Consumers seen cutting big-ticket spending

Consumer spending on basic grocery items are likely to remain stable in the next six months in greater Metro Manila, but there may be budget cutbacks on discretionary items like alcoholic beverage, snack foods, new cell phone units, a recent consumer study by Citigroup suggested.

Metropolitan consumers also appear reluctant to spend in the next six months on big-ticket items like cars or real estate—whether house and lot or condominium unit—but this may be partly due to an increasing desire to save, the Citi research said. About 87 percent of respondents in a recent Citi survey indicated no plan to buy new cars while 84 percent do not plan to buy real estate, whether house and lot or condominium unit.

The Citi research dated October 5 gauged consumer sentiment as well as consumption trends for the next six months by conducting a survey among consumers. The survey was conducted from September 7 to 21 covering 520 consumers in several cities in the Greater Manila area.

Overall, the study, authored by analysts Karisa Magpayo, Minda Olonan, Ricardo Puig and economist Jun Trinidad, was upbeat on the consumer sector as a resilient driver of the economy and corporate profits.  Domestic consumption was projected to sustain a 5-6 percent growth on the back of overseas remittances, low inflation expectations and job creation.

But its consumer survey signaled mixed spending trends over the next six months: spending plans on certain basic necessities are fairly stable while outlook was largely negative on discretionary items. Discretionary spending refers to the part of the household funds that goes to non-essential items after basic needs like food, shelter and clothing had been paid for.

“We think the overall cautious outlook on discretionary spending could be due to the increased propensity or tendency of consumers to allocate more of their income to savings,” the report said, citing government statistics that net savings in the Philippines as a percentage of nominal gross domestic product had risen to 5.5 percent last year from 4.7 percent in 2009.

Citi’s survey results also revealed that 60 percent of respondents save 10 percent or below of their monthly income. Those belonging to the low-income groups (which account for 73 percent of survey respondents) generally allocate zero to 10 percent of their monthly income to savings. Middle to high-income groups, meanwhile, have a much higher savings rate of 30 percent or below of their monthly income.

The research highlighted other key takeaways from the survey results:

Consumers are largely sensitive to prices, identifying price as a key consideration in choosing where to shop and what to buy. Consumers also value proximity to homes for where they shop for grocery items, underscoring the importance of retailers setting up shop near residential communities.

Consumers generally shop in supermarkets, but there is reliance on small neighborhood stores (traditional re-sellers or sari-sari stores) among low-income households. Puregold Price Club was noted to be popular among the low-income households while SM Retail of SM Investments was deemed as strong among middle-income consumers.

In line with this consumer theme, Citi recently initiated coverage on Puregold Price Club with a “buy” rating and a price target of P38 per share (versus last trading price of P30.60), saying the company was among the fastest-growing grocery retailers in Asia.

The research said SM Investments and Alliance Global Group likewise offered a play on the Philippine domestic consumption story, setting price targets at P915 and P14.60, respectively.