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Consumer Sentiment Up, According to IRI Worldwide

Posted: May 10, 2013

Rising gas prices and the expiration of the payroll tax cut have not dampened the spirits across most U.S. consumer segments. In fact, Information Resources, Inc.’s (IRI) latest MarketPulse survey results reveal that shopper sentiment increased notably during Q1 2013, largely because consumers feel more positive about their household finances. This is a marked difference compared to Q4 2012, when shopper sentiment dropped to its lowest point since 2011.

“Consumers were feeling a bit of the gloom and doom as 2012 came to a close, because they simply didn’t know what to expect on the financial front for the new year,” says Susan Viamari, editor of Times & Trends, IRI. “With a looming debt ceiling crisis and expiration of the 2% payroll tax cut, they were preparing for another bumpy ride. However, our latest MarketPulse survey finds that consumers weathered the latest round of economic storms very well and are feeling more optimistic than they have in quite some time. Of course, consumers will continue to be cautious about their spending, but we may see wallets open slightly more as we summer.”

IRI’s Shopper Sentiment Index provides deep insight into how the economy is impacting consumers and changing how they approach grocery shopping. The index provides perspective in terms of price sensitivity, brand loyalty and changes in spending required to maintain desired lifestyles. With a benchmark score of 100 based on Q1 2011 information, a Shopper Sentiment Index score of more than 100 reflects consumers that are less price driven, more loyal to favorite brands and better equipped to maintain their desired lifestyle without changes.

Consumers’ concern about their financial health has been a constant since before the Great Recession began. And, as 2012 came to a close, sentiment dipped sharply to an index score of 94, which is the lowest the index has dropped since 2011. Uncertainty about 2013, particularly the debt ceiling crisis and the impending expiration of the 2% payroll tax cut, certainly played a major role in this outlook. But, as 2013 unfolded, many consumers found that the impact of these situations was less than anticipated, and sentiment has rebounded rather well to 103 at the end of Q1 2013. Everything isn’t coming up roses for all consumers, though. Millennials, who have been hit particularly hard by the economic downturn, continue to struggle to find financial health and stability. Among this group, the Shopper Sentiment Index has remained consistent at approximately 85, since Q1 2012.

There were many news cycles devoted to the expiration of the 2% payroll tax cut in January, with many predicting that consumers would react by tightening their belts even more. Indeed, it hasn’t been easy for many, as 28% of overall consumers indicate that they now have less money to buy groceries due the expiration. However, among the hard-hit millennial population, 38% have felt additional pressure on their grocery budgets due to the tax cut expiration. Generation-X shoppers are in a similar boat, with 37% stating that their grocery budget has been negatively impacted. Among those aged 55-plus, only 21% are feeling an additional squeeze. The survey also asked consumers if they were having difficulty affording groceries and uncovered, again, that millennials are struggling the most. Twenty-two percent of overall consumers were having difficulty in Q1 2013, an improvement versus Q1 2011, when 27% were finding it hard to afford the grocery bill. There is no improvement among millennials, however. In fact, 38% of these shoppers were having difficulty in Q1 2013, which is an uptick versus 33% in Q1 2011.

“This analysis is rather interesting, because it points to the fact that many consumers are finding it a bit easier to buy groceries in 2013, and that the payroll tax expiration didn’t impact consumers as hard as expected on this front,” says Viamari. “But, it also highlights the continued struggle of millennials that we’ve seen for the last couple of years, underscoring the critical need for CPG marketers to deliver solid value, particularly across this vulnerable consumer segment. Millennials are in the unenviable position of starting their independent lives in a tough economy, and they simply are having a hard time making ends meet.”

While many consumers may be feeling more confident when it comes to household finances and grocery buying, gas prices could begin to take their toll as the year wears on. According to the AAA Fuel Gauge Report, the average gas price for the first three months of 2013 was $3.64, an increase of 8.8% versus the first three months of 2011, but on par with 2012 prices.

Even though this steep increase takes a big chunk out of consumers’ budgets, fewer consumers (44%) are feeling increased financial strain due to recent increases as compared to 57% around the same time in 2011. Here again, millennials are being hit hardest, with Generation Xers close behind. Fifty-six percent of millennials and 50% of Generation-X shoppers are feeling increased financial strain due to recent gas price increases.

“Although these numbers aren’t as high as those found in 2011, they are still elevated, and we need to keep a close watch on how and where consumers choose to spend their money due to these pressures,” adds Viamari.

For instance, 34% of consumers surveyed in Q1 2013 say they are reducing/eliminating trips to some of their favorite stores due to high gas prices. In addition, 10% of consumers are shopping convenience stores more frequently, because they are found closer to home. When taking a closer look at various consumer segments, millennials stand out as making more changes versus more established consumer segments, particularly those over the age of 55.

“Reverberations from the economic rollercoaster continue to move through the CPG marketplace,” concludes Viamari. “It is essential that CPG marketers closely monitor these ripples and understand how they impact each and every target shopper. No two groups and no two shoppers are identical, so powerful marketing strategies must clearly convey an understanding of this fact.”