UniCredit Bank Austria Industry Report:
Retail economy cools noticeably in 2022
- Sizeable price hikes and cloudy consumer outlook putting brakes on retail economy in 2022 after strong sales growth of 2.8% in 2021
- Nominal sales of EUR 72.5 billion posted in Austrian retail sector in 2021 — EUR 44.3 billion in non-food sectors and EUR 28.2 billion in food retail
- Real-terms sales growth for retail sector overall in 2022 still on course to outperform long-term average of just under 1%
- Retail sector shaped by record inflation of up to 9% on food in 2022
- Speciality food retailers slowly regaining market share from supermarkets and online food retail gaining further significance
- Highest sales growth in decades posted by pharmacies in 2021 and early 2022 due to COVID-19 testing
The latest UniCredit Bank Austria retail sector report reveals that consumer spending in Austria has held up well in Q1 2022 despite strong price hikes. "Excluding food retail, sales in the sector had grown by an impressive 8.3% in real terms by March 2022. There was a clear downwards trend with supermarkets as the strong growth in this area in the comparable period of 2021 began to normalise once people were able to eat out again, meaning that the total sales growth in real terms for Q1 2022 was only 1.6%", says Günter Wolf, Economist at UniCredit Bank Austria.
Food retail is set to gather momentum again over the course of the year, but growth in other retail sectors is likely to slow as a result of high prices and the downward spiral of consumer sentiment. As a result, in 2022 the retail sector as a whole will underperform 2021 and is set to achieve growth that is only slightly above the long-term average of 1%.
The retail outlook for 2023 is more modest still: In the wake of real-terms income losses and the expected slump in economic growth in 2023, in the short term households are unlikely to spend all of the additional savings they have generated over the past two years.
Cloudy consumer climate for 2022 due to price hikes and Ukraine war
At the start of 2022, the encouraging labour market data, the first high collective wage agreements and the anticipated strong growth in disposable income heralded a sharp rise in consumer spending. In step with these developments, real-terms wages growth was already feeling the squeeze from the disproportionately high inflation, with high commodities prices and energy prices gradually generating knock-on price increases for other consumer products. "With war breaking out in Ukraine and consumer prices continuing to rise, the consumer climate has deteriorated considerably in recent months", says Günter Wolf.
Consumer confidence has been on a downwards trajectory since February 2022; in May, the economic outlook for the coming 12 months even dipped to levels not seen since the dark days of April 2020, with income projections falling to a record low. One notable finding of the latest consumer survey is that the shopping mood among Austrian consumers did nonetheless improve slightly in May, although this sub-indicator of consumer confidence remained well below the long-term average.
Growth in retail economy set to dip in 2022
In the first year of the pandemic, retail benefited from the fact that consumer staples could still be sold during the lockdown periods; the sector also gained positive impetus in 2021 from the consumer spending catch-up in non-food retail following the enforced slump in 2020. Price-adjusted sales of non-food products rose by 4.7% in 2021, and the figure for the retail sector as a whole was up 2.8%; both of these increases far outpaced the long-term average. Nominal retail sales for 2021 sat at EUR 72.5 billion, of which EUR 44.3 billion was for non-food sectors and EUR 28.2 billion for food retail. With the exception of clothing and shoes, all major retail sectors surpassed 2019 levels once more in nominal and price-adjusted terms.
In Q1 2022, the overall retail result of 1.6% in real terms was hampered by a real-terms sales decline in the food sector of around 6%. In non-food retail, sales rose by 8.3% in real terms. The decline in food retail can be attributed in part to the strong growth achieved in Q1 2021 and also to the fact that consumers have started eating out more regularly once more.
With the exception of food retail, in May retailers remained optimistic on balance in terms of their business confidence values, suggesting that the positive sales trend in the segment is set to continue. Business expectations for food retail, by contrast, are now a little more cautious (and are more pessimistic still among car dealers). Although the recovery of demand in the tourism sector is also likely to generate stronger sales growth for food retail over the rest of 2022, demand in the non-food sector is likely to be weaker due to the impact of high prices and declining consumer confidence. On balance, growth in the retail sector is slowing in 2022, but for the year as a whole should still be in the positive range at just under 1% in real terms.
Record inflation is shaping retail in 2022
Viewed over the long term, consumers are benefiting from price pressure in the retail sector. Consumer prices in Austria rose by an average of 2.1% per year between 2008 and 2021, while the prices for goods sold in the retail sector rose by only 1.7%. Food and beverages have become more expensive again in this sector, by 2% per year, while the cost of other consumer goods is up just 1.2%.
Retail inflation has reached record levels in the short term and is shaping retail in 2022. Retail-related goods have become 5.6% more expensive on average up to May. The price hikes are particularly prominent for food and non-alcoholic beverages, which have seen increases of 6.5% on average, and even a huge 9% in May.
No significant let-up in these high consumer goods prices is expected during the remainder of 2022. Not only are manufacturers facing the burden of persistently high energy costs, but the smooth supply of primary products cannot always be guaranteed. Demand for consumer goods is still strong and as such often outstrips supply, which in turn drives up prices. Expensive agricultural primary products, such as fertilisers and fuels, are causing food prices to rise. "Consumer prices for food are expected to track producer prices, which have already increased by 11.9% as at April 2022. With sales price expectations from food producers in Austria reaching record levels in April and May, it is even likely that we will see further price hikes from producers", says Günter Wolf.
Food retailers win back market share from supermarkets
The food retail sector includes supermarkets, with sales of EUR 26.5 billion, and the food and beverage industry, with sales of EUR 1.7 billion. Speciality retailers, which over time have been gradually driven out of retail chains, have been posting slightly higher sales growth than supermarkets since 2016. Although bakeries, butchers and other speciality food retailers did see their market share gains take a dip again in 2020 due to the lockdowns, their sales picked up again more rapidly in 2021 and in Q1 2022 — by a nominal average of 5.9% compared to 2.7% for supermarkets. The successes in food retail can be attributed to factors such as the gradual expansion of the bakery sector, especially in urban centres. However, there are no signs of a trend reversal in the food market towards small, independent shops.
Online food shopping is definitely gaining in significance. Internet food shopping is currently estimated to account for around 2% of total food retail in Austria; in Germany that figure is around 2.5%. In the previous year, around 10% of Austrians aged 15 to 64 purchased food and/or beverages via the Internet. However, there are tighter restrictions in this segment compared to other online retail segments, as the delivery of food and beverages is generally more time-consuming and costly.
Pharmacies post record sales
All major retail sectors bounced back in 2021 from the lockdown-induced slumps. The exceptions here were the clothing and shoe sectors, where sales as at the start of 2022 were still 20% below the level seen in 2019. This trend demonstrates both that demand is becoming increasingly saturated, and that competition is strong in the online environment. Clothing and shoes have been the top online shopping products for years, with 37% of all Austrians ordering online in this sector at least once in 2021.
Driven by brisk activity in residential construction and renovation, DIY stores have long been achieving particularly strong sales growth, whereas furniture retailers have been bringing up the rear by comparison with the retail sector as a whole. Furniture retail has actually posted a slight price-adjusted drop in sales since 2012. As with the clothing sector, this weak result is due primarily to increasingly saturated demand and the rapid growth of online competition. In addition to clothing and books, furniture is one of the three top product groups for online shopping and last year were purchased in an electronic marketplace by 20% of all Austrians.
Over the long term, pharmacies are among the fastest-growing retail sectors in Austria. Demand in this sector is largely unaffected by economic cycles; products are price-controlled in many instances, and there is good protection from new competitors. The sector achieved nominal sales growth of 3% per year on average between 2008 and 2020; in 2021 the figure was 16.2%, and for Q1 2022 it was up by a further 24.1%. Pharmacies have been carrying out COVID-19 testing since February 2021 and also recovering the expenses incurred for antigen tests submitted in pharmacies, resulting in the strongest sales growth in this sector in decades.
Enquiries:
UniCredit Bank Austria Economics & Market Analysis Austria
Günter Wolf, Tel.: +43 (0)5 05 05-41954;
Email: guenter.wolf@unicreditgroup.at