The Annual Budget Review for 2016 presented by Finance and Economic Development Minister Patrick Chinamasa carried one important statistic that might have been skipped or overlooked by many, including analysts and economists.
The key statistic was that household consumption for 2016 was down 11,8 percent. While this figure is historical, evidence on the ground suggest that the downward trend might have continued into 2017.
But why is this figure important, you may ask. That question was correctly answered by the minister himself when he said the decline in consumption contributes to the constrained growth of the economy.
Subdued and limited spending by the consumer means there is no need to manufacture new products when the old ones are still on the shelves. And when products are not being consumed there is no need to open the factory for that extra hour, in fact we might need to actually cut down our working hours, a phenomenon most businesses are now familiar with and have implemented over the years.
There are many companies where employees are working half day, while others are working two weeks a month as uptake for their products has continued to slide.
In addition to the limited consumer spending and low demand, a new phenomenon has emerged. Value is the new mantra with consumers now obsessed with price, while quality is now secondary. Instead of downing that mainstream lager beer, they are drowning their sorrows in the lower cost beer brand Eagle.
Instead of shopping from formal clothing retailers, they are choosing to go down town for second hand bargains at “kotamayi boutique”, slang for places where second hand clothes are sold. There has been an apparent but gradual shift in consumer behaviour towards value brands, a phenomenon identified by some as consumer trading down.
That era where quality was the obsession and price secondary, seem to be over. It doesn’t matter which market you’re in as more and more customers are no longer willing to pay extra for premium goods.
Latest reports from listed companies are suggesting that consumers are being forced by economic circumstances to decide what to purchase and have, in most cases, traded down to make ends meet.
Giving a trading update last Friday, Delta chief executive Pearson Gowero noted that growth in the lager volumes was skewed in favour of the lower value Eagle lager, which registered a 24 percent growth while the core lager grew by 10 percent.
The pattern around beer sales also applies across whole swathes of industries — the top end is suffering. A similar story was shared by BAT at analysts briefing for the half year ended June 30, 2017 with management saying the expansion of low priced segment brand Ascot helped cushion the fall in revenue as down-trading pressure remains present in the market. Volume for Ascot grew by 278 percent during the period under review.
Affordability issues also forced consumers to down trade resulting in falling sales for premium brands such as Dunhill. This is against popular belief that tobacco firms are resilient to recessions.
In its end of year results, tyre manufacturer NTS also said its sales mix is currently dominated by budget brands. The company also bemoaned stiff competition from the informal sector, which has become a favourite option for most tyre consumers due to low prices.
Demand for second hand clothing commonly known as “mabhero” (from bales) is also brisk, but this is at the expense of sales in formal clothing outlets. Edgars Cchei executive Linda Masterson has since bemoaned the unfair competition that comes from informal players saying businesses “that pay tax are being marginalized and pushed aside by the businesses that do not pay tax.”
But what are the implications of all this? Economist John Robertson said given the economic situation, households had no choice but to make sure that limited spending power goes further. “The need to do so almost certainly reflects lower employment and lower incomes, and it probably also reflects decreasing amounts coming from the Diaspora given the cash challenges.”
Robertson suggested that to correct the situation there is need to “boost investor confidence so that more (investors) arrive and bring money with them.” “We have good reasons to work for change! Economics is all about behaviour,” said Robertson.
Another analyst Walter Mandeya said there is need to formulate policies that stem the trading-down trend. “When households are trading down, labour demand also tend to fall.” “An alternative is for companies to hack back the price and sacrifice a little bit on quality and margins or rather reinvent their business model,” said Mandeya.
Others however, said the frugality is a normal process, like economic cycles, and it is not a “forever” thing.
“The economy is expected to rebound and people haven’t completely lost their taste for quality brands.”