Introduction
PwC’s Retail and Consumer Insights provides the latest consumer behaviour news and trends in New Zealand and internationally. We analyse data from the PwC Retail and Consumer Dashboard (focusing on electronic spending by industry in New Zealand) to equip you with insights to inform your business decision making. Our commentary also covers our observations of key changes in the ANZ-Roy Morgan Consumer Confidence Index, Stats NZ, Auckland Heart of the City footfall data and other local and global sources.
Key highlights from our June 2021 edition include:
ANZ-Roy Morgan Consumer Confidence Index dropped 1 point to 114 in May, slightly widening the gap from its historical average of 120.
The rebound in March quarter retail sales contributed to stronger than expected economic activity, with gross domestic product increasing 1.6 percent in the March 2021 quarter.
Year to date spending in the durables sector is up +28.3% on the comparable period in 2020, while spending relative to 2019 has also grown significantly (+17.2%).
When compared to May 2019, spending in the consumables, durables, hospitality, services, apparel and motor vehicles are all in excess of what was spent in May 2019.
The only industries to experience a decrease in spending from May 2019 to May 2021 were non-retail (i.e. travel, health and wholesaling) and fuel (due to pricing).
To explore further, select the buttons below.
Consumer confidence
ANZ-Roy Morgan Consumer Confidence Index released at the end of May suggests that consumer confidence may have plateaued with the Index easing one point to 114. In contrast, a net 19% of respondents (up 1% point in May) think it is a good time to buy a major household item. From a retail perspective, this remains the single best indicator of consumer sentiment in the Index.
"There has been a significant increase in household debt, combined with unprecedented growth in Government debt, which raises concerns about whether or not the current surge in retail spending is really sustainable"
Brett Johanson - PwC Partner
Consumer confidence and attitudes towards major household expenditure are also reflected in the March 2021 quarter retail spending data recently released by Stats NZ2. After adjusting for price and seasonal influences, total retail sales volume rose 2.5 percent in the March 2021 quarter following a 2.6 percent fall in the December 2020 quarter. By value, electrical and electronic goods had the largest increase, up 8.4 percent followed by recreational goods, up 16 percent in the March 2021 quarter. This rebound in retail sales has contributed to stronger than expected economic activity, with gross domestic product increasing 1.6 percent in the March 2021 quarter. This follows a 1.0 percent fall in the December 2020 quarter.3
In terms of inflation expectations, the May ANZ-Roy Morgan Consumer Confidence Index found that: (i) house price inflation expectations remain high at 5.9%, with only modest falls recorded in Auckland, Wellington and Canterbury; and (ii) CPI inflation expectations are also high at 4.4% (easing 0.3% points in May). House price inflation expectations reported by the ANZ appear at odds with the forecasts included in the recent Government Budget, with Treasury predicting annual house price growth to peak at 17.3 percent in the June 2021 quarter, easing to 0.9 percent by the June 2022 quarter4. While house price inflation expectations have retreated from the high of 7.5% recorded in February, there remains no discernible impact from the Government’s recent tax policy changes.
Households continue to report much more caution about buying a major household item than very strong house price inflation expectations would suggest (figure 2). Such caution by consumers would normally be a reliable indicator of relatively weak retail sales, but people have in fact been maintaining high levels of spending, as confirmed by the recent Stats NZ March quarterly data. This data appears at odds with recent speculation that retail spending may come under pressure as consumers look to save more and the prospect of overseas holidays becomes more of a reality with the global vaccine rollout.
References
1 With special thanks to PwC’s Matt Gunn and Rebecca Matthews for their assistance in preparing this edition.
2 https://www.stats.govt.nz/news/retail-spending-rises-in-first-quarter-of-2021
3 https://www.stats.govt.nz/information-releases/gross-domestic-product-march-2021-quarter
4 https://www.treasury.govt.nz/publications/efu/budget-economic-and-fiscal-update-2021
Spend trends
Changes in consumer spending habits can be seen in the Stats NZ electronic card transactions series data that includes all debit, credit, and charge card transactions with New Zealand-based merchants. Using the Retail and Consumer Dashboard developed by PwC New Zealand, we are able to compare year to date retail related electronic spend data by sector with the comparable periods in 2019 and 2020.
While these figures (seen in the May update released by Stats NZ on 10 June 2021) continue to be distorted by border and other COVID-19 related restrictions that remained in place during May 2020 (New Zealand was at Alert Level 3 and 2 during May 2020), some interesting trends are now emerging in relation to those sectors which continue to benefit from the impact of COVID-19 or have recovered to pre COVID-19 spending levels. For example, while year to date spending in the consumables sector is down (2.5%) on the comparable period in 2020, spending relative to 2019 has still grown +9.0% compared to the same period in 2019. Consistent with anecdotal evidence, year to date spending in the durables sector is up +28.3% on the comparable period in 2020, while spending relative to 2019 has also grown significantly (+17.2%) compared to the same period in 2019.
Year to date - Electronic spend by sector
Hospitality - Change in spending last 12 months
In terms of the sector most directly affected, hospitality spending increased $533 million (+86%) from $619 million in May 2020 to $1.2 billion in May 2021. However, it is interesting to note that in terms of recent month on month changes in spending, hospitality spending in May 2021 actually declined (-0.3%) compared to April 2021. These figures continue to suggest that the benefits of the Australasian travel bubble remain to be seen. On a more positive note, hospitality spending in May 2021 was up 10.0% on May 2019 ($1.0bn).
Auckland footfall insights
Our PwC Retail and Consumer Dashboard also tracks pedestrian footfall data on an hourly basis across the Auckland CBD5. While the post lockdown recovery is immediately apparent (in most locations), it is also interesting to note that not all locations have experienced the same level of recovery. The most recent data for May demonstrates that footfall at 45 Queen Street is still only ~55% of pre COVID-19 levels (based on May 2019 figures), while ongoing construction activity related to the Central Rail Link and redevelopment of thel Post Office building has contributed to footfall on Commerce Street West falling further (below May 2020) and less than 40% of pre COVID-19 levels (based on May 2019 figures).
May Monthly Pedestrian Count
While Wellesley Street West is planned to re-open to through traffic on Sunday 27 June, the nearby Victoria Street and Albert Street intersection will close temporarily for approximately two years on Tuesday, 29 June.
In other news, Commercial Bay developer, Precinct Properties, is understood to be interested in acquiring Auckland Council's downtown carpark building. The Council is expected to commence marketing the site in July to find a partner for what is the last major development opportunity on Auckland’s waterfront between the Post Office building and the Viaduct Harbour.
References
5 Source: Heart of the City: https://www.hotcity.co.nz/city-centre/results-and-statistics/pedestrian-counts
International insights
Transforming retailers through blockchain technology3 - PwC Australia - Retail & Consumer Deals Digest
Blockchain technology has become increasingly relevant and front of mind for retailers due to the benefits that it can bring to customers and stakeholders. This includes:
- supply chain and inventory management
- customer identity management
- cyber security
- counterfeit prevention
- person to merchant transactions
- product contracts
- sales tax simplification
- ESG compliance and reporting.
Many global retailers, including Amazon, Alibaba, Walmart, IKEA, Target and Aldi, have been investing in blockchain technologies with a view to deliver these benefits, a few of which are highlighted below.
Digital payments
Blockchain technology is already transforming the payments landscape, with companies including Square and IBM using blockchain to design and improve digital payments methods. Further, Apple Pay announced it will allow U.S. cardholders to add their Bitpay Prepaid Mastercard to Apple Wallet and retailers such as Amazon and Expedia are now accepting Bitcoin. With cryptocurrencies being accepted for the purchase of everything from cars to vacations, digital coins are clearly entering the mainstream market.
However, there have also been certain challenges and downsides as a result of the increased adoption of cryptocurrencies into the payments system. One such example is the emergence of cryptocurrency as the primary form of payment for ransomware attacks. Cryptocurrencies, such as bitcoin, have been the payment of choice for these attacks and are helping facilitate crimes previously not possible.
Supply Chain
Despite blockchain’s heavy association with cryptocurrency, there are uses beyond payments, with blockchains and decentralized ledgers being used to help retailers drive efficiencies with supply chain and inventory management. In combination with the Internet of Things (IoT) technology and data analytics, blockchains can provide a shared protocol for every actor in the supply chain to log and share data at each stage of an agricultural commodity’s journey. Walmart, for example, has worked with IBM on a food safety blockchain solution, bringing transparency to a digitized food supply chain.
Environment, Social & Governance (ESG)
Blockchain also has the potential to standardise ESG reporting, through a blockchain-enabled reporting framework. This concept could revolutionise the way that companies approach their ESG frameworks and standards and provide increased accountability via a common reporting system.
Recent news
Costco has started recruiting store managers ahead of opening its first New Zealand store in Westgate, Auckland next year. It is estimated that Costco will employ 350 workers on opening.
Kiwi Property is looking to reduce its reliance on shopping centres, with negotiations underway for the sale of the Northlands Mall in Christchurch and The Plaza in Palmerston North. It is also looking to shift to mixed-use communities in large strategic landholdings, such as Sylvia Park, LynnMall (Auckland) and The Base (Hamilton).
Green Cross Health, which operates three divisions, Medical, Community Health and Pharmacy and owns brands including Unichem Pharmacy, Life Pharmacy, and The Doctors, is considering possible acquisitions. While the Pharmacy division will continue to undergo an optimisation strategy due to reduced retail spending, Green Cross is looking for acquisition opportunities in the Medical division which has seen strong growth in FY21.
Briscoes Group has highlighted online sales growth, increasing from around 11% of sales in early 2020 to c.19% in early 2021.
Having previously expressed interest, Scales recently announced that it has withdrawn from negotiations regarding the potential acquisition of Villa Maria. Villa Maria Estate’s parent company was placed into receivership in May. However the receiver has stated that the appointment of receivers would not impact the operating company, Villa Maria Estate.
Restaurant Brands New Zealand announced on 27 May that it is intending to re-invest cash to pursue growth opportunities rather than pay dividends.
Recent deals - recently announced transactions in the retail and consumer sector include:
June:
- Are Media Pty Limited, an Australian multi-channel publisher owned by Mercury Capital, announced it had agreed to acquire Ovato Retail Distribution Pty Ltd and Ovato Retail Distribution NZ Limited from Ovato Limited.
May:
Listed NZ medical company Me Today Limited announced that it had agreed to acquire 100% of King Honey Limited (a NZ-based premium Manuka honey producer) for NZ$36m.
The Warehouse Group Limited announced that Foodstuffs had divested its entire shareholding in WHS to New Zealand institutional and retail investors.
Arnott’s (backed by KKR) announced its acquisition of 180degrees, a New Zealand based gourmet biscuit maker.
BWX, the Australian hair care and skin products firm, has announced its acquisition of Flora & Fauna, a leading Australian curated online retail platform exclusively focused on vegan, ethical and sustainable products.
Asahi (Japanese beverages company) announced its acquisition of Allpress Espresso, a New Zealand based coffee brand with an international presence.
- KKR completed the acquisition of premium pet food producer Natural Pet Food Group Limited.6
References
6 Advised by PwC New Zealand
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, particularly in the aftermath of the COVID-19 lockdowns. If you are interested in online access to our dashboard to help inform your decision making, please contact: Rebecca Matthews
How we can help:
PwC has advised many of New Zealand’s largest listed and privately owned retailers 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.
We have a comprehensive understanding of the rapidly evolving retail 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 sector, based on principles of trust, independence and challenging insight, using specialist teams tailored to specific client needs.
Contact us
Partner, Food & Fibre Leader | Finance & Operations Leader, PwC New Zealand
Tel: +64 21 404 015
Managing Partner, Te Waipounamu and China Business Group Lead, PwC New Zealand
Tel: +64 21 616 232
Follow us
