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Consumers are sitting on trillions saved during the pandemic with projections that this will be a big year for packaged goods sales. Restaurants and cafes continue to lag. OpenTable research indicates that 62% of frequent diners return to restaurants weekly, vs. 39% this spring, but only if the restaurant has vaccination policies and masked servers.
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Tea sales in grocery and mass-market saw significant gains in 2020 as consumers stocked up. Sales growth topped 18% in Canada and 12% in the US in conventional sales outlets but has since leveled off. Panic-shopping has ended, said NielsenIQ VP Carman Alison, but “the pandemic is not over.” Most consumers remain cautious about spending overall. He predicts the marketplace will turn to promotions and discounting.
Tea retailers that survived 2020 were saved by pivoting online and the striking uptake in sales of packaged tea in grocery and mass-market outlets. During the pandemic, consumers purchased less frequently but in larger quantities and ignored unit costs, according to Carmen Allison, v.p. sales consumer intelligence, NielsenIQ.
“Last year was recording setting." Allison told attendees during a Sept. 29 Level Up online webinar hosted by the Tea & Herbals Association of Canada (THAC). (See Tea Pivots Online published previously in STiR.) "In tea, sales were seven times what we would regularly see. Tea was up 18%, growing even faster than total CPG [consumer packaged goods].”
The pandemic dramatically altered the way we live. “It’s probably the first consumer trend where every single consumer has been impacted by it,” he said. Tea benefited because those who could afford it pampered themselves, and those experiencing stress sought to ease that stress.
“Cycling last year’s explosive growth is showing declines for the first time,” said Allison. Tea sales across Canada are down 1% for the 36 weeks ending Sept. 11, but the decline is uneven, reflecting local conditions. In Alberta and the Maritime provinces, tea sales are down 4% and 5%, respectively, but sales match 2020 totals in Ontario and British Columbia.
One in five Canadian households feel less secure about income in the next three to six months, and nearly 50% of households say they are watching their spending. "CPG sales are now stabilizing and 70% of Canadians are reducing or being cautious in their spending,” he said. The question now, as the pandemic eases, in which consumer behaviors will stick.
In the US, personal income increased $35.5 billion in August, and consumer spending rose to $130.5 billion, or 0.8%, according to the US Commerce Department, gains partially offset by inflation but a clear indication that retail sales are reviving following a 1.7% decline in July.
“Revenge Spending”: A New Concept for the Holidays
One pandemic-related trend that is building momentum as the holidays approach is “revenge spending” to make up for the lost time. It’s the big vacation you book to make up for the trips you canceled, a new sofa to watch TV, and new appliances for the home now that you are in the kitchen three times a day. An article in Real Simple describes revenge spending as "all that stuff you were going to do ̶ but didn't because of Covid. All those things that were on the to-do list that you want to go back and almost violently spend money on."
According to Bloomberg, Americans who stopped taking vacations, eating out, staying in hotels, going to the movies, concerts, and amusement parks are now sitting on $1.5 trillion in savings. The consensus is that consumers have spent down debt and are eager to counter a gloomy summer that curtailed entertainment, dining out, and travel as COVID restrictions forced many to vacation close to home.
Australian households amassed an estimated $140 million (US$100 million) during lockdowns that are now ending. In Europe, bank deposit volumes show similar gains. In Spain, bank deposits grew by €20 billion in March-April, in France deposits grew by €42 billion and by €16 billion in Germany, according to the report How Far Will Europe’s Savings Fever Go by CaixaBank Research
Projections range from $1.28-1.3 trillion in sales during the November to January gifting season. Mastercard’s SpendingPulse projects a 7.4% holiday sales increase, and the widely cited Deloitte annual holiday forecast estimates US holiday spending will grow between 7-9% and 9% in 2021. Ecommerce sales are anticipated to be between $210-218 billion, a gain of 11-15%, according to Deloitte.
According to Deloitte, last year's holiday sales came in higher than expected, increasing by 5.8%.
A consumer survey by AlexPartners found 88% of US consumers plan to spend the same or more this holiday season, up 12%, as reported by Chain Store Age. “There’s unprecedented pent-up demand out there, consumers have lots of money in their pockets, in part due to recent government programs,” according to the firm.
Foodservice Demand is Increasing
The bright outlook for the holidays is welcome for the retail side of the tea industry marketing electric brewers, expensive teaware, and holiday teas, but a “return to normalcy” requires the revival of restaurants and cafés.
The Commerce Department report showed that August sales at bars and restaurants declined after rising in July. Beth Ann Bovino, the US chief economist at S&P Global, told the New York Times that drop is “partly tied to the end of summer, but it’s also tied to fear of the virus when going into a bar.”
Seated dining at US restaurants is down about 11% below 2019 levels. In August, the National Restaurant Association found that 60% of restaurant-goers had changed their use during the pandemic, with most opting to eat outdoors and 19% saying they completely stopped going out to restaurants.
The pandemic wiped out a quarter of the US coffee shop market in 2020, according to the World Cofee Portal’s Project Café USA. The $36 billion segment suffered an $11.5 billion year-on-year setback. The National Coffee Association said packaged coffee sales were $14.9 billion, and consumption held steady at 33 million liters thanks to homebound brewers.
OpenTable’s most recent quarterly survey of 20,000 restaurant fans finds that 62% are now dining out at least once a week. During the first quarter, only 39% of frequent diners were eating out at least weekly. Proof of vaccination should be a requirement for staff, according to 46% of OpenTable diners, up from 25% during the first quarter. A 71% majority are willing to show their vaccine cards, and 23% say that restaurants must require proof of vaccination before dining indoors.
Takeout remains the most popular alternative to dining in, with 34% of OpenTable respondents ordering takeout at least once a week. In 2020 35% of all restaurant orders were from drive-throughs, according to NPD Group.
The theme of Alison’s presentation was Rewrite or Rerun. “Some pandemic-related consumption shifts will fade while some will have a lasting impact on purchase behavior,” said Alison. Many categories experienced “a bit of a roller coaster that went to peaks and valleys as sales declined and the market normalizes.” He is optimistic consumers will not “rewrite” their support for the tea segment. He said that tea is a category that benefitted from the pandemic, citing comparisons of sales volume in 2021 to 2019 that remain favorable.
Last year the marketplace was driven by availability and scarcity. Panic-shopping has ended, said Alison, but “the pandemic is not over.”
What is likely is that with inflation at 4% and wages growing at 2.5%, “we are seeing the marketplace turn to promotions and discounting,” he said.