The Deloitte Consumer Tracker Q1 2024

The momentum the UK automotive industry enjoyed last year continued in the first quarter of 2024. New car sales grew by 10% compared with the same period in 2023 and the sector has now recorded 20 consecutive months of growth to March 2024.

After two years of supply and availability issues, demand from the fleet sector for the latest vehicles saw January sales reach their highest since 2020. February recorded the highest levels for that month in 20 years and March achieved its highest level of sales since 2019.

Significantly, March achieved double-digit growth year on year (+10%) in what is typically the busiest month of the year due to the introduction of a new numberplate. The new ‘24’ plate saw more than 317,000 new cars registered in the month.

Despite the continued growth of new car sales, there are two major concerns for the year ahead. First, despite 20 consecutive months of growth, sales are still below their pre-pandemic levels, with sales in March more than 30% lower than in 2019 for example. Second, all the growth within the sector is coming from fleet sales. Private sales continue to decline year on year as consumers deal with the ongoing impact of the cost of living crisis and high interest rates which make borrowing money for a large purchase unappealing.

Petrol-powered vehicles remained the most popular, accounting for 56% of all new cars sold during Q1 2024. In contrast, battery electric vehicles (BEVs) command a 16% share of the market making them the second most preferred type of vehicle, slightly ahead hybrid electric vehicles (HEVs). Indeed, Q1 2024 was a milestone for the electric vehicle sector, with Britain’s millionth BEV registered during January.¹

Despite this achievement, there will be growing concern within the industry about how quickly consumers are adopting BEVs. Despite an overall increase in volume sales from 76,233 in Q1 2023 to 84,314 in Q1 2024, BEVs’ share of the market has dropped slightly. To increase the market share of BEVs from the current 16% to the required 22% as set out in the zero emission vehicle (ZEV) mandate now in force, efforts to incentivise the switch to electric need to be considered. Deloitte’s recent Global Automotive Consumer Study shows that affordability of new EVs is one of the top concerns for consumers – with 71% expecting to spend less than £30,000 for a new or used EV. There should be a wider and more affordable range of EV models coming to the UK market in the year ahead, including those offered by new brands which should help drive growth in the sector. However, at the moment large fleets continue to drive BEV uptake, thanks to compelling tax incentives, with similar support not on offer to private buyers.

To support the growth of electric vehicles, there needs to be a renewed focus on removing the main barriers preventing the average consumer from contemplating a switch. In addition to the financial challenges we have already highlighted, charging infrastructure also remains a top concern for consumers considering whether to buy an EV as their next vehicle. For example, according to Deloitte’s most recent Global Automotive Consumer Study 46% of UK consumers cited the lack of public electric chargers as a concern. According to data from the Deloitte Consumer Tracker, the perceived lack of access to public charging means that consumers who have access to off-street parking to charge a BEV at home, are much more likely to contemplate buying one than those who do not.

Our research also shows that overall, only one in four consumers (27%) would consider purchasing a new or used BEV as their next car. In contrast, among consumers who either already have access to a private charging point, or have access to off-street parking suitable for the installation of a charging point, 40% would consider purchasing a BEV as their next vehicle. This means that people who have the ability to charge at home are more than twice as likely to consider buying a BEV than those who do not have access to a charging point (18%).

A faster rollout of public BEV charging points is essential to create an equitable charging environment. Continued improvement in the underlying infrastructure will be crucial if growth is to keep up with the rising sales thresholds the government has mandated for subsequent years until the final ban on internal combustion engines (ICEs) comes into force in 2035.

Data from the Deloitte Consumer Tracker shows that the percentage of consumers planning to buy a new car in the next three months rose from 6.6% in Q4 2023 to 7.2% in Q1 2024. This uptick means that planned purchases are at their highest level in the history of our tracker. This provides compelling evidence that improved consumer sentiment and spending power, alongside the prospect of lower interest rates in the second half of the year, could encourage consumers to spend more on discretionary and major purchases during the rest of the year.

Data from the Deloitte Consumer Tracker shows that the percentage of consumers planning to buy a new car in the next three months rose from 6.6% in Q4 2023 to 7.2% in Q1 2024. This uptick means that planned purchases are at their highest level in the history of our tracker. This provides compelling evidence that improved consumer sentiment and spending power, alongside the prospect of lower interest rates in the second half of the year, could encourage consumers to spend more on discretionary and major purchases during the rest of the year.

Nick Smith - Automotive Sector Leader

Dr Bryn Walton - Insight Lead, Consumer Industry

¹https://www.smmt.co.uk/2024/02...

After contracting for most of last year, retail sales in Q1 2024 were up 1.9% driven by the strong sales growth recorded in January [despite sales stagnating in February and March]. In a sign that the retail sector is starting to recover, this result represents the fastest growth for retail sales since Q2 2021. It also coincided with a period that saw falling inflation, rising real wages, cuts in national insurance and the increase in the living wage boosting consumer confidence to its highest level in over two years.

Our data on attitudes to spending provides further evidence of consumers easing their recessionary behaviours in Q1 2024. Fewer consumers on balance claimed to be buying goods on discount, sale or promotion, making use of loyalty schemes/cards and vouchers/coupons to save money, or buying groceries from cheaper supermarkets. This might be why there was a significant increase in the proportion of consumers saying they are doing their main grocery shop with a high street or town centre supermarket (excluding discounters) in Q1 with a rise from 17.9% a year ago to 30.5% in Q1 2024. The data also shows a 1.4 percentage point drop in the proportion of consumers doing their main food shop at a discount store, from 37.4% last quarter to 36% in Q1 2024. Falling grocery price inflation has also been a factor allowing retailers to offer better value to consumers including through the growth of offers in shops. Promotions have helped consumers save a significant £1.3 billion in the four weeks to April 14, according to Kantar.¹

The reason why our data is showing a higher proportion of consumers doing their main grocery shop on the high street and in a town centre supermarket could be linked to a wider debate on whether the definition of a main grocery shop has changed. The retail grocery market has become intensely competitive in the last few years, not only because the cost of living crisis has forced people to shop around, but also because the market has become more fragmented with the emergence of new players like the hyper fast delivery services or online grocery delivery subscription services. The need for consumers to drive to a large supermarket to get all their goods in one location is not as pressing. Shoppers can easily order some of their staples online and get them delivered in bulk with a monthly subscription and shop for their perishables on their high street without needing a car. The recent change in some of the loyalty scheme models could also be responsible, as consumers have been attracted back to shop with large supermarket brands thanks to the better value they are able to offer under their loyalty pricing model.

The latest ONS data reported online sales remaining flat between February and March 2024 with the proportion of sales made online representing 25.9% of all retail sales in March 2024.

Since online retail boomed during COVID, there has been a rebalancing of the online and in-store channels with online sales plateauing at around 26% over the last two years. That has left retailers questioning which channel will be more profitable and where to prioritise their investment. Online shopping remains an important part of many retailers' growth strategies despite the slow progress made around improving its profitability. In the grocery sector, where margins are extremely thin, the cost of servicing consumers remains high.

Meanwhile in general merchandise, especially in fashion, returns are a substantial challenge for retailers. The traditional approach to online and in-store returns is costly. Any product re-entering the supply chain after it has been sold is considered an exception and is complex to deal with – from increasing costs, reducing margin and masking true consumer behaviour through to reporting inconsistencies. Previously, retailers were charging for returns as a way to encourage more profitable shopping behaviour. The focus has now shifted towards educating consumers on whether the product is right for them. In particular, the use of generative AI over the last year, has improved retailers' ability to provide customers with personalised services such as virtual try-ons and fittings. Given the costs of managing returns businesses have also started to offer a refund to customers wanting to return an item without the need to actually return it. These are called ‘returnless refunds’ and use AI to distinguish the genuine loyal customers from scammers. Overall, the hope for improved profitability in online retail is likely to come from finding ways of making distribution cheaper and quicker. Solutions that combine AI with robotics are likely to help lower costs while also improving the speed of logistics.

The outlook for retailers is a positive one. A recovery could be in sight if the combined impacts of wage increases, reduced national insurance and falling inflation support more consumer spending. However, consumers could stay cautious with prices remaining high by historical standards as well as the shortfall in their purchasing power, the lag effect of rising interest rates, geopolitical uncertainties and the prospect of a general election. To achieve their growth objectives, retailers need to manage a variety of challenges, including climate change, a shrinking and more expensive labour force, and ongoing supply chain pressures.

Regardless, retailers must prepare for a recovery and also for their longer-term growth. The hope is that an improvement in trading conditions in the months ahead could free up retailers to make longer-term strategic decisions and investments. According to Deloitte’s latest Retail Trends, retailers will be attracting customers by increasing their investment in hybrid experiences across in-store and online. Retailers will also continue to invest in their product mix including achieving the right balance of premium and value ranges, as well as targeted product lines that cater to more diverse consumer profiles. In addition, there are opportunities for retailers to pursue bottom-line growth including improving consumer segments, media monetisation, health and wellness, and new routes to market. However, for now retailers will be looking ahead to the two bank holidays in May hoping for some better weather to induce consumers to venture out and spend.

Céline Fenech - Insight Lead, Consumer Industry

Oliver Vernon-Harcourt - Partner, Retail Industry Leader

¹Households save £1.3 billion on supermarket deals (kantar.com)

Our spending sentiment data shows that on balance both essential and discretionary spending were more subdued in Q1 2024 compared with Q4 2023, as would be expected following the busiest trading quarter of the year for the consumer sector. Overall spending on day-to-day categories was up marginally (by 0.9 percentage points) compared with Q4 2023. Slowing spending on essentials points to easing inflationary pressures especially on food with consumers spending less on grocery (-4 percentage points) but also in some of the non-food categories, albeit marginal, including beauty and personal care products, and everyday household items. Indeed, in a sign of consumer spending power gradually improving, fewer consumers on balance reported their overall expenditure increased in Q1 compared with the previous quarter. Meanwhile, overall net spending on non-essential goods and services fell by 3.2 percentage points to -5.1%. A drop in discretionary spending is to be expected in Q1 as it coincides with a more restrained post-Christmas period characterised by lower levels of socialising and spending in categories such as alcoholic beverages and tobacco (-14.1 percentage points) and clothing and footwear (-8 percentage points). The wettest weather on record did not help consumers venturing out either.¹

Our survey also shows that compared with Q4 2023 the rate at which consumers have been increasing their more defensive behaviours eased. In Q1 2024, fewer consumers on balance claimed to be buying goods on discounts, sale or promotion, making use of loyalty schemes/cards and vouchers/coupons to save money or buying groceries from cheaper supermarkets. In addition, in a sign of consumers loosening their purse strings, there was a lower net proportion of consumers decreasing their spending on large purchases.

While a more positive picture is emerging since the start of the year, more sustained optimism is needed. Willingness to spend in discretionary categories remains subdued as consumers continue to be thrifty and look for deals. Overall, consumers are still cautious as a result of the shortfall in their purchasing power after two years of high inflation. Despite the rise in real incomes since June last year, they are unlikely to reach pre-pandemic levels until 2025 or later, and are likely to end this Parliament at lower levels than at the start in 2019.

After two years of economic uncertainty and consumers’ purchasing power coming under sustained pressures, there are signs that market conditions are stabilising as a result of lower commodity and energy costs. In addition, the labour market continues to normalise with recent official data showing the job market is softening with fewer vacancies and an uptick in the number of people claiming jobless benefits. Businesses are not only expecting long-term growth rates to return to low-single digits, as well as supply chains and volumes improving. According to our data, consumers intend to spend more in both essential and discretionary categories in Q2 2024. Caution remains as some cost pressures on businesses persist, including the increase in the National Living Wage and non-domestic energy prices. In addition, inflation is still having an impact on some commodity prices notably those for cocoa, potatoes and coffee, and there are concerns about this summer’s crop yields due to saturated fields after record rainfalls.

For the last few years, with high input costs, consumer products companies have been focused on controlling costs to limit passing price increases on to consumers. Premiumisation helped justify what they charged but businesses resorted to other mechanisms such as ‘shrinkflation’ – reducing the size or weight of products to avoid passing on these additional costs to consumers while protecting product quality and the brand. To achieve profitable growth businesses also had to increase their prices to near-unprecedented levels and leading companies did relatively well by using that strategy. However, this year the ability to raise prices could be quite limited and companies may need to shift their focus to increasing volumes instead. That means a renewed focus on volume growth through an innovative and more profitable product mix while also protecting price levels.

In our 2024 consumer products industry outlook we discuss some of the strategies available to deliver ‘profitable volume’. Finding the right balance between growing volumes and increasing profits will be key to the continued success of consumer products companies this year and beyond.

Céline Fenech - Insight Lead, Consumer Industry

Mike Manby - Partner, Consumer Products Industry Leader

¹Water situation: March 2024 summary - GOV.UK (www.gov.uk)

Spending in the leisure sector fell for the second consecutive quarter in Q1 2024. Total net leisure spending dropped by 1.5 percentage points to -13.4% in Q1 2024 from -11.9% in Q4 2023. The decline in Q1 was driven by a drop in 10 of the 11 leisure categories measured by the Deloitte Consumer Tracker, with the most significant fall in net spending around the eating out and drinking in pubs and bars categories. The fall in spending on dining and drinking out could be attributed to many consumers cutting back on discretionary spending after Christmas, combined with health-conscious new year’s resolutions, including reducing alcohol consumption as part of ‘dry January’ The downward trend also points to consumers prioritising their financial planning for the year ahead while also remaining cautious about discretionary spending after their spending power came under heavy pressure in the last two years.

In contrast to the overall decrease in leisure spending in Q1 2024, net spending on betting and gaming stood out with a three percentage point increase. The combination of the Cheltenham Festival and the Six Nations Rugby Championship that took place during this period could have provided opportunities for consumers to engage in betting activities. In the holiday categories, there has been a decline in both long (-0.8 percentage point) and short (-0.5 percentage point) breaks. However, the fall is marginal and coincides with a period of the year when consumers restrict their holiday spending to save for their upcoming summer break which are often booked earlier. Additionally, changes in weather patterns and a decrease in snowfall in certain destinations could have affected some consumers’ plans for a skiing holiday.

Another leisure category to see a significant drop was drinking in coffee shops and sandwich shops which fell by three percentage points in Q1. There were also noticeable drops in spending on culture and entertainment (-1.4 percentage points), in-home leisure activity ( -1.1 percentage points) and attending live sports events (-0.8 percentage points) which are all related to a slowdown of activity post-Christmas.

In anticipation of warmer weather and multiple bank holidays, our data shows that consumers intend to spend more across 10 out of 11 categories in Q2 2024 compared with spending intentions for Q1 2024. Encouragingly for leisure and hospitality businesses, our data suggests that consumers intend to spend more on eating out (+11.6 percentage points), drinking in pubs and bars (+8.4 percentage points) and drinking in coffee shops and sandwich shops (+5 percentage points) as they plan to socialise with friends and family and enjoy warmer weather.

With the inflation rate falling to 3.4% in February, the lowest level in almost two-and-a-half years, consumers are likely to have more disposable income to set aside for discretionary spending. As a result, we have seen a significant improvement in spending intentions in categories such as in-home leisure activity (+5.2 percentage points), culture and entertainment (+4.7 percentage points) and other leisure activities (+4.1 percentage points).

Consumers also expect to spend more on travel, as evidenced by the increase in intended spending on long and short holidays (+4.9 percentage points and +4.5 percentage points respectively). Despite continued pressures on consumer budgets and the level of inflation, travel demand is forecast to remain robust in 2024 as consumers prioritise travel over other discretionary spending. Consumers will continue to focus on securing value for money including booking more all-inclusive trips, holidaying closer to home, reducing the length of trips, seeking cheaper flights or planning holidays outside of the peak season. However, businesses should carefully consider whether the growth trend will continue. A question remains has the consumer permanently re-prioritised their spend or are we still seeing the impact of post-pandemic savings and a backlog of pre-COVID planned holidays? It will be important to keep an eye on the traditional summer holiday sector as capacity planning seems to assume that the industry will not be affected by the cost of living crisis. According to the recent Deloitte Travel Weekly Annual Insight Report, businesses that can integrate technology to provide personalised and flexible offerings will be at the forefront of meeting the evolving needs of consumers. Travel providers have to embrace innovation, understand diverse consumer needs, and prioritise the delivery of meaningful and personalised experiences.

Céline Fenech - Insight Lead, Consumer Industry

Simon Oaten - Partner, Hospitality & Leisure