Consumers across the globe are worrying about how the Ukraine conflict will affect their financial situation. As far away as Australia and Thailand, people recognise the potential ramifications. Research conducted by Mintel in the first week of April showed that in Australia, for example, 24% of consumers think it will have a major impact on their finances.
In the UK, that figure stands at 30%. Although that is the lowest number across the European markets surveyed by Mintel, concern is growing. In the space of just three weeks, the number of Brits who believe that the situation in Ukraine will have at least some impact on their finances – big or small – shot up from 61% in March to 71% in April.
There is a good reason for these worries. The sharp increase in oil prices and impact on Ukrainian and Russian agricultural and industrial exports will affect consumers around the world. Since the start of the conflict, the costs of oil and natural gas have spiked; wheat, fertiliser and many other commodities are also being affected. For most people, it’s the impact on energy costs that is the biggest concern, but many also recognise that the conflict will raise food prices.
In the UK, concern over rising food prices is growing faster than any other area. Just over half (53%) of Brits were concerned that the conflict would lead to increases in food and drink prices at the beginning of March, and this has increased to almost two-thirds (63%) of Brits by the beginning of April. Meanwhile, concern about potential stock shortages in shops has risen from 34% to 41% over the same three-week period.
The difficulties that brands are likely to face in producing and sourcing goods will have a knock-on impact on the choice available to shoppers. As a result, consumers may need to reassess their priorities. Issues such as sustainability are at risk of being pushed down the list of concerns as product ranges are reduced and price becomes increasingly important.
This is likely to change how people shop for food. While discretionary categories such as leisure and fashion are obvious targets for spending cuts, the aftermath of the financial crisis showed there are areas of discretionary spend that people will protect, even if that means they have to economise on the essentials.
In many markets, the 2009 recession boosted the discounters’ market share, and in 2022, consumers are most likely to say they would switch to a lower-cost retailer to make everyday savings. We’ve already seen the discounters boost their share in the first quarter, which could well be an indication of things to come. Private label was another winner after the 2009 recession, supported by retailers’ efforts to boost the range and quality of own-label offerings. Although there has been a long-term shift towards the discounters and private label, Mintel’s research shows the current situation could speed up this shift.
The last recession, though, showed there are plenty of ways that brands can fight back against these trends. The key is to focus on overall value, rather than entering a race to cut costs in an attempt to beat low-cost providers at their own game. Even when times are tough, many people will be prepared to spend a little more if they think that’s going to deliver better value. From sparkling wine to premium fragrances, the last slowdown created plenty of examples of categories that defied expectations and boosted sales even when real incomes were falling.