Cost of living crunch: Just the coffee, leave the muffin thanks

Monday, 31 October 2022

Record inflation is putting the brakes on spending as people forgo some of their daily luxuries to make ends meet.

Anecdotal evidence crowdsourced by Stuff revealed some people had changed their spending habits because of inflation, with people interviewed saying they were buying less clothing, fewer coffees – or no muffin to go with it, and resisting the urge to upgrade to the latest iPhone.

One woman said she had cut back on all spending apart from the necessities. No more branded groceries unless she could tell the difference, and takeaway coffees were now once a week as a treat.

Another woman said she and her family were no longer eating out or spending money on coffees, and she had switched to cooking with frozen vegetables rather than fresh produce as prices had become too expensive.

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Others said they were buying fewer coffees, and replicating the weekly takeaway at home instead of dining out.

Greg Cornes, chief executive of cafe business Goodness Gracious, said he had noticed about half of his regular customers had become more cautious and cut back on spending, opting for just a bagel, rather than the bagel and the coffee as they once had.

“I’d almost suggest it is a little bit of a two-tier economy. When we see people coming in, half of them are conscious about price, and they’ll make comment about where things are at monetarily. So you can definitely tell it is on some people’s minds,” Cornes said. “And then you get another half of people that don’t really blink an eye.

“From my perspective it is quite surprising because from the business you are seeing inflation on all levels, from how it is impacting staff’s ability to spend and live, and for us putting up our prices marginally but quite frequently, because every week at the moment, another supplier is firing you an email with an increase they are passing on.”

Cornes, who operates three bagel and coffee bars in Auckland, said it was hard increasing prices as frequent increases felt like they were pushing goods out of reach for some customers who were already feeling the pinch of the cost-of-living crisis.

Younger customers, those who perhaps were renting and had fewer outgoings, were less concerned about the prices they were paying, or what they were buying, compared to young families in their 30s who were hyper-aware.

“We’ve had a drop-off of the younger families, the 30-year-old parents with the young kids maybe two under 5, as of late,” he said. “The older and those close to the retiree age, or the younger set they, don’t tend to dwell on the transaction too long.”

He had also noticed more people were buying coffee beans and grinds to make their own coffee at home. “People are still wanting their coffee, but they are maybe sacrificing three out of five barista-made coffees for their own home machines.”

Goodness Gracious custom-built its own digital ordering platformallowing the business to cut its wage bill by 10% and keep a cap on prices until recently, when it has had to marginally increase prices on an almost weekly.

Cornes said he expected a steep pullback in spending from customers early next year when mortgages came up for renewal.

“I get the feeling that people are aware of it, but I get the sense that a lot won’t make the change until after Christmas, and part of that is the culture of coming out of the pandemic and having that pent-up ability to go out and feel unrestricted. I think that's probably offsetting some of that inflationary pain.”

This appeared to be consistent with findings from online shopping price comparison website PriceSpy, which found Kiwis were yet to pull back on spending, but were shopping smarter by buying an older model or a cheaper brand.

“People are more cautious, they are buying more cautiously. We know this through the time on the site is increasing – an indicator that people are thinking more and searching more products and more prices before making a buying decision,” PriceSpy New Zealand country Liisa Matinvesi-Bassett said.

“What we can also see in the data is that in some shopping categories, even though the prices are increasing, what people are buying isn’t increasing as much, [meaning] people are shopping more carefully and looking to buy cheaper alternatives.

“There is a clear shift compared to last year when the country was still in lockdown and people were upgrading their homes and buying the latest gadgets.”

Matinvesi-Bassett said she anticipated a widespread pullback in spending would begin after the Christmas holiday season.

“Our data indicates it is slowing down, but if you look at online versus offline, you can save some money by spending online, so it could also be that the online shopping is increasing as you can have more savings by shopping online.”

Despite consumer confidence surveys forecasting drops in spending, figures from eftpos operator Worldline for September show growth in spending continued last month, albeit just marginally ahead of inflation.

Spending in the three months to September 30 was 14.6% above that of three years earlier – pre-Covid-19 pandemic – and the growth rate increased from 13.6% in the June quarter.

While the CPI figures for September were yet to be published, Worldline said average prices were estimated to have risen by about 13% since September last year, meaning spending in real terms was about 1% more compared to three years ago.

Total spending, excluding on hospitality, through Worldline, which accounts for about 75% of all electronic transactions, was $2.92 billion in September, up 16% on September last year, which at that time faced restricted trading because of the varying Covid-19 traffic light system.

In August, total spending recorded by Worldline was $2.83b, and $2.84b in July.

Rebecca Baylis, owner of Auckland children’s and baby goods retailer Hatch Baby & Child, said she had noticed her customers were “a little bit more choosy” and not buying as much in one transaction.

“We are noticing that basket sizes are now smaller and sales are down on non-specific branded items. Weirdly, sales are remaining strong, and growing, on branded high influencer and in vogue brands,” Baylis said.

“If they are wanting the more expensive brands, they are not buying any add-ons. We’ve seen a downsize in basket size.”

Baylis said she had also noticed a strong uptick in sales using buy now pay later schemes.

People using buy now pay later were typically buying high fashion branded baby items, Baylis said.

“I definitely feel that people are a lot more anxious at the moment with all the cost of living uncertainty.

“We see a lot more window shoppers now – people coming in looking but with no intention to purchase.”