Oktoberfest-onomics

In our never ending pursuit to make relevant use of economic principles, Urban Economics has overlayed our very own Pint of Lager Index (POLI) with The Economist’s Big Mac Index (BMI) with some interesting results.

The real standout in terms of overvalued currencies (and thereby expensive beers and burgers in relative terms), are the well to do Scandinavian nations including Denmark, Sweden and Norway as well as currency safe-haven Switzerland. History and previous releases of the Big Mac Index also reveal that this has been the case for some time due to a series of factors including government regulation, policy and stability.

The most extreme anomaly within the indices is Norway which as we dig deeper provides some insight as to why the Krone, is adjudicated to be comparatively overvalued when things are held equal in beer and burger terms and it’s not because their Big Macs are made with Jarlsberg cheese.

Norway Fast Facts

·         Largest sovereign wealth fund in the world valued at 3,561 billion Krone ($610b AUD) as at June 31 2012 and growing.

·         High level of state owned petroleum and gas operations (resource profits are the primary input to the sovereign wealth fund)

·        Europe’s lowest unemployment rate at 3.2% through 2011 according to the European Union Labour Force Survey Annual (the next closest was Switzerland at 4.2%)

·         Healthcare is provided free to all citizens of Norway

·         There are no fees payable by students attending public universities and colleges in Norway which make up over 90% of higher education providers.

·         Despite having significant gas and oil reserves, Norway consistently has higher petrol prices compared to other developed nations which includes tax of around 65% currently around (AUD) $2.60 per litre. (Similarly resourced Venezuela costs around 13c for a litre).

Lessons for Australia?

Australia like Norway is resource rich and has relatively low unemployment. For the most part, this is where the similarities with Norway’s economy end.

Australia does not have a sovereign wealth fund although Western Australia on the back of their resources are starting one, Malcolm Turnbull would like to initiate a national future fund and Wayne Swan would like to spread the wealth around as regard resources. The concept is not entirely lost in Australia however, with a federal future fund set up in 2006 to cover the liability of government superannuation on the back of the sale of Telstra shares and budget surpluses. This was expanded in 2008 to include nation building initiative funds for infrastructure, education and health.

The majority of Australia’s resources are not controlled by the government but by large multinationals such as Rio Tinto (the only Australian company ethically banned from association with the Norwegian wealth fund for a poor environmental record in Norway’s view)

Healthcare in Australia is steadily transitioning to require more citizens to have private health cover. The Private Health Insurance Administration Council estimates that there are around 10.5 million people with health insurance policies or close to 46% of the population.

Higher education costs in Australia are constantly under debate however, no comparison can be drawn to Norway’s free and accessible system.

So while our overlay of beer and burgers points to Norway as being a tough place to have a cheap night out, further investigation reveals that Norway’s citizens are well placed to enjoy a future free from the financial difficulties encountered throughout much of Europe. Australia also has the potential to make better use of our rich resources, but in the meantime, we’ll enjoy our reasonably priced Big Macs and beer.

Dining Out On the Rise - Do We Need Our Kitchens?

Eating out has become a way of life for Aussie families, with many people preferring to dine out rather than cook at home, but have tighter economic conditions had an effect on our spending habits for dining out? We have examined trends in the dining out, fast food  markets and considered the change in habits over evolving economic conditions and how we compare to the rest of the world.

The dining out and fast food market has grown significantly in Australia in the last 20 years, with household expenditure levels trending upwards and little evidence that the demand for dining out and takeaway has suffered adverse effects from the economic downturn. Demand for meals out and fast food has been primarily driven by current social economic trends such as the increase in the number of women in the workforce, time constraints and the need for more on-the-go meals. 

According to the Australian Bureau of Statistics 2009-10 Household Expenditure Survey, Australians spent almost $63 on meals out of the home, on average per week, equating to 5.1% of their total weekly household expenditure and a significant 30.8% of their total weekly food expenditure. The proportion of total income that Australians spend on dining out and fast food has risen consistently from 3.5% in 1988-89 to 4.8% in 2003/04 and 5.1% at the time of the 2009/10 survey, reflecting consumers’ desire to ‘live the good life’, regardless of economic conditions.

Recent studies in the United Kingdom suggest that the economic downturn is responsible for a rise in the consumption of takeaway foods, and a decline in frequenting restaurants, with consumers ‘downgrading’ from more expensive restaurant meals. Interestingly, this has not been the case in Australia, with the Household Expenditure Survey reporting an increase in the proportion of expenditure spent on meals at restaurants, hotels and clubs, while the proportion spent on fast food and takeaway has declined. The 1998-09 HES reported that 43.2% of meals out were spent at restaurants, while 56.1% was spent on fast food and takeaway. By 2009-10, the proportion of restaurant meals had increased markedly, comprising 50.8%, while fast food and takeaway decreased to comprise 48.4%.

  

More recent data from the Australian Bureau of Statistics Retail Turnover data also illustrates the decline in the takeaway food market, with a negative growth in reported turnover for 2011, in comparison to 2010. The ‘specialised food’ sub-category achieved the healthiest growth in turnover at 5.5%, with supermarkets and grocery stores achieving 3.8% and cafes, restaurants & catering services recording an increase of 3.0%. The rise in revenue for specialised food, which includes fresh meat, fish, poultry, fruit & vegetables has been underpinned by an increase in disposable incomes and a shift in consumer tastes and preferences towards a healthier lifestyle. The rise in disposable incomes has also underpinned the shift in consumption of takeaway food to the rise in cafe and restaurant patronage, particularly in light of the perception that socialising and enjoyment are an important part of the Aussie lifestyle.

Taking a look at takeaway food and dining out trends around the world, Australia is currently comparable to the USA’s 2010 meals out and fast food expenditure of 5.2%. Japan demonstrates a lower proportion of income spent on eating out, with its 2008 Family Income and Expenditure Survey reporting a dining out expenditure of 3.7%, equating to 23.1% of total food expenditure. Singapore, on the other hand, reported a significantly larger 2007/08 expenditure on food serving services (restaurants, fast food, food courts and other catering services) of 13.5%, which can be attributed to an economy which has largely recovered from the recession and a population which strive convenience and enjoy a high disposable income.

Whatever the development trends may have us believe, I don't think we are quite ready to give up our kitchens yet, however, it would appear that demand for quality, convenience alternatives will continue to be on the rise to meet our demands for fresh, healthy but do-it-for me cooking! 

 

Retailing the 1990's and Today Part 2.....

1990   "New Concepts"                                               2011 "New Concepts"
·         The CBD retail market share was declining, making way for the emergence of the suburban shopping centre. Retailing also evolved towards the inclusion of a leisure component such as movie theatres, family entertainment areas, food courts and video game parlours. It was the beginning of the concept that shopping centres required a competitive marketing edge or point of difference to survive.	·         The sheer magnitude of online retailing’s insurgence could not have been predicted with sites such as eBay taking this market to levels never previously predicted. Consumers find online retailing an efficient way to browse, compare and purchase providing an effective transaction medium. Over recent years ‘deal’ websites have emerged as the new retailing trend for consumers to acquire savings, with countless websites offering everything from products to experiences including massages, automotive servicing, holidays, and dinging out.
·	·         Self-checkout machines were implemented in supermarkets and discount department stores, providing a convenient alternative to the cahier-staffed checkout.
	·         Not all new concepts in retailing offer convenience for consumers, with paid car parks and coin (or token) operated trolleys introduced at some shopping centres.

Socio-Economic Trends
·         Consumer desire for ‘organic’ and ‘natural’ skincare products started to skyrocket in the 1990's, fuelled by the growing awareness of the impact of highly fragrant and synthetic skincare and cosmetic products have on the environment and our own health and wellbeing.	·         The trend and importance of ‘not tested on animals’ may have emerged in the 1990s, but in the post GFC market, there has been a further consumer shift in the quality and service offered through feel good products/services expressing values of environmental concern and social responsibility over price cutting.
·         On a national basis specialised items such as fresh meat, was predominantly purchased at butchers rather than supermarkets, but was moving towards supermarkets.	·         The popularity of reality TV shows such as ‘Masterchef Australia’ has also generated an increasing interest in home cooking and experimentation with a wider range of fresh produce and kitchenwares. The increasing incidence of the top-up shopping trip for a small basket of goods, coupled with fresh food and healthy lifestyles promoted throughout society has perpetuated a propensity to shop more frequently, ensuring a continued supply of fresh food.
	·         Recent demographic and socio-economic trends have recognised the increasing proportion of dual income households, typically time poor, driving the increase in services including takeaway, cleaning, childcare, etc.

 But what do these trends mean for the future of retail in Australia?  It will be interesting to see if online sales represent the future of Australian retailing– online shopping may offer considerable benefits to both consumers and sellers and there may be plenty of deals and bargains to be found, but can an online sale compete with the experience of going to a shopping centre and actually seeing and touching an item before purchase? Some shoppers also have concerns with shipping costs, delivery times and credit card security. On the plus side however, is being able to shop without dealing with crowded shopping centres, parking and traffic.

As for the future of Australian retail trade, the latest figures released by the Australian Bureau of Statistics (ABS) indicate a moderate increase in retail turnover, with reports of a 2.8% increase for Australia in October 2011 compared with October 2010. This growth was more dominant in industries which provide a higher quality of life and basic needs such as cafes, restaurants and takeaway food services and household goods, while less prominent for the clothing, footwear and personal accessory industry and department stores.

As society changes, expenditure is predicted to further shift towards the service industry as a time poor society is willing to bear the financial burden to achieve a higher quality of life. This higher quality of life is also connected to purchases of esotericism rather than necessity as society aims to achieve higher needs.

Retailing in the 90's and today Part 1

Australian retail in the 1990s saw the emergence of a new style of supermarket, described as “mega-supermarkets”, the influence of bulky goods centres and the evolution of shopping centres to include exciting leisure concepts designed to entice the discerning consumer and give a centre a competitive edge, some of which remain at the forefront of centres today and others best forgotten. What innovations and new trends have emerged in 2011 and what has remained the same? What if any will still survive in 2021?

We have outlined some of the key Australian retail trends for 2011 and compared them to 20 years ago and part 2 of our review later this month investigates new concepts, key emerging socio economic trends influening retailing and an outlook for 2012.

1990s	2011
Supermarkets
· Woolworths and Coles were the supermarket leaders. Franklins the discount supermarket chain was popular in the 90’s with a reputation for low prices. Many stores were sold and rebranded soon after 2000 and all stores ceased operation by 2010. Giant Supermarkets were introduced to the market in 1993, expanding to 50 purpose-built stores but failed to have any significant long term impact.	· Woolworths and Coles are still the supermarket leaders with a combined total grocery market share of 81%. Bi-Lo (which once comprised a chain of 180 stores) was largely rebranded as Coles supermarkets in 2006/07 and by 2011, less than 50 stores remained open.
· The emergence of the “mega-supermarkets” trend with supermarkets stocking traditional grocery items as well as an emphasis on fresh food and services not normally found in a supermarket made way for a new level of convenience for consumers.	· The introduction of Aldi (which has a 5% total grocery market share) and Costco have further evolved the supermarket sector with the offering of not only traditional products, but providing access to a variety of non-traditional products within the one store. Unlike other supermarket entrants in the 90’s, these new multinational entrants are expected to be here for the long haul and have already changed the way consumers shop. E.g. Private labels.
New Retailers
· Niche volume saturation operators such as Toys R Us emerged, gaining significant market share by dominance of range, effective cost reduction in operation, low margins and low prices, with the evolution of bulky goods centres having an indelible impact on the retail landscape.	· Popular TV shows such as ‘The Block’ and ‘The Renovators’ have driven increased popularity and self-confidence for the consumer in the DIY sector, with hardware retailers, such as Bunnings and now Masters capitalising on this popularity.
	· After years of speculation fashion giant Zara has finally opened in Australia with announcements that other foreign invaders eg. Sephora, Banana Republic and Abercrombie & Fitch will follow.
Economic Conditions
· With the evolution of Australia’s middle classes pushed either downwards into a large underprivileged class or upwards into a smaller affluent sector, came the emergence of discount stores carrying a wider range of cheaper goods which catered for the reduced spending power of a large section of the population.	· Recent economic conditions have facilitated the rise of home brands with consumers searching for cost cutting avenues. This has been amplified by grocery wars between Coles and Woolworths and challenges from new entrants with consumers being the beneficiary.
· A consumption boom was evident in Australia during the mid-90s to the mid-2000s. Consumers enjoyed shopping frenzies and retail turnover growth was strong.	· The days of mindless consumption are gone with consumers trying to save more than ever. The Neilson Global Online Consumer Survey Q2 2011 reported that 45% of consumers put their spare cash after covering essential living expenses into savings, with this figure remaining steady over the last two years.

aprt 2 of our review will