Consumers bracing for winter chill and bills

The boss of 7-Eleven in Australia says we aren’t talking enough about the impact of rising energy bills on household budgets.

7-Eleven Australian CEO Angus Mckay in Melbourne. Picture: Stuart McEvoy/The Australian

The boss of the Australian arm of 7-Eleven says consumers are now struggling with the cumulative weight of interest rate hikes, flat wages and rising household bills, with the retailer cautious about the upcoming winter as energy bills potentially further eroding discretionary spending.

Chief executive Angus McKay also said he is seeing customers fill up less than a full tank of petrol when they pull up at one of his petrol stations as they stick to set dollar budgets for petrol at a time when petrol prices are rising.

In the current environment he was also seeing a spike in petty theft from its stores, lifting the levels of shoplifting or “shrinkage” in the business, but there was also a rise in more serious armed robberies and the involvement of organised gangs.

Addressing a KPMG retail forum on Tuesday, Mr McKay said 7-Eleven was becoming more well known for its offer of fresh food, which now represents 30 per cent of its store sales, excluding petrol, as the chain got away from its history of being a “chips and chocolate” retailer.

This would focus on fresh food and ready-made meals would further grow under the new ownership by the Japanese parent, which bought 7-Eleven Australia for $1.7bn late last year, with Mr McKay having ambitions to move closer to the 7-Eleven shopping experience in Japan where it is known for quality foods, meals and groceries.

Asked about the current mood of the consumer, Mr McKay said pressures on household budgets for a number of years have impacted trading, and while some consumers were “cashed up” thanks to government spending, the strain of mounting cost of living pressures was hurting some consumers.

“I don’t think there is a business … that hasn’t changed pretty significantly over the last four years. As we all emerged from (Covid-19) our customers have been very cashed up thanks to the federal government. What we have now undergone is a transformation of where that money moves to and from.

“And so savings rates have started to decrease. Cost of living has gone up, yes we all talk about interest rates … but it is the combination of things that has really hurt the consumer so it’s low relative real wage growth over a sustained period of time, higher interest rates, and it is absolutely utilities which we don’t talk enough about which really hurts the consumer.”

Mr McKay said that consumers had “tightened their belts significantly” recently and that in particular hits to confidence have translated to a pullback in sales.

“We have a house view that Australia is a very much a confidence-based market, so every time there was a rate increase, even though it might not have been a substantial hit to someone’s wallet, it was a confidence belt to the consumer.”

Mr McKay said as petrol prices rise, people do consider how much they put in a tank, with a portion of consumers sticking to set dollar budgets that sees them buy less petrol as prices rise.

“The higher the price, the less people buy. What we know is that people buy fuel on a budget, there are clearly people that just go in and fill it up, but equally a lot of people will put $20, $30, $40 in at a time and obviously the higher the fuel price the less you get for that price.”

He said the last interest rate of 2023 in November saw consumers “well and truly retire from the market” and stopped spending to send a real shock to the retail sector.

The 7-Eleven boss said consumers were working on the household budgets to reallocate funds to different spending buckets, but that key areas would remain food and petrol to get to and from work.

Mr McKay said he was now focused on what the winter months bring to cost of living pressures for households.

“Energy over winter will be interesting, as those rates (energy costs) go up, but there is optimism in the consumer that we see that they will return to a more normalised behaviour particularly as (interest rates) come down.”

But he said upticks in international conflict and the oil price, as experienced a few weeks ago in the Middle East, caused a spending reaction by consumers.

“Two weeks ago with all the turmoil in the Middle East, which was effectively a two-day blip in the oil price that did result in changes to the pump price, the consumer stopped spending right across the board and I think that is a dynamic we have to get used to, which is news is real time. People react in quite extreme manners until things settle down.”

In November, the two rich-lister families behind the 7-Eleven chain in Australia sold their business for $1.7bn to its Japanese parent, giving the Australian business access to the global network of 46,000 master franchises and/or licences in 16 countries and ­regions. Although the Australian arm remains headquartered in Melbourne. The Japanese parent officially took control of the Australian 7-Eleven chain from April.

He said in this period he was happy how 7-Eleven was trading, but that business had slowed.

“Our core challenge is providing value to customers, that is what we need to do in order to keep them coming through our doors, understanding that their habits have changed but how do we make sure they are remaining loyal to us.”