|  05.08.2016

Increasing purchasing power and growing appetite for spending and consumption within the next 3-5 years

The majority of us are eager to pay for emotions and memories when buying something, including food products.

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Q: The world is changing after the crisis, even in terms of consumer behavior. What are the main changes we are witnessing regarding the consumer’s appetite for spending that will drive the retail commerce in the next 5 years?


Adrian Ariciu: First of all, 2015 was a good year for consumption all over Europe. With economic growth of more than 4% at the EU level, reduced unemployment rates and low interest rates, consumers tended to increase the appetite for spending and avoid savings on disposable income, all in the benefit of the retail sector.


Consumer's appetite for spending in short term is driven by many factors, from consumer price index evolution, inflation and local currency fluctuations up to fiscal changes.


In the mid and long term, such factors as changes in disposable income structure and debt level are important to raise the propensity for spending. In general, in 2015, the purchasing power of citizens of the EU member states has increased by 3.7%, reaching a level of EUR 16,000 annual per capita, according to a GfK study.


People need money, confidence and comfort to spend beyond the core basic needs. And this trend of increasing purchasing power and the appetite for spending and consumption is foreseen to continue within the next 3-5 years.


Q: Can we talk about a ‘universal consumer’? From you experience, what are the main differences between the Romanian consumer and the Ukrainian ones?


Adrian Ariciu: The consumer is becoming much more selective in his choices, thus more demanding on product's performance and value generated by retailers. On average, consumers visit three shopping places a month for a regular food basket, and this number is increasing. On one hand, this helps compare products and shopping places, make better choices and push retailers to improve their offers. On the other hand, this is the way to offer new things to the consumer, products that he or she did not think of before.

It is hardly possible to talk about the ‘universal consumer’ and his profile, and I would avoid such definition.


The majority of us are eager to pay for emotions and memories when buying something, including food products. Consumers all over the world, in all stable economies, like fancy retro styles, traditional recipes, eco-trends, goods from local farmers. At the same time, we see that functional products are improving over time and international FMCG companies are trying to create standard global products.


Such consumers’ behavior can have the roots in the past decades, when access to food was limited and suddenly abundancy in availability and variety of choice creates new habits of overspending, especially during seasonal events or festive periods.


Unfortunately, we, Romanians, throw away a lot of food which is bought in excess. And this does not mean that next time we will buy less. Seeing this, retailers and manufacturers encourage stocking up.


Purchasing power index is low both in Romania and Ukraine, as well as in other East European countries. Romania is coming from 2015 with a retail turnover growth of 4.7% and Ukraine is coming from -24.2% in real terms, according to GfK recent studies. As for the Ukrainian consumer, he is sensitive to local currency devaluation, political and economic uncertainties – these factors dampen consumption mood. Now Ukraine sees calm after the storm, with a minor decline of retail sales of 1-2% in real terms foreseen for 2016. Romania will continue to take advantage of the VAT decrease in accelerated growth of retail, reaching +6-7% by the end of the year.


Q: The countries in Eastern Europe are subject to a lower spending power than their Western counterparts. Are these countries more interesting in terms of consuming? On a scale from 1 to 10 (where 10 is the highest achieved performance in terms of retail), where do countries like Ukraine and Romania stand? Please detail.


Adrian Ariciu: Indeed, purchasing power index per inhabitant is much lower in Ukraine and Romania in comparison with the average EU index. However, we have to look at other indicators to understand the potential of retail development and attraction of further investments.


In Romania, total retail spending versus total household private consumption is low, with 29% share, close to the EU average, and retail share is going down. Consumers are spending more money on services, travelling and recreational activities. Coming back to purchasing power per capita, the higher it is, the greater amount of money they spend on other than basic needs, such as food.


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