Payroll Tax Increase Leads to Shifts in Shopping Behavior

CHICAGO -- A recent study has found that consumers are adjusting their spending habits after the 2-percent payroll tax increase went into effect on Jan. 1.

For a consumer with a household income of $40,000, the increase represents $800 in reduced spending power per year. This can be the difference between shopping at a lower-cost dollar store vs. a mass merchandiser, increasing purchases of a store brand vs. a national brand, or suppressing an impulse to pick up a snack on the spur of the moment while shopping in the store, according to Symphony Consulting, a business unit of SymphonyIRI Group Inc.

Symphony Consulting conducted an initial analysis of shopper behavior since Jan. 1 focusing on the increase's impact on food and beverage consumption, including its impact on key dimensions, such as type of stores shopped, type of brands bought, and the effect on various segments and categories.

"To date, shifts in shopper behavior are subtle, but patterns are emerging that deserve close and ongoing scrutiny," said Dr. Krishnakumar S. Davey, managing director of Symphony Consulting. "Our initial analysis offers highly current data on shopper behavior that will form the basis for ongoing research into the impact of the payroll tax increase."

Comparing dollar sales growth in food and beverages in the first four weeks of 2013 to the last four weeks of 2012 revealed little change in shopper behavior. Specifically, sales growth remained constant at 2.1 percent, and food inflation growth decreased to 1 percent from 1.4 percent. However, in the last week of the month, discretionary categories across all outlets experienced some softness. SymphonyIRI defined each growth statistic as performance in the given period as compared to the same period one year ago.

Private label dollar sales increased slightly in the first four weeks of 2013 compared to the last four weeks of 2012, to 2 percent from 1 percent, picking up the pace in the last week of the month.

In addition to broad strokes, Symphony Consulting's analysis reveals evidence of softness in shopper purchases along some key dimensions. Dollar sales growth for all channels remained constant at 2.1 percent in the first four weeks of 2013 and the last four weeks of 2012. However, dollar sales growth at mass merchandisers decreased to 3.3 percent from 5.3 percent in this timeframe. Club store dollar sales growth also registered a similar decline, the research division explained.

Broken out by category, the analysis found that dollar sales growth of several categories showed declines, including in snacks (down 230 basis points) and beverages, such as coffee and tea (2-110 basis points). However, cooking ingredients and beverages, such as juices and drinks, showed growth. Despite across-the-board over-performance in the first four weeks of 2013, discretionary categories lagged total food and beverage in the last week of January 2013, with dollar sales growth of 1.9 percent compared to 2.5 percent for the category as a whole in the same period, according to Symphony Consulting.

"We expect payroll tax increases will impact non-CPG spending (such as gas, clothes, entertainment) potentially more than CPG spending. However, out-of-home consumption will likely drop, and specifically out-of-home breakfast categories will be negatively impacted," Davey said. "Consumers usually eliminate the out-of-home breakfast meal first when they cut spending. Economic growth is expected to be stagnant due to tax increases and continued high unemployment. Moreover, the recent significant spike in gas prices is going to further squeeze the consumer's wallet. Some stores, convenience stores in particular, are very sensitive to gas price increases."