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A greater willingness to spend on discretionary items
Affordability remains consumers’ number one concern at 34% however, suggesting that brands and retailers need to continue to focus their efforts on managing costs and driving efficiencies to deliver value to consumers.
There are some encouraging signs that, as consumer confidence improves, shoppers are becoming more willing to spend in discretionary spend categories, with intent to spend on non-essentials increasing by 4% over the last year.
It is also up in treat categories, where consumers had previously cut back, such as gym memberships and fitness classes (increasing by 3% from April 2023) and beauty and cosmetics (up 2%). In other areas, such as luxury items and other indulgences, consumers remain cautious, but are open to persuasion.
What is clear, however, is that consumers are financing such treats by continuing to be frugal with what they spend on essentials to enable these non-essential spending opportunities.
A shift back to brands from private label
During the COVID-19 pandemic and the subsequent cost-of-living crisis, we saw a switch to private label alternatives to brands as consumers looked to take advantage of cost-saving opportunities. But now we see the preference for buying private label falling, as price differential to brands have shrunk.
Although the majority (38%) still believe that private label goods help them save money and that they are increasingly offering better quality products, more than three-quarters (76%) of consumers feel that private label prices have increased in recent months. More than half (52%) believe that private label/store brands are charging premium prices. Similarly, 55% say that these private label prices are now comparable with their branded competitors, although there is also a strong concern (84%) that some brands have reduced their pack size.
A returned hunger for experience
As consumers move beyond spending on the basics, we see a growth in consumers seeking out experiences. This was a trend that accelerated post-pandemic and then shrank as the cost-of-living crisis hit. More than a third (38%) now want to spend more on experiences and more consumers (43%) are living in the moment rather than planning long-term than they were in October 2022. This hunger for experience is likely to ultimately support growth in a wider range of discretionary categories.
Key trends for the future
As well as identifying trends around consumer confidence and spending, this latest edition of the FCI identifies three key mid-to-long-term themes that are driving the future consumer. Amongst these are the issues of sustainability and health and wellbeing, which have long been key features in the FCI, but we also see the growing impact of digital and AI.
1. Digital and AI
AI investment has been at an all-time high, with retailers globally having invested over US$5.5bB in AI-related deals. A significant amount of the gains has been added in the online channels, with the ability for retailers to offer hyper-personalised experiences through chatbots, promotions and tailored content. Brands have also been leveraging generative AI (GenAI) to create photorealistic ‘“try-on’” options that allow consumers to see clothing on diverse models with varied sizes, skin tones, body shapes and hair types.
In spite of this, increasing familiarity with technology is leading to a new challenge in consumer trust in AI. For instance, confidence in AI driven personalised recommendations dropped from 53% in April 2023 to 42% in November 2023, whilst confidence in AI generated augmented reality product visualisations has dropped from 54% to 46% over the same period. However, the technology is evolving at an unprecedented pace, with the quality of services continuing to improve at an exponential rate, which is likely to support growth consumer trust and adoption over time.
Head of EY UK&I AI lab, Corey Dixon, comments: “Retailers that embrace AI and operate on the technological frontier will be able to create differentiated experiences for consumers. Although a lot of focus has been on operational improvement, deeper and more personalised experiences will allow retailers to drive top-line growth and be differentiated amongst their peers.”