Consumption is showing the first signs of running out of steam

Posted on Nov 3, 2022, 6:30 amUpdated on Nov 3, 2022, 7:28 am

All-out inflation and the effects of post-lockdown behavior are reshuffling the cards for different consumption segments. Some giants are suffering from a drop in demand volume, as evidenced by the results for the third quarter. Unlike other types of sectors severely punished by Covid, they are back in good shape, such as Air France-KLM, posting quarterly results close to their highest or, on the hotel side, Accor, whose activity level is now higher. than in 2019 almost everywhere in Europe. The sign that new arbitrations are underway.

The next few months will not be easy for everyday product specialists looking to keep their margins as long as possible. “European consumer morale has never been so low,” warned Graeme Pitkethly, Unilever’s chief financial officer. Because if his group, which is present in food and in maintenance, has raised the general sales forecasts for the whole year, it owes the biggest price increase in its history.

In the third quarter, this increase reached 12.5%, while sales volumes decreased by 1.6%. Procter & Gamble saw a final decline of 3%, with a price increase of 9% for what represents the first quarter of its 2023 fiscal year.

First concerns

In another indication of the current turmoil, Amazon posted disappointing financial results. And admitted sailing in full uncertainty. “We’re not sure how consumer spending will change during the holiday season,” said its CEO Andy Jassy. Amid the pandemic, the American group took advantage of the rapid growth of e-commerce. But he now expects that, in the non-food sector, consumers will reduce their purchases.

In the United States, the first concerns are rising, in general, in the face of the reluctance that consumers are beginning to show in the face of price increases. In France, the first effects of the new situation are also being felt. “The market is experiencing a decrease in volume,” admitted David Lubek, Casino’s CFO. Consumers, who have not yet borne the full brunt of rising energy prices, are already switching to cheaper products.

At the global level, the situation is less mixed. L’Oréal shows that the appetite for beauty remains at a high level because people are no longer expected to spend most of their time at home. “We don’t see any big change, except in the United Kingdom, where consumers are buying less premium care products and going to the hairdresser less,” said its chief executive, Nicolas Hieronimus , during the quarterly results of the world number one in beauty.

Household items are coming down

Some sectors suffer more than others. Covid and its share of stay-at-home obligations has pushed everyone to want to furnish their interior. Home appliances have benefited the most from this. But the sector now knows the other side of the coin. Purchases are falling, while distributors have stocks being absorbed in some countries such as France.

After experiencing a record year in 2021 by crossing the 8 billion euro mark, SEB revised its goals for 2022 downward for the second time this year. The French group of small electrical appliances now aims to reduce turnover by about 2%.

Deeply concerned about shortages, Electrolux, with losses this quarter, has especially clarified the savings plan announced in September. This will affect 3,500 to 4,000 jobs, mainly in North America, or about 8% of its workforce. “Market demand in Europe and North America for the whole of 2023 is expected to continue to worsen,” said its head, Jonas Samuelson.

According to the principle of communicating with vessels, however, the professional activities of household appliances, which have stopped due to the closure of restaurants, are working well. At SEB, sales in this segment have seen a double-digit increase since the beginning of the year.

Appropriate clothing

September brought hope to the clothing and textile sector in France. According to the latest results on the consumption of articles of clothing and textiles published by the French Fashion Institute (IFM), this back-to-school month surprised even the professionals. A growth of +10.9% was recorded compared to September 2021 and the increase (+9.4%) was also significant compared to the same period in 2019, the pre-pandemic reference year. “Decreasing temperatures in the second half of the month helped support sales,” explained the IFM. “Consumers want to look forward to winter,” says one expert.

But clothing fever is short-lived. According to the IFM, sales in the third quarter fell by 4.7% compared to the same period in 2021. This is bad news for this weakening sector which already faced weak commercial activity in July (-14.1%) and is unable to attract sales due to multiple fast-fashion (H&M) and ultra-fast-fashion (Prinmark, Shein, etc.) discount operations.

Food delivery in slow motion

Unsurprisingly, food delivery has turned the page on the chaos associated with prisons and curfews. It is marking time in terms of the number of orders, even if the price increase keeps the growth of transactions. And consumers, with their eyes on their wallets, tend to have less food delivered to their homes.

Deliveroo saw order volumes fall by 1% between June and September. Last quarter, the increase was still 3%. And not all countries are in the same boat. The United Kingdom, the group’s main region, posted growth of 5%, while Asia-Pacific fell sharply. On the Just Eat Takeaway side, the drop in orders reached 11%, which the company attributes to the end of restrictions and, to a lesser extent, to the fact that there are fewer small baskets.

But, whoever the artists are, the new habits picked up during the Covid era have taken hold. Food delivery has become a far-fetched catering landscape in 2019. And it’s likely to sustain it. In addition, if sales are less present than at the beginning of the year, it is more time to look for profitability in the sector. A mark of maturity he is gaining.

Just Eat Takeaway posted a third-quarter underlying profit, ahead of expectations. The group has further cut costs. Among the measures put in place, he backtracked in France on getting salaries that deliver people. Only available in Paris, a PSE is planned for other cities. While Deliveroo has slightly raised EBITDA forecasts and aims to break even by the end of 2023-early 2024.

For all consumer sectors, the next few months will be crucial. Michel-Edouard Leclerc warned in an interview with “Echos”: “The shock will come in January and February. »

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