edge, a New Zealand manufacturing firm, is reportedly seeking to sell one of its brands Dose & Co, a digestible collagen brand. The company, founded in 2019, is believed to be looking for a buyer with the necessary connections, sales channels, and infrastructure to expand the brand globally.

PwC Retail and Consumer Dashboard

The PwC Retail and Consumer Dashboard is updated monthly to include the latest data on electronic spending, consumer sentiment and Auckland pedestrian analysis. Through our dashboard we identify and analyse trends over time. If you are interested in online access to our dashboard to help inform your decision making, please contact Beini Guo.

How we can help

PwC has a comprehensive understanding of the rapidly evolving retail and consumer environment (offline and online) and are uniquely placed to combine strategy with technical, industry and execution expertise. We pride ourselves on a focused partnership approach to our work in the retail and consumer sector, based on principles of trust, independence and challenging insight, using specialist teams tailored to specific client needs.

PwC has advised many of New Zealand’s largest listed and privately owned retailers and consumer products businesses across a wide variety of projects and roles, including Assurance, Tax, Capital Solutions, Transactions Services, M&A, Restructuring, Real Estate, Supply Chain and Digital Consulting Services.