Consumers divided on spending priorities heading into 2025

17 January 2025 Consultancy.uk

Consumers say they are less concerned about inflation than they were before. But whether they admit to it or not, those fears may still be driving their spending habits, with the majority still prioritising bargain or home-brand products in a bid to find savings from the weekly groceries.

Over the last 12 months, messaging around inflation has conflicted somewhat. While generally it has slowed, and governments have used this as evidence that their respective economies are returning to health, slow inflation does not mean that prices are returning to what they were before. At the same time, wage growth is still being outpaced by price-increases, meaning consumers are materially in a worse position than two years ago, and not in a position to simply start spending big on ‘luxury’ items again.

Some of this conflict has been reflected by the latest Capgemini research into consumer trends. According to a poll of 12,000 consumers over the age of 18 in 12 countries across North America, Europe, and Asia-Pacific, only 46% of consumers are now ‘extremely concerned’ about their personal finances. While that is hardly a ringing endorsement – as many more may still be ‘moderately’ concerned at the very least – it is a distinct fall from 61% in 2022, when inflation regularly hit double-digits in the world’s largest economies.

Consumers divided on spending priorities heading into 2025

This trend was largely present across all demographics. Every income-bracket saw at least some improvement in terms of ‘extreme’ concerns – though predictably, that was most prevalent in the smallest bracket, with the largest annual income. Only 30% of those earning above $100,000 per year were ‘extremely concerned’, down from 55% in 2022 – but 61% those on ‘low-income’ earning $35,000 or less, felt the same. While that is less than 66%, it is still a super-majority of a much more numerous consumer-bracket.

So, while retailers might want to rejoice at the idea consumer confidence is ‘rising’, things might not be so simple. In fact, another part of Capgemini’s study reveals just that. The researchers discovered that the majority of all groups were still shopping in a cost-conscious manner.

Despite dividing the respondents into various arbitrary groups – ‘educated rationalists’, ‘traditionalists’, ‘convenience-led urbanites’, ‘digital-first trailblazers’, ‘grounded suburbanites’ – the study still came to the same conclusion. Most shoppers are spending more time going to different physical stores to find deals and discounts. This was highest between ‘educated-rationalists’ and ‘digital-first trailblazers’ at 77% each, while even a majority of 51% of ‘convenience-led urbanites’ said they were shopping around for deals.

Similarly, nearly every group reported a super-majority in favour of buying ‘private label’ brands (own-brand items sold by stores as cheap alternatives to familiar products). This was highest among ‘digital-first trailblazers’ at 91%, but again, even 50% of the ‘traditionalists’ who supposedly rigidly oppose changes to shopping habits said they had to factor in cheaper options in this way.

Consumers divided on spending priorities heading into 2025

Again, sustainability looks likely to take a hit from this – thanks to the normative framing of it being a ‘consumer issue’, for shoppers to vote for with their wallets. But increasingly, consumers are unclear why making a product that doesn’t destroy the world should be a cost passed on to them, and not simply a requirement of any modern business. To that end, while 64% of consumers buy from sustainable brands and 67% would switch retailers due to a lack of sustainability, their willingness to pay a premium is decreasing. The proportion of consumers willing to pay between 1-5% more has risen slightly, from 30% to 38%, but those willing to pay more than 5% has dropped consistently over the past two years.

Somehow, inevitably, Capgemini’s takeaway from the results managed to be about AI, though. When asked if they had replaced traditional search engines by Gen AI tools (such as ChatGPT) for product or service recommendations, a global average of 58% said they had. While ChatGPT’s user numbers still suggest these averages do not actually hold up around the global population, they are indicative of a notable shift. Reading them as enthusiasm for AI, rather than antipathy relating to search engines which have gradually been degraded to maximise the amount of time users stay on them – and are exposed to adverts – may be a leap too far. But it’s also a leap that the firm behind the report seem all too happy to make.

“Consumers today want personalized shopping experiences, enhanced by AI and generative AI. In addition, they expect fast and efficient deliveries and have become more conscious of their purchasing impact,” noted Lindsey Mazza, global retail lead at Capgemini. “To remain competitive and build brand loyalty, retailers must adopt strategies that put the consumer at the centre, leveraging AI to deliver seamless yet exceptional customer interactions. The clear shift towards social commerce is also significant. Retailers need to capitalize on their social and digital advertising platforms to engage consumers early in the purchasing journey.”