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21 April 2022

The war in Ukraine has dented consumer trust in a better future. In the Czech Republic, even e-shops are suffering

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The belief that the post-pandemic world will be a positive one for consumers has been hit in recent months by growing economic uncertainty, which has in turn reduced consumer confidence in a better future, according to the latest EY Future Consumer Index. In the Czech Republic, this will be reflected in a significant drop in sales of consumer goods as well as changes in travel and dietary patterns.

The ninth edition of this regular quarterly survey of 18,000 consumers worldwide, conducted in January and February 2022, found that the current rising cost of goods and services is affecting 52% of respondents. This is impacting their ability to purchase goods and their actual purchasing decisions

Although lower income earners are most affected (62%), the survey shows that middle income earners (48%) and high, income earners (42%) are also constrained. Emerging markets are feeling this very strongly - 62% of respondents said that affordability influences their purchasing choices (South Africa 77%, India 64%, Brazil 63%, China 42%), while in developed markets only 45% (USA 50%, Canada 52%, UK 42%, France 40%).

The survey showed that people will continue to reduce their consumption, switch to cheaper alternatives and buy fewer non-essential items, mainly due to the impact of inflation and also in anticipation of the new COVID-19 variants. Key items on which respondents are spending less include clothing (38%), cosmetics (35%) and alcohol (30%). Many are also already looking for cheaper alternatives to fresh food (20%) and packaged food (19%).

"Czech consumers are taking the war in Ukraine quite seriously and immediately after it started they started to reassess their spending. Complete macroeconomic data are not yet available, but we can already see a fairly significant drop in sales in brick-and-mortar and online stores. This occurred as early as 24 February, when some products fell by as much as 30% to 50%, and although sales have started to recover after two weeks, the year-on-year decline can be expected to persist, especially for goods of a residual nature. This is unprecedented, especially for online shops, and I think we will see e-shops focused on books, toys, games, phones, home furnishings or jewellery, for example, reporting year-on-year sales declines of tens of percent," comments David Zlámal, the lead partner of EY's Capital and Debt Advisory team in Central Europe.“

Consumers want experiences, not things

Research has shown that consumers are more than ever looking for experiences in particular, as they make up for lost time and also seek an escape from post-covid reality. Forty-five percent said they plan to live more in the present.

Of the top five priorities for consumer spending pre-defined in the survey, i.e., definitions of whether planet, affordability, experience, health or companionship come first in their purchasing decisions, the experience category saw the biggest increase. They have doubled in priority since 2020 and are now consumers' third highest priority when deciding where to spend. By contrast, at the start of the pandemic, it was the lowest priority.  

Experiences are now the top priority in the US (24%), France (26%), India (31%) and Thailand (32%). They remain the smallest segment in Finland (13%), Australia (15%) and New Zealand (10%). Forty-two percent of all respondents plan to spend more money on experiences in the next year than they have so far, but 39% are less inclined to spend on experiences away from home. So the experience has to come to them. Customers who venture out for shopping have higher expectations of brick-and-mortar stores than before. More than a third (36%) even plan to only visit stores that offer a great shopping experience.

But in the Czech Republic, according to David Zlámal, the situation is greatly complicated by the extreme rise in inflation. "Inflation will reach at least 15% this summer, and this increase includes mainly energy, food and transport items, areas that are not easy for consumers to replace. For these consumers, especially the middle class, this will lead to a decline in their discretionary disposable income and with it their spending on goods and services of a superfluous nature or on travel will be significantly negatively affected and we can expect a rapid decline," he predicts.

Consumers are driven by sustainability and values

When it comes to purchasing decisions, for the second consecutive quarter, the majority of respondents prioritize the planet (26%) over affordability (24%) and experiences (20%), which is particularly evident in China and Brazil, where a full 32% of respondents prioritize the planet when making spending decisions.

Consumers are opting for more sustainable shopping and doing what they can to protect the environment. 56% said they will pay more attention to the environmental impact of their purchases and 52% committed to paying more attention to the social impact of their shopping. Two-fifths (42%) say they will only buy from brands that align with their own values - a view shared by 42% of Generation Z and 48% of millennials.

"Global research shows that consumers are not optimistic about their future in the face of rising inflation and the war in Ukraine. People are reassessing their spending and rethinking what products and services to spend on. In the Czech Republic, we can expect a change in the composition of food and the form of eating. Consumers can be expected to try to reduce their spending on food, which is expected to rise by at least 20 to 30% year on year, and to consider replacing the most affected items, such as wheat, oil or butter, where the increase can be as much as 50%, by adjusting their dietary modification. We can also expect a return to public transport, which will be considerably cheaper than private transport and already safe with the Covid-19 pandemic fading away," concludes David Zlámal, commenting on the Czech reality.

The latest edition of the EY Future Consumer Index is available at Future Consumer Index: people are returning to their values | EY Czech Republic

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