With tightening economic conditions evident, Australian consumers are acting more defensively, eating out less and preferencing home consumption.

Talk of a possible recession (two consecutive quarters of negative GDP growth) have surfaced in economic circles this month, with forecasts of growing unemployment levels. In a recent report, Deloitte said if forecasts of 4.5pc unemployment were met, a further 100,000 Australians could become unemployed over the next 12 months.

Job vacancies fell 8.7pc in the first half of 2024 and are now 26pc lower than in the middle of 2022, the report said. The unemployment rate ticked up to 4.2 per cent in July.

Deloitte report author David Rumbens said the view that Australia’s economy is stagnating is more evident through GDP, retail spending and business insolvencies data than labour market data, which has remained relatively resilient.

The economy was now growing at its slowest rate since the recession of the early 1990s, Deloitte warned.

Chicken sector being hit

As always, retail spending is often a ‘coal mine canary’ when it comes to Australian consumer mood.

And it’s not only relatively expensive red meat that’s fighting headwinds in the Australian domestic market due to cautionary spending – the trend is clearly evident even in the cheaper proteins like chicken.

Major chicken producer Inghams’ shares fell 21pc this morning after the company forecast poultry volumes to fall in fiscal 2025 amid cost-of-living pressures.

Responsible for 30pc of Australian chicken meat sales, Inghams’ volume of sales reflect the recent consumer trend, with sales into the quick service restaurant segment (KFC, McDonald’s, Hungry Jack’s and the like) down 4400t for the year ended 30 June; and the wholesale/food service segment (restaurants, hotels, pubs and clubs) down 6200t.

Overall, Inghams Australian sales volume last financial year (ended 30 June) was up just 1.9pc for the year. The company told shareholders it expected sales volume to fall between 1pc and 3pc over its current financial year, ending June 2025.

Inghams blamed the flat food service result on the shift away from out-of-home dining. Stronger retail sales were significantly offset by lower volumes in quick service restaurants and other out-of-home channels, as consumption patterns changed in response to cost-of-living pressures

Consumer conditions were expected to remain challenging due to cost-of-living pressures, with inflation expected to remain elevated during FY25, the company said.

Elsewhere, Collins Foods, which operates 279 KFC chicken fast food outlets in Australia, saw shares crash 11pc yesterday, following the release of a trading update saying customers had been cutting back on spending in May and June, with same-store sales down 0.8pc compared with the same time a year ago.

Chief executive Kevin Perkins said he expected the tougher trading conditions to continue well into 2025 as households battle higher mortgage rates, rents and energy bills, and general inflation in the economy.

Beef sector sees shift to retail

A shift out of food service into retail is also being picked up in the domestic beef industry, several wholesale trade sources have told Beef Central.

One contact said not since the turbulent days of COVID had there been such an exit evident in the wholesale red meat trade out of the eating-out segment in favour of (cheaper) cooking and entertaining at home.

One large multi-state red meat wholesaler said his business was normally an even 50:50 split between retail and food service trade (in tonnage terms), but that ratio was probably 53:47 this month in favour of retail, and may drift higher.

While there had been some volume of increased sales shift into retail to counter that, the overall trend in domestic Australian wholesale beef sales was down, he said.

Meat & Livestock Australia’s Scott Cameron told Beef Central that official data had not yet picked up a serious trend in that direction, but from a red meat perspective food service volume might be down 1pc from where it was this time last year.

“That’s being countered somewhat by the growth we’re seeing in retail,” Mr Cameron said.

“And we are seeing some changes in consumer habits in the retail segment. Year-on-year, there’s been an increased frequency of retail shopping, up 3pc on last year. And the amount they are buying in each shop is about 7pc above this time last year, in volume terms,” he said.

“Certainly from a cost of living point of view, these are behaviours that are pretty consistent with that tighter economic trend.”

So far, though, its nothing like what was seen during COVID, when food service fell dramatically.

From a value measure, domestic Australian consumer spend was ‘about flat’, Mr Cameron said.

‘With price increases etc, people are probably spending about the same amount in eating away from home, but probably on less occasions,” he said.

In retail, prices had come off somewhat, which had motivated consumers to buy a little more.

“But it’s also the shopping habits that have changed. Australian consumers are choosing to eat out less, and eat at home more – and with that in mind, lower prices in the supermarket, they are more comfortable in buying more.”

A wholesale trade contact said retail sales of ‘heat and serve’ style prepared meals had also softened recently, as more budget-conscious consumers baulked at the price, which as a value-added product is burdened with an additional ten percent Goods & Services Tax over fresh foods options.

“People are looking at the price for a convenient heat-and-serve item, and figuring they can make that for themselves at much lower cost,” he said. “Others are waiting for the yellow use-by discount stickers to appear, and buying them then. Retailers are pushing back on the value-added meal manufacturers, looking for lower prices.”