US tax change hits shoppers

Warc, 13 February 2013

CHICAGO: Rising taxes on US workers have affected consumption patterns for consumer packaged goods (CPG), according to a new market research study.

Symphony Consulting, part of the SymphonyIRI research group, looked at how the 2% increase in payroll tax, which went into effect on January 1st, impacted on shopper behaviour. It was found to have altered the type of stores shopped at and type of brands bought, among other variables.

The 2% rise equates to an $800 reduction in spending power for a household with a $40,000 income.

"To date, shifts in shopper behaviour are subtle, but patterns are emerging that deserve close and ongoing scrutiny," said Dr. Krishnakumar Davey, managing director of Symphony Consulting.

In particular, the report discovered that dollar sales growth at mass merchandisers slowed from 5.3% in the final four weeks of 2012 to 3.5% in the first four months of 2013, indicating that low-cost dollar stores may have gained business.

In another sign of how consumption patterns may be changing, private label sales increased slightly in January 2013, to 2% from 1%.

Moreover, several categories recorded declines since the tax change. Among these are snacks, down 230 basis points, and beverages, down 110 basis points.

"We expect payroll tax increases will impact non-CPG spending (such as gas, clothes, entertainment) potentially more than CPG spending," said Davey.

"However, out-of-home consumption will likely drop, and specifically out-of-home breakfast categories will be negatively impacted. Consumers usually eliminate the out-of-home breakfast meal first when they cut spending."

Data sourced from SymphonyIRI; additional content by Warc staff