How Can Grocers Thrive Despite Rising Inflation-Driven Loss of Trust?

Inflation may be starting to slow down, but elevated costs remain and the food-buying habits kickstarted by large cost increases in 2022 are proving resilient. A study by The Feedback Group found that a majority of grocery shoppers have actually increased their food inflation coping strategies in 2023 compared to 2022, including buying more items on sale (52%, up from 43% in 2022) and choosing private label over national brands (44%, up from 38%).

While rising interest in private label goods is an ongoing trend, grocers now have to contend with the fact that only 48% of consumers believe supermarkets are on their side when it comes to inflation. The average shopper said they believe their primary grocery store has a net profit of 35%, up from the average estimate of 33% in 2022. However, the average net profit has been close to 1% historically, though it rose to 3% in 2020, according to data from FMI, The Food Industry Association.

Concerns regarding price have also led to the entrenchment of several dollar-saving habits that could affect grocers’ strategies across the store. For instance, more shoppers are buying fewer last-minute or impulse items (36%, up from 25%), using a store's weekly sales flyer, whether paper or digital, to plan a shopping list (31%, up from 23%), comparing prices at multiple stores before buying an item (29%, up from 18%), and purchasing more bulk-pack items to lower the price per serving/unit (26%, up from 25%).

Additionally, cost is more important than health for many of these shoppers. Many consumers say they are substituting similar, less expensive foods (27%, up from 24%), purchasing food that is less healthful but also less expensive (22%, up from 15%), and buying fewer organic items (16%, up from 12%). While a September 2022 study by Deloitte found that 78% of consumers believe the right foods can prevent them from suffering certain health problems, inflation woes may be overriding interest in health benefits.

However, the findings also point to opportunities in the private label space. When asked to rate whether private label brands were less expensive than their national brand alternatives on a five-point agreement scale, the mean score was 4.16 in 2023. This is up from 4.06 in 2022, and it serves as a sign that shoppers believe private label products are a clear winner on price. Additionally, private label brands scored a 4.18 when consumers were asked if they compared well to the quality of national brands.

Many grocers are recognizing the power of private label and acting accordingly. Dollar General, which positions itself as a price leader, is adding 100 new grocery-focused products to its assortment. Target has likewise been bullish on private label, though rival Walmart outcompeted the brand last quarter. Private label won’t win by itself, but it could be one element to consider for grocers looking to forge a strategy that will win shoppers over at a time when they feel supermarkets aren’t on their side.