For a consumer with household income of $40,000, the 2% increase in the payroll tax represents $800 in reduced spending power per year, according to Symphony Consulting, a business unit of SymphonyIRI Group Inc. This can be the difference between shopping at a lower-cost dollar store versus a mass merchandiser, increasing purchases of a store brand versus a national brand, or suppressing an impulse to pick up a snack on the spur of the moment while shopping in the store.
Symphony Consulting has completed an initial analysis of shopper behavior since the payroll tax increase on Jan 1. The analysis focuses on the impact of the payroll tax increase on food and beverage consumption, including its impact on key dimensions such as type of stores shopped, type of brands bought, and the effect on various segments and categories.
Every month, SymphonyIRI tracks more than $50 billion dollars worth of consumer packaged goods (CPG) sold through a variety of stores, including grocery, mass merchandiser, dollar, and convenience stores.
Comparing dollar sales growth in food and beverages in the first four weeks of 2013 to the last four weeks of 2012 reveals little change in shopper behavior. Sales growth remained constant at 2.1% in this timeframe, and food inflation growth decreased to 1% from 1.4%. However, in the last week of the month, discretionary categories across all outlets experienced some softness. SymphonyIRI defined each growth statistic as performance in the given period as compared to the same period one year ago.
Changes in behavior by income group indicated a slow-down for a subset of the population. The growth rate among middle-income shoppers decreased slightly (40 basis points). As expected, there was no significant change among high-income shoppers. Contradicting expectations, dollar sales growth among low-income shoppers increased, albeit by a small percentage (50 basis points). This could perhaps be attributed to increased in-home consumption versus eating out.
When examined by category, shopper behavior reveals interesting patterns.
- Dollar sales growth of several categories exhibited declines, including in snacks (down 230 basis points) and beverages, such as coffee and tea (2-110 basis points).
- Cooking ingredients and beverages, such as juices and drinks, on the other hand, showed growth.
- Despite across-the-board over-performance in the first four weeks of 2013, discretionary categories lagged total food and beverage in the last week of January 2013, with dollar sales growth of 1.9% compared to 2.5% for the category as a whole in the same period. This could be due to the end of month effect when households optimized their grocery spending as a result of shrinking wallets.
Symphony Consulting Managing Director Dr. Krishnakumar (KK) S. Davey said, “We expect payroll tax increases will impact non-CPG spending (such as gas, clothes, and entertainment) potentially more than CPG spending. However, out-of-home consumption will likely drop, and specifically out-of-home breakfast categories will be negatively impacted. Consumers usually eliminate the out-of-home breakfast meal first when they cut spending. Economic growth is expected to be stagnant due to tax increases and continued high unemployment. The recent significant spike in gas prices is going to further squeeze the consumer’s wallet. Some stores, convenience stores in particular, are very sensitive to gas price increases.”
“Our data focuses on the $35 billion food and beverage segment of CPG,” Davey said. “It is clear it will take time for shopper behavior to more comprehensively reflect the impact of the payroll tax increase. Most consumers have received only one paycheck during the time of this analysis. Symphony Consulting will continue to provide quantitative, statistically-significant information on shoppers’ reaction to this tax increase.” (CSP Daily News: www.cspnet.com)
