What you need to know:

• FMCG accounted for more than three quarters of all retail growth in the 12 months to September 2024 (77 per cent), per Circana data. This was led by grocery, which contributed 32.9 per cent of total sales and 51.5 per cent share of growth, followed by pharmaceuticals, accounting for nearly one-quarter.
• From a brand and category perspective, Australia’s predilection for indulging at home and recreating out-of-home experiences with affordable treats has seen a range of iconic and class brands over-index on growth, including Dairy Milk, Smith’s Crinkle Cut chips, KitKat, Tim Tams, Roses and Birdseye.
• The sweet spot for retailers meanwhile has been in delivering both essentials and value, according to Circana. Chemist Warehouse, CostCo, Guzman y Gomez, Kmart and Aldi nailed it.
• ASB chief economist, Nick Tuffley sees green shoots are finally emerging globally thanks for a reining in of inflation, and predicts Australia will finally feel the consumer confidence and spending turn in the first half of 2025.
• ABS adjusted data to September 24 shows value up +1.8 per cent, and volumes at 5 per cent year-on-year, but both were up +2.6 per cent and 0.2 per cent in the last quarter, respectively – a further indicator that things are starting to shift, Circana said.
• Retail media is playing its part here too in helping brands deliver a narrative, not just a point-of-sale execution – with the likes of Arnott’s notching 30 per cent incremental growth, per Coles 360 boss Paul Brooks.
• Here’s the lowdown from Circana’s annual State of the Industry virtual event.

Eating share

Australia’s predilection for indulging at home has remained strong throughout the cost-of-living crisis, with 40 iconic F&B brands such as Dairy Milk, Smith’s Crinkle Cut chips, KitKat, Tim Tams, Roses and Birdseye scooping up market share and driving more than $500 million in growth off the back of it.

Meanwhile, seven banners contributing the greatest value in retail spend over the last two years are a masterclass in bundling affordability and value with the essentials and little treats consumers prioritise – even as they’ve cut back spend on discretionary items like clothing and apparel, according to Circana analysts. The list of double-digit performers? Guzman y Gomez, CostCo, Aldi, Kmart, Chemist Warehouse, Coles and Woolworths.

The insights come from Circana’s annual State of the Industry virtual event, held last week. The session was a deep dive into how the retail and FMCG spaces have been faring, and a who’s who’s of brands and categories defending and growing share as consumers battled their way through inflation, jacked up interest rates and uncertain global macro-economic and geopolitical conditions.

It also offered up a tempting hint of better market conditions to come, with ASB chief economist Nick Tuffley and Circana’s analysts indicating green shoots are finally emerging for the New Year.

But for now, value for money remains the main topic of conversation for consumers, and the key points of decision making in-store are cost and price, Circana director of health and lifestyle, Jarna McLean, and Circana insights director for Australia, Daniel Bone, emphasised.

“The last two years have been challenging, and it’s been about resilience. Decision-making often felt reactive and restricted by a need to focus on the basics. Think about cost recovery, and whether it’s taking price, or managing shelf availability,” Bone said.

“Australians have been shopping with the handbrake on over the last 12 months, and value growth reflects a challenging retail environment. Volumes have been in decline but there are signs we’re at a tipping point – the volumes in the September quarter show we’re back in growth, the first time in ages.”  

ABS adjusted data to September 24 shows value up +1.8 per cent, and volumes at -5 per cent year-on-year, but both were up +2.6 per cent and 0.2 per cent in the last quarter, respectively.

Bone and McLean saw the path forward as one of revitalising and stimulating growth. “In doing so, we’ll hopefully improving customer satisfaction, which has taken a bit of a hit,” Bone said.  

FMCG outperforms

Bone positioned FMCG as a “rare bright spot” in what has been a challenged retail market in the last 12-18 months. FMCG accounted for more than three-quarters of all retail growth in the 12 months to September 2024 (77 per cent). This was led by grocery, which contributed 32.9 per cent of total sales and 51.5 per cent share of growth, followed by pharmaceuticals, accounting for nearly one-quarter.

A higher level of promotions matched higher promotional participation. According to Circana Store Visits panel data in September 2024 from Woolworths, 63 per cent of shoppers are buying what is on sale more often, rather than their favourite brands. In all, there’s been a +333bps in units sold on promotion, Circana reported.

Yet there is a broader definition of value coming into play, driving different banners and categories to over-index. For example, discount and community pharmacy proved the fastest growing channel for year-on-year change, chalking up +8.8 per cent growth. It’s equally a reflection of the importance consumers maintain on self-care, Bone said.

Circana then highlighted seven retail banners contributing nearly half of two-year total Australian retail growth in the last two years: Guzman y Gomez (64 per cent, $300m), CostCo (38 per cent, $1.3bn), Kmart (22 per cent, $3.1bn), Chemist Warehouse (13 per cent, $900m), Coles (11 per cent, $3.7bn) and Woolworths (9 per cent, $4.1bn).

“How have these done this? Each of these hit two key and critical points of difference to the rest of retail: One they deliver on value, or two, they deliver to essential products such as groceries,” McLean said. “The real sweet spot though is delivering to both of these things – that’s where we’ve seen the significant growth in banners like CostCo, Aldi and to some extent, Kmart and Chemist Warehouse.”

Overall, total retail revenue was up 8 per cent, or $33bn in dollar value over the two-year period.

Sweet tooth indulgence

“Last year we talked about fun-flation and little treat culture. Twelve months on, we’re still seeing affordable treats as the perfect accompaniment to at-home occasions and driving strong industry growth,” Bone continued.

Out-of-home cuts remain the norm, and Circana predicted $2 billion would transfer into grocery retail in FY25 in a similar way to FY24. That’s based on consumer panel data on 60,000, which shows growth in average eater spend has halved from 8 per cent to 4 per cent.  

By contrast, more than one-third of industry growth derives from 10 food indulgence categories that represent a 17 per cent share of sales combined: Confectionery (+13 per cent rise in terms of value growth), soft drinks (+11 per cent), cheese (+7 per cent), in-store cakes (+15 per cent), ice cream (+9 per cent), frozen snacks (+11 per cent), chilled desserts (+10 per cent), snacks (+5 per cent), biscuits and cookies (+6 per cent) and small goods (+7 per cent).

Forty specific brands Circana highlighted across five themes fitting the indulgence narrative and driving half a billion dollars in terms of growth between them include iconic classics such as Dairy Milk (+$62 million in growth), Smith’s Crinkle Cut chips (+$37m), KitKat (+$36m), Kirks (+$27m) and Tim Tams (+$22m). Shareable and entertaining brands include Roses / Favourites (+$22m), Trolli Gummi (+$20m) and Extra regular (+$20m), while those helping recreate out-of-home experiences include Manicare Glam (+$42m), Birdseye Golden (+$35m) and Krispy Crème (+$18m).

Circana’s fourth category of indulgence, artisan and authentic, was topped by Whittaker’s (+$14m), Lurpark (+$13m) and Mutti (+$13m). Fun and social currency brands over-indexing include Hismile (+$25m), Samyang (+$19m) and Biscoff (+$17m). Trading on values, nostalgia and recreating out-of-home quality are all dominant advertising creative narratives, Bone noted – and also showing up in retail activations.

“In several examples, what we’re seeing is some very nice value framing going on – the emotional hook is directly making reference to out-of-home occasions,” Bone commented. “We also see the role of retail media here not just driving sales at the point-of-sale, but also supporting overall brand messaging.”

Aspiration with affordability

Aspiration is getting a look in too alongside affordability and has seen several iconic Australian brands outperform the market. As examples, McLean pointed to clever ranging plays such as Guzman y Gomez’s mini range priced at $8 – a perceived affordable entry point.  

KitKat and Magnum’s adjusted packs and new flavour combinations were other winners, while MCoBeauty score a direct hit against luxury beauty brands through its dupe culture play – the latter was the number one growth brand in the grocery health and beauty category.

“The design mimics the high-end beauty it takes on and has affordability baked into the brand,” McLean said.

Another surprising performer is Hismile, which has disrupted the non-food category and brought fun into what had been a relatively dull category. Hismile’s penetration is up 6.7 percentage points and it’s experienced dollar growth of $25 million, Circana figures show.

“If people had informed me a year or two ago, I would be hearing day in, day out of tweens and teens begging their parents for multiple toothpastes as stocking fillers in their Christmas load, I would say sure, it wasn’t on my 2024 Bingo card,” McLean said. “However,  great activations in-store, viral campaigns on social media and word-of-mouth in the playground are driving amazing success for this product.”

Elsewhere, inclusive health and wellbeing products covering vitality, hydration, skin health and self-care are performing well. These include Sanitarium, Chobani, Musashi, Yopro, QV, La Roche Posay, Hydralyte, Pace Farm and Rokeby Farms.

The losers

By contrast, softening spend was particularly noticeable in the retail liquor sales area, with both dollars and litres consumed in decline year-on-year as consumers increasingly look to alcohol as a discretionary spend post-Covid lockdowns. Premiumisation is softer too.

“Volumes have been challenged now for the last 2-3 years – we see that in most of our reporting data,” Bone said.

Out-of-home is the other area continuing to suffer, led by takeaways, cafes and restaurants. Outlet traffic has also declined from 2 per cent to -1 per cent.

Online forces

Online has been underpinning the uplift in FMCG retail, accounting for 21 per cent of dollar growth and 55 per cent of unit growth. Overall, online accounted for 12.3 per cent of total sales growth even though it’s only 9.2 per cent of the units sold, Circana data indicates.

While the main drivers for online purchase remained largely consistent over the last four years, Bone noted what has gained importance is the ability for online to help consumers manage their budgets: Lower prices are up 7 percentage points while discounts are up 10 percentage points compared to 2021.

Retail media

Outside of Circana’s trends data, the virtual event included insights from Coles 360 chief Paul Brooks around retail media’s exponential growth and impact. Globally, retail media ad investment is expected to exceed $153.3bn this year, an $18bn increase from the 2023 half or a 15 per cent annualised rate.

Coles 360 is partnering with Circana to build out an increasing suite of measurement solutions to demonstrate retail media impact and answer two questions, Brook said: Incremental impact from investment, and where and how brands invest next time. Five measurement solutions are now available covering market, audience, customer life and campaign reporting.

Brooks highlighted a case study from Arnott’s and Coles Online on an execution that drove sales uplift from existing shoppers, who bought more every time they shopped. It also reached new audiences, with 1 million impressions delivered, 400,000 to unique households, of which 45 per cent were existing brand buyers. The campaign delivered 30 per cent incremental sales uplift versus the control group.

“Through Coles 360 impact customer uplift study, see it was driven by buyers spending more per visit, a lift in penetration and one hero SKU, which drove 37 per cent of sales uplift,” Brooks said. Exposed buyers spent 16 per cent more dollars per visit, and penetration was up 15 per cent during the campaign period

“There are many more of these, but they’re not all compelling – it’s about understanding how you drive through that incrementality and how you understand what does and doesn’t work. That’s kind of the point,” Brooks added.

Economic green shoots

Turning to the future, all speakers participating in Circana’s virtual event agree economic green shoots are starting to emerge, which will see the tide turn in 2025.

ASB chief economist, Nick Tuffley, saw the consumer mood starting to shift, but a relatively sombre tone persisting through to the New Year as interest rates remain high in Australia and the population waits for the Reserve Bank of Australia to finally get on top of inflation. He pointed to New Zealand as slightly ahead of Australia in this regard, although said the 10-year highs in business confidence across the Tasman were surprising.

“Probably the best way to sum up spending choices over the last couple of years in Australia and New Zealand has been that we’ve seen in the supermarket arguing over whether to buy just the supermarket brand of baked beans or the more posh can of baked beans, while we’ve been wearing last year’s fashion items for clothing but still been saving up lots of money to go and see Taylor Swift concerts,” Tuffley said.  

“When we start looking ahead, the big change we are seeing globally is inflation getting under control. They’re basically around the target bands in many countries and you are seeing interest rates fall in quite a synchronised fashion. We’ve seen it in Canada, the UK, Europe, the US; it’s started in New Zealand and it will start in Australia soon as well.

“That is going to lift consumer demand around the world, including down here. This is a really good development. But we are in that global phase now where at least inflation is tamed, even if there’s still quite a lot of, shall we say, interesting risks and developments on the global stage. One of which is the US presidential election and where the dust settles after that as Donald Trump goes through on ‘making America great again’. There’s still a lot happening on the global front, but a really important thing is this move to lower interest rates in many key economies around the world.”

Tuffley expected New Zealand interest rates to go back to between 3 and 3.5 per cent. “That’s a little bit higher than where they were before the pandemic but still relatively low,” he noted. While Australia’s fiscal management has followed a different path, Tuffley predicted interest rates locally would start to steadily come down through the first months of 2025.

“Once rates start coming down the impact on discretionary spending amongst consumers will start to have an impact very quickly because of those floating mortgage rates as well in Australia,” he said. “You can see some early, tentative signs.

“People are just starting to spend a little bit more money on eating out. They are starting to spend a little more money on clothing. So some of the more discretionary spending looks like it might creep up as we go into 2025.”

McLean meanwhile, was delighted with the almost 90 percentile consumer index for confidence she’d seen, but noted it’s usual for there to be a six-month lag effect off economic indicators. “Really, it’s H2 2025 where we expect to see impact in actual retail spend,” she said.  

The advice to FMCG and retailers from Circana is to start thinking about how to stimulate growth and recalibrate against a broader definition of value.

“We think 2025 is the opportunity to reset after years of disruption from significant external forces. Competitive pricing, winning value perception will remain important for the foreseeable future, but we can start changing the conversation beyond just price and affordability. Partly because household incomes are improving, and with possibly two rate reductions in 20205 leading to pickup in household confidence and finances improving, particularly for families,” Bone added.

“Yes, it’s about price, but also benefits that signify quality. If we change the conversation we can protect our brands from ongoing price sensitivity. But it also creates permission to spend in more interesting, creative ways. Think about on trend, benefit-led innovation – that will also support demand growth.”