McKinsey: How inflation and the conflict in Ukraine are impacting European consumers

The latest Consumer Pulse survey shows that, across Europe, people have changed their habits and adopted new behaviours in response to new stressors.

About the authors

Enrico Bazzoni is an associate partner in McKinsey’s Zurich office; Marcus Jacob is a partner in the Berlin office, where Sandra Welchering is an associate partner; Simon Land is a senior partner in the Dusseldorf office; and Marina Rupp is a consultant in the Munich office.

As Europeans slowly emerge from the pandemic, consumer pessimism is at an all-time high, amid economic uncertainty. Rising prices, followed by the invasion of Ukraine, have eclipsed COVID-19 as the number-one worry. Consumers across the continent hold a negative view of the state of the economy and about prospects for recovery. Nine out of ten perceive that prices are rising, most clearly for essential goods.

In response, household budgets are changing, with basic needs like energy, transport, and food accounting for a higher share. Money put toward savings and spending on discretionary items have been dramatically cut—a trend that consumers expect to continue. Consumers are buying smaller quantities or delaying purchases. Many are trading down: turning to private labels, discounters, or more affordable brands.

While there are small differences, these trends hold true across France, Germany, Italy, Spain, and the United Kingdom. They are highlighted in the following nine charts from our latest European Consumer Pulse Survey, carried out on April 12–18, 2022. This survey tapped the views of 1000 respondents in each of the named countries.

Invasion of Ukraine and rising prices dominate concerns

While COVID-19 still lingers in Europe, its significance has been overtaken by other anxieties in the public mind. When asked to identify their number-one concern, 44 % of European consumers cite rising prices, while almost a quarter name the conflict in Ukraine (Exhibit 1). The pandemic, which has dominated public life for the past two years, now ranks only third in the list of major worries.

 

 

Rising Prices

This pattern is consistent, although there are some differences by country, with UK consumers displaying the greatest focus on rising prices (60 %). For a third of the population in Italy and Germany, the invasion of Ukraine is a more severe concern.

Consumer confidence has waned dramatically

In general, European consumers express very negative views of the current state of their national economies. In each of the five countries surveyed, more than half of consumers say their economy is in a bad state; in Spain, two-thirds express this view (Exhibit 2). In no country surveyed did more than 15 % of respondents report positive sentiments about the current economic situation.

 

This pessimism extends to the months to come: 37 percent of respondents expressed doubt about a successful economic recovery—exceeding even the worst levels of pessimism reported during COVID-19 lockdowns.

While there was a brief surge of modest optimism in October 2021 (when 34 percent expressed a hopeful view), this picture changed sharply with the invasion of Ukraine (Exhibit 3). This shift is already reflected in the data from March 2022, when a quarter of European respondents anticipated lasting negative impacts.

Observing higher prices, consumers cut back on non-essentials

Nine respondents in ten say they have observed price increases in recent weeks for the goods they often buy. This is most obvious in the category of groceries or food for the home. Six in ten describe these increases as significant (Exhibit 4).

The structure of household budgets has changed in response. Basic needs are occupying a higher share, with around 60 percent of respondents reporting greater spend on energy and utilities, transport and gasoline, and food and essentials. Correspondingly, spend on nonfood discretionary items has been cut, with a third of respondents reporting a decrease (Exhibit 5). Likewise, half have reduced the money they put into savings. Other mitigating actions include buying smaller quantities and delaying purchases, with small variations across retail categories (Exhibit 6).

 

 

Downtrading is a clear trend, with many turning to discounters

Downtrading—seeking out more affordable brands and retailers—is a prominent aspect of this changed consumer behavior. Notably, consumers have turned to private-label shopping (37 percent have done so, and 13 percent plan to try); about a third have tried a different retailer or store (or are prepared to do so); and a slightly higher number are investigating new brands (Exhibit 7). Consumers anticipate similar, if less extreme, shifts in financial behavior in the weeks ahead.

Among the more than half of consumers who switched brands recently, a clear majority chose lower-cost options. This is most evident in the areas of household products, snacks and confectionary, and frozen foods (Exhibit 8).

Discounters are benefiting particularly from this trend. Of those consumers who decided to shop at a different retailer in the past four to six weeks, most turned to discounters. The share of consumers who say they shopped more at discounters is 19 percentage points higher than those who say they reduced their patronage of these stores (Exhibit 9). Consumers reported lower use of all other retail formats—especially specialty grocery and convenience stores, which tend to be higher priced. This trend is strongest in Germany, while Italian consumers show the lowest level of switching behaviour, being more likely than those in most countries to continue their use of hypermarkets and less likely than all categories to start shopping at discounters.

Russia’s invasion of Ukraine in February 2022 is having deep human, social, and economic impact across countries and sectors. The implications of the invasion are rapidly evolving and are inherently uncertain. As a result, this document, and the data and analysis it sets out, should be treated as a best-efforts perspective at a specific point in time, which seeks to help inform discussion and decisions taken by leaders of relevant organizations. The document does not set out economic or geopolitical forecasts and should not be treated as doing so. It also does not provide legal analysis, including but not limited to legal advice on sanctions or export-control issues.

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