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SPENDTREND23 REPORT

How SA consumers are spending their rands during food price inflation, rolling blackouts and post-Covid

How SA consumers are spending their rands during food price inflation, rolling blackouts and post-Covid
The Discovery offices in Sandton, Johannesburg. (Photo: Shiraaz Mohamed)

The SpendTrend23 report also shows that consumers indulged in ‘revenge travel’ to make up for time lost during the pandemic, spending between 9% and 17% more on travel than in 2019.

Spiking food inflation is driving people to spend 50% more on groceries than they did in 2019, while rolling blackouts are driving an increased spend on takeaways and restaurant dining. 

These were two of the key trends in the Visa Discovery SpendTrend23 report released on Friday. Hylton Kallner, chief executive of Discovery Bank, said that while it was easy to be swayed by a negative narrative about financial trends and the implications for SA’s economic prospects, the data showed that the economy was often more resilient than we gave it credit for. 

The comprehensive report, which covers four years from 2019 to 2022, reflects trends and changes in spending patterns before, during and after the Covid pandemic, looking at Discovery Bank clients and Visa card users in SA. Statistics show that Discovery Bank clients were more cautious during the pandemic years, spending 13% less than before, but then showed a faster recovery in spend per card compared with other South Africans. Discovery Bank clients on average spend 28% more than the average South African on a like-for-like basis. 

Despite their higher spending patterns, Discovery maintains that its clients are more engaged with their finances, particularly since the bank rewards clients for positive banking behaviour such as: 

  • Spending less than they earn;
  • Saving regularly;
  • Insuring themselves against high-cost unexpected events;
  • Paying off property sooner; and
  • Investing for the future and retirement.

In the mass market segment (those who earn less than R100,000 a year), expenditure on groceries shot up almost 50%. “Affluent clients are better able to manage food inflation by substituting for lower price items, and taking advantage of promotions or bulk savings. Mass consumers are at a disadvantage … the impact of food inflation is so much more significant,” the report stated. 

Trading Economics’ global macro models reflect that food inflation in South Africa may be as high as 16% by the end of Q1:2023. In the long term, Trading Economics expects food inflation to trend around 6% in 2024 and 5% in 2025. 

The Chief Economists Outlook report from the World Economic Forum shows that 68% of economists expect the global cost-of-living crisis to ease by the end of this year. 

Benay Sager, head of DebtBusters, said the full impact of successive interest rate increases since November 2021 and higher inflation rates was now fully evident in consumer finances.

“Although it seems counterintuitive, lending activity has increased as interest rates have risen because consumers supplement their income with credit, using unsecured loans as a lifeline. The data bears this out: average loan size increased by 31%, and 96% of consumers who applied for debt counselling in the last quarter of 2022 had a personal loan.”

Sager said that ironically it was a series of interest rate reductions starting in the second quarter of 2020 that contributed to the pressure many consumers were experiencing now. These rate cuts resulted in associated decreases in the average interest charged for bonds and vehicle finance. The attractive rates encouraged people, especially younger consumers, to buy vehicles and houses.

“When the interest rates began to rise again in late 2021, these consumers started to feel the increased burden of servicing asset-linked debt. The average interest rate for a bond went from 8.3% in the fourth quarter of 2020 to 10.8% in the fourth quarter of 2022,” he said.


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Revenge travel

Discovery Bank clients as well as other South Africans indulged in “revenge travel” to make up for time lost during the pandemic, with the bank’s clients spending 17% more on travel and the average South African spending 9% more on travel. This rebound persists despite steep increases in the cost of flights. An 80% climb in aviation fuel costs in 2021 and domestic airlines’ loss of up to 40% of capacity on the back of liquidations during the pandemic contributed to the steep increase in the cost of both foreign and domestic travel. South Africans are paying as much as 40% to 55% more for domestic flights than they did in 2019. 

Blackouts drive restaurant spend 

For a change, the continued rolling blackouts had a positive effect, with the restaurant and fast-food industry seeing increased spend as frustrated South Africans searched for quick, hot meals. Visa data shows a strong correlation between blackout stages and South Africans choosing to eat out. The report says a larger volume of consumers bought takeaway meals or paid for restaurant dining as stages rose. Peak transaction volumes were observed during stage five and stage six, as more people were compelled to order in or eat out. 

Rolling blackout, consumer spend on takeaways and restaurants, and contactless payments 

Lineshree Moodley, country head for Visa South Africa, said there had been a lot of talk about digital payments over the past four years. 

“Contactless and mobile payments are reaching new highs. Seventy-two percent of all face-to-face transactions were actually contactless. We see South Africa leading the charge on this, with more than 50% of all digital transactions being contactless,” she said. 

First National Bank (FNB) said that between January 2021 and December 2022, its clients had processed about R15.3-billion on 3.9 million active virtual cards. An increasing number of FNB clients also preferred to pay using their smart devices, with contactless device payments accounting for 41.9 million transactions with a rand value of R16.2-billion, from July 2022 until December 2022.

Ashley Saffy, head of spend and customer value management at FNB Card, said the growing adoption was key to enabling easier ways for individuals and businesses to pay and get paid. 

“The current trends could go a long way towards combating card-related fraud, as clients no longer need to rely on physical cards or risk the exposure of sensitive information when making payments. A virtual card is securely stored in your FNB app and has additional layers of security such as the dynamic CVV,” she said.

“Similarly, paying digitally allows both the merchant and the consumer to lessen queuing time in-store and reduces dependency on cash, which is costly to access and manage in addition to safety concerns,” Saffy said.

Moodley said digital wallets had a multiplier effect on consumer spend. 

“If you activate a card in the digital world, you are more likely to spend and transact in the contactless environment. The implications are that the entire ecosystem really needs to start investing in alternative forms of payment,” she said. 

She warned, however, that as more consumers turned towards digital payments, cyberthreats would increase. Visa reports it has invested more than $9-billion over the past five years in fraud prevention and cybersecurity to provide real-time technology to detect fraud as it occurs. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.

DM168 11/03 FRONT PAGE

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