MCA market insight director Steve Gotham crunches the numbers on consumer spending to find out how it’s changed in real terms. Some of the findings more surprise you.

I am reliably informed that taking time out to see ‘the big picture’ is an essential leadership quality. One big picture for anyone involved in the consumer economy is understanding the main buckets of total spending and how these are changing. Analysing data from the Office of National Statistics on Consumer Trends within total domestic expenditure, several key insights emerge around changing priorities on how hard-earned income is being spent.

By some margin, and weighing in at 27%, the largest category of spending goes on home-related elements, including rent, mortgage payments, major repairs and utilities. This is followed by spending on transport, including mode purchase, servicing, fuel and travel services, accounting for a 13% share. If we, quite reasonably, also include at home food and drink consumption (11%) as essential, then just over half of what we spend goes on what might be regarded as non-discretionary purchases.

In current price terms, this proportion has barely changed since the start of the century, when it stood at 52%. However, looking at the trends in underlying real movements and adjusting for the effects of inflation/deflation, then this reduction is much bigger, falling from 60% to 51%. Key factors here include the rising influence of the hard discounters on supermarket prices, declining tobacco sales and checks on utility price rises.

Those areas seeing the biggest rise in spending share in current price terms comprise health, housing and education, up by a combined two percentage points over the 2000-2018 period. Again, stripping out inflationary noise, then the categories that have grown the most regarding purchase volumes comprise clothing and footwear and recreation and culture. This shines a light on the rising impact of fast (and cheap) fashion (think the likes of Primark, H&M and ASOS) and the growth in assorted at- and away-from-home entertainment/leisure equipment and services. The latter includes a broad church across audio-visual kit and subscriptions, books, gardening, pets, sports goods, gyms, shows and package holidays. Experiential comes to mind – to an extent.

Interestingly, and I am sure it will have not gone unnoticed, is what has not been referenced yet – spending on out of home food and drink. This is captured within the Restaurants & Hotels category, and in overall terms, accounted for 9% of total consumer spending, equivalent to £125bn in 2018. Restaurants, cafés and canteens generate the lion’s share, at four-fifths, with hotels and other accommodation services comprising the balance. Somewhat disappointingly and surprisingly, perhaps, is the 9% proportion has barely changed over the past 18 years in current price terms, and has actually fallen, in real terms. This might suggest a case for some tempering of the view that the experiential economy has been such a star performer, or at the very least, prompt greater recognition of how much competition – and challenge – there is on how we allocate our spending across the multiple demands of daily life.

Regular students of the Consumer Trends publication will also be aware that the ONS releases this every quarter. The latest edition only includes data up to Q1 2019, but it would be remiss of me not to point out how the results for annual consumer spending on Restaurants & Hotels were among the weakest across the sub-category mix, and that in real terms, spending fell year-on-year. For sure, the ONS did not record a great start to the year, and so anyone bucking this trend with say 2% plus comparable store growth, deserves both congratulating and closer scrutiny. I might humbly suggest that ensuring your business is familiar with the biggest picture and fullest understanding of sales growth levers is another essential leadership quality.