PwC Consumer Sentiment Survey - Autumn 2023

Stalling sentiment and growing polarisation

On the face of it, consumer sentiment remains the same as in June 2023. Significantly better than the same time last year, this should be a cause for optimism. But there are also some trends behind the headline numbers that might suggest a need for caution.

Over the last year, our Consumer Sentiment Index has consecutively trended in the right direction - improving by over 30 points. Since its low of -44 in Autumn 2022, things have been encouraging, even in the face of stubborn inflationary pressures and interest rate rises. Our last survey showed sentiment at its highest point in 18 months (-13). This is in line with the long-run average over the 15 years we've done the survey, which suggests we were almost back to normal. And our latest findings suggest more of the same.

But despite all indicators being much better than a year ago, there are some warning signs. The flat sentiment masks a significant divergence between the old and young. We’re also seeing the widest gap (52 ppts) between the most and least affluent categories since our survey began. Sentiment is still improving among over 55s and the most affluent groups, but it is falling in every other group, particularly sharply among under 25s and the least affluent.

Category spending is now negative across the board, even for grocery, and has deteriorated compared with the last two quarters. In fact, intention across all categories has declined since the summer. That spending intention has fallen fastest among under 25s, who are no longer net positive on fashion, beauty and health. Within grocery, only over 65s have a net positive spending intention, suggesting trading down and switching to cheaper retailers may have become entrenched habits.

Could these findings impact Christmas? Consumers are already shopping earlier and expecting to spend less on Christmas – 1 in 5 already started Christmas shopping in mid-September, with more than 1 in 3 having either started or planning to shop earlier (due to budgeting). And more consumers expect to spend less this Christmas vs spend more, with almost 80% of those who say they'll spend less saying the reduced spending is due to rising cost of living.

Sentiment flat, fortunes mixed

Our last two surveys suggested that the polarisation between age and socio-economic groups was slowing. This survey shows the opposite - that divergence is happening again.

Previously, every single age group and socio-economic group returned an improvement in sentiment. Over summer, sentiment has only improved among the oldest age groups (over 55s) and most affluent groups.

And that has seen turbulence in the age and economic groups. 45-54 year olds now expect to be the worst off across all age groups, with under 25s also dropping below 25-34 year olds. The falling sentiment of under 25s is particularly unusual at this time - autumn is normally when young people show higher sentiment because they’re heading into work or education. Excluding the pandemic, for the past 10 years we’ve always seen young people particularly positive around autumn. However, those under 35 do remain net positive, largely driven by more younger people living at home, having more disposable income and a desire to spend.

On the other hand, sentiment among the over 55s is improving rapidly. As it is among the most affluent individuals. But we have seen the big sentiment improvements among less-affluent segments and working-age adults reverse. The help from National Living Wage and benefits increases in April, and the tying of benefits to inflation, appears to have already worn off for many, with a steep drop off in their sentiment.

PwC Consumer Sentiment Index 2019-2023

Balance of opinion by age group

Balance of opinion by socio-economic group

Household finances still stable, some stronger than others

Somewhat reassuringly, finances have remained broadly similar to the previous two surveys. In positive news, less than one in ten adults tell us they’re in trouble or struggling, while nearly a third still believe their finances are ‘healthy’.

Almost identical to the last consumer sentiment survey, the less affluent and 35-54 year olds remain under the greatest pressure, with retirees and the more affluent seeing the most healthy finances. The finances of the over 65s are particularly healthy, with almost half of them having money at the end of the month for luxuries or to save.

In less positive news, we have seen a significant deterioration among least affluent since our Summer sentiment, with almost a quarter telling us they are in trouble or struggling, i.e. that they are either at risk of missing bills and rent or mortgage payments, or have already done so.

“Which of these statements most closely describes your financial situation at the moment?”

By age group

By socio-economic group

A big change to spending intentions

Spending intentions are now negative across all categories, even for grocery - i.e. more consumers expect to spend less on these categories in the next 12 months than spend more. And intention has fallen fastest on grocery and discretionary categories, especially among younger consumers.

However, while it’s worse across all categories compared with March and June 2023, it does remain above September 2022 taken immediately following the mini-Budget when sentiment was at its worst in recent times.

Consumer spending intention by category, September 2023

“How do you expect your spending to change in the next 12 months?”

Easing grocery inflation and month-to-month reducing prices (e.g. on milk, dairy and eggs, among others) means it’s not a great surprise that people believe they will spend less on groceries. Of more surprise is the speed of decline in leisure, such as holidays and eating and going out, particularly as this was a key driver of store openings in H1 this year. Holiday spending intention may be less of a concern, as it usually drops off after summer and picks up again in January.

Spending intention has fallen fastest among under 25s. In June, under 25s had a net positive spending intention for health, clothing and beauty in June. That has now dropped off so significantly that they have now fallen in line with the average.

Change in net spending intention by selected age group, Jun-Sep 2023

Grocery: trading down here to stay, but not for the over 65s

We’re seeing an unusual divergence in sentiment across grocery. A large number of people tell us they're going to spend more, as do a large number of people who say they're going to spend less.

This polarisation has led to a net negative spending intention across all demographics, with the exception of over 65s. Those over 65 are the only ones net positive, suggesting they’re refusing to trade down on choices, shop at discounters or compromise on food. As inflation eases, this could be positive news for those retailers and FMCG brands targeting older consumers.

Everyone else is, on balance, looking to spend less. Given easing inflation, we might expect more people to say they’ll spend less, but it also suggests trading down and switching to own labels has become entrenched. Historically, we’ve seen this behaviour reverse as economic conditions improve - such as after the last period of high food inflation in the early 2010s - but these results suggest this may not be the case this time. Certainly, this negative spending intention could help private labels and discounters retain the volume share won from brands and mainstream retailers respectively over the past two years.

What does that mean for Christmas?

Christmas might come early this year, and be more measured: one in five people have already started shopping, and one in three have either started or are going to shop earlier this year. Much of that is because of budgeting.

This year it looks like people will plan to shop early and bit-by-bit in an effort to control finances, while still keeping Christmas special. We know people have prioritised events and celebrations this year, and Christmas will be no different. Shoppers are keen not to risk disappointment or running out of money by not starting early enough.

Christmas shopping timelines by gender, September 2023

"Thinking about your Christmas shopping compared to previous years, when are you planning on doing the majority of your shopping?"

Women are more likely to start - or have already started - early Christmas shopping. There’s also a slight regional variation, with consumers in Northern Ireland and Wales the keenest to start their Christmas shopping early.

Almost across the board, too, shoppers are indicating they're having to budget more this year and are expecting to spend less on Christmas shopping and celebrations in 2023 compared to last year. Just 18% of all respondents expect to spend more than last year, with 30% expecting to spend less. And only the most affluent economic groups and those that live in London expect, on balance, to spend more this year. And of those expecting to spend more, only a third state it’s because they are more confident about their finances this year.

The number one reason for spending less is the cost of living - in this case, it’s the reason for nearly 80% of those intending to spend less. Although food prices are starting to reverse, the increase in petrol prices and the continued cost of energy means things are unlikely to get better. Interestingly, mortgages or rents still remain a lesser impact for most, despite coverage to the contrary.

However, this is what people are saying now - there is always time to change. We saw similar intentions last year, but ultimately consumers ended up spending more than they predicted. For some, there may be positives approaching Christmas, such as pay rises, falling headline inflation, and the potential for any surprises from the pre-election Autumn Statement on 22 November. While these may also be offset by petrol price rises and the removal of the energy price grant, it doesn’t stem the optimism over a last minute rush like we’ve seen before. Retailers will certainly be on tenterhooks.

Mixed fortunes overall?

While consumer sentiment remains overwhelmingly more positive than this time last year, the fact that it has stagnated might be deflating for some. And despite over 65s and the most affluent seemingly appearing positive, there is deteriorating sentiment across all other demographics. This is impacting consumers’ intentions around Christmas spending, and also seeing them change behaviours.

However, even with these mixed results, there will be opportunities for savvy retail and leisure operators. Sentiment is still relatively secure and household finances have stabilised for most.

With people already shopping for Christmas, there are still pockets of demand. And while households might be looking to cut back their spending, they will still spend albeit over a longer period of time. The odds may also be are stacked in favour of a positive last-minute surprise given the downward trajectory of inflation.

Businesses should look to understand and locate their purchasing groups - and demographics - and encourage them to spend responsibly, and in a way that works for them. Think about your consumers: how, when and where are they spending? But be aware of the polarisation across those demographics to avoid alienating a customer base.

With people looking to cut back across all categories, consumers will be likely looking to buy less and trade down. But this gives businesses the opportunity to help them, from special offers and cheaper options, to alternative ways to finance purchases.

For many, they will need to be careful to maintain margin. Discounting too much to drive volume will only impact long-term success, while ordering too little or having too little stock could see you miss out on any last minute rush. Managing pricing to protect margins and not disappoint shoppers will be critical.

But knowing that shoppers are already looking gives businesses a chance of success now, with an opportunity to also capitalise on any last-minute rush. On the whole, sentiment is in a better place than it was last year. With some groups and demographics remaining positive and the potential of some surprise upsides in the Christmas run-in, retail and leisure operators will be.

However, this is what people are saying now - there is always time to change. We saw similar intentions last year, but ultimately consumers ended up spending more than they predicted. For some, there may be positives approaching Christmas, such as pay rises, falling headline inflation, and the potential for any surprises from the pre-election Autumn Statement on 22 November. While these may also be offset by petrol price rises and the removal of the energy price grant, it doesn’t stem the optimism over a last minute rush like we’ve seen before. Retailers will certainly be on tenterhooks.