Payroll tax increase hits consumables spending, SymphonyIRI report finds

Tax increase, high unemployment contribute to sluggish economy

CHICAGO — A mere 2% increase in the payroll tax could represent $800 in reduced spending power per year for a person with a household income of $40,000, according to a new study by SymphonyIRI.

Symphony Consulting, a division of the Chicago-based market research firm, analyzed shopper behavior since the payroll tax increased on Jan. 1, focusing on the effect of the payroll tax on food and beverage consumption, including its effect on such dimensions as stores shopped, brands purchased 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," Symphony Consulting managing director Krishnakumar Davey said. "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."

In comparing recent growth compared with the same period a year ago, the study found that some evidence of softness in food and beverage consumption had emerged enough though growth had held steady. Sales growth remained constant at 2.1%, and food inflation decreased from 1.4% to 1%, but discretionary categories across all outlets experienced some softness. Private-label dollar sales increased slightly in the first four weeks of 2013 over the last four weeks of 2012, from 1% to 2%.

At the same time, while dollar sales growth for all channels held steady at 2.1% in the last four weeks of 2012 and the first four weeks of 2013, growth at mass merchandisers decreased from 5.3% to 3.3%, while sales at club retailers declined as well; now, it appears that dollar stores have picked up some business from mass merchandisers.

The growth rate among middle-income shoppers decreased by 40 basis points, while there was no significant change among high-income shoppers, but dollar sales among low-income shoppers increased by 50 basis points, which the report attributed to a possible increase in eating at home versus eating out.

Sales of snacks were down by 230 basis points, while coffee and tea were down by 2-110 basis points, while cooking ingredients and beverages like juices and drinks grew. At the same time, discretionary categories lagged total food and beverage in the last week of January 2013, with dollar sales growth of 1.9%, compared with 2.5% for the category as a whole in the same period. This, the report said, could be due to the end-of-the-month effect when households optimized their grocery spending as a result of shrinking wallets.

"We expect payroll tax increases will impact non-[consumer packaged goods] spending — such as gas, clothes and entertainment — potentially more than CPG spending," Davey said. "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. 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."

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