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Bleak or bliss season for the affluent?



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As the saying goes, there’s a time and a season for everything. A time to dance and a time to mourn. A time to laugh and a time to weep.

Traditionally, this time of the year is known as the festive season. A season of joy. A season to give thanks and receive presents. And a season to spend time with family and friends.

However, the question remains, will this festive season be bleak or bliss for Kenyans, especially affluent households?

Over the past few months, Kenyans have experienced the perfect economic storm — increased rates in critical areas, such as the 15 percent excise duty levied on telephone and internet data services, 16 percent VAT hike on petroleum products and the 20 percent excise duty on all bank and money transfer fees.

Coupled with this is Kenya’s rising inflation due to an increase in excise duty on a host of goods and services, including food and alcoholic and non-alcoholic beverages.

All these inflationary pressures have affected shopper behaviour, forcing consumers to prioritise what they spend their money on due to their limited wallet.

While affluent consumers are generally seen as resilient and can weather economic storms, a recent study by Kantar World Panel, which tracks real-time household purchase behaviour, suggests otherwise.

The study, launched in 2013, tracks household purchase behaviour representative of household demographics in Kenya. The research covers a wide spectrum of fast-moving consumer goods (FMCG) categories, including foods and beverages, as well as personal and homecare categories.

An analysis in the third quarter of 2018 shows average FMCG spend among Kenyan households was flat at 0.9 percent while consumption dropped by six percent, driven mainly by affluent households cutting their spend by five percent.

This is in stark contrast to middle- and lower-class households, whose spend has increased by five percent and four percent, respectively, suggesting affluent households are feeling the pinch the most.

Homecare brands and cold beverages experienced the biggest drop in spend among affluent households. Their average spend on beverages is down by 13 percent from last year’s figures, suggesting that they are faced with hard choices between real needs and wants.

In contrast, this spend among low- and middle-class households is up by 11 percent and nine percent, respectively, over the same period.

A drop in affluent households’ average spend could mean that they are preserving their lifestyle indicators by spending more on areas that are of critical importance to them — for instance, their children’s education, investments, holidays, travel and entertainment.

While this might be the reality among affluent consumers, they still spend more on certain FMCG categories that are important to their lifestyle, such as personal care products.

For example, their average spend on hair care products is up 51 percent — meaning that, despite being financially stretched, they still indulge in personal items that make them look and feel good.

Furthermore, they appear to be sustaining small indulgences by maintaining small gratifications.

Spending on categories such as coffee and cocoa beverages are up by 40 percent and 45 percent, which could suggest that, although they might not be able to go to coffee shops and restaurants as often as they used to, they are bringing these experiences home.

So, what does this shift in behaviour among the affluent household mean for retailers and manufacturers over the festive season?

Although we are likely to see festive retail spikes year on year compared to 2017 as the economy recovers from last year’s slump due to reduced shopper spend over the electoral period, Christmas shopping might be below retail expectation this season as real income may only focus on necessities among households.

In modern trade, we are likely to see smaller shopping baskets and less spend as these consumers might look for value products with multiple usage occasions and seek reasons to justify the premium they pay for brands.

Traditional trade outlets such as open markets, kiosks and dukas, which are seen to be growing double digits, are likely to gain some of this footfall as consumers look for proximity and convenience in channels where they have more bargaining power.

Ultimately, winning retailers and manufacturers will give consumers value propositions and offers that provide real tangible value and the promise of bliss to ease the burden of an already bleak-looking festive season.

Mr Leshope is a shopper marketing expert and head of strategy for Ogilvy Africa. Mr Igbinadolor is a consumer insights expert and the country manager for Kantar World Panel.