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What tradeoffs are consumers willing to make to stretch their food dollars?
A new survey finds 76 percent of U.S. consumers saying their family has changed how they buy food with prices on the rise.
The survey from NCSolutions, taken in mid-June, found that 43 percent are buying only food essentials, given their inflation as well as recession concerns. To offset higher prices, shoppers are seeking out less expensive brands (45 percent) and loading up the pantry (27 percent) or freezer (26 percent).
Sixty percent plan to seek less expensive alternatives when their favorite brands reach a price beyond their budget, 46 percent plan to go without their favorite brands and 43 percent will look for sales to offset the cost.
Other surveys have likewise explored whether grocery shopping behavior will revert to patterns generally seen in more challenging economic times or whether unique patterns will emerge amid the highest inflation rates in 40 years. Food-at-home prices spiked 13.1 percent in July on a year-over-year basis.
PYMNTS’ “Consumer Inflation Sentiment” study, drawing on a July survey, found that, due to increased grocery prices, consumers are switching to cheaper merchants (45 percent) and choosing products of lesser quality (37 percent).
A Morning Consult survey taken in June concluded that inflation is causing consumers to eat out at restaurants less often (84 percent), purchasing less meat (72 percent), purchasing less alcohol (68 percent) and avoiding organic produce (52 percent).
Arriving second-quarter results show food sales remain strong for Target, Walmart, Albertson’s and Grocery Outlet with trading down behaviors called out.
On Albertsons’ quarterly call, Vivek Sankaran, CEO, said he sees two trends around inflation.
One is a consumer that is “clearly trading down” in some categories, citing rice, beans and oils. He said, “The good news is they’re trading down into a lot of our own brands on that front.”
Second, some consumers “who have cash but are very value conscious” are trading down on “daily needs” but are willing to pay for certain items. He cited strength in store-made sandwiches, ready-made meals, organic meats and premium beer. Mr. Sankaran said, “We’re seeing this behavior where people are value-conscious but are willing to spend on the things that they care about.”
- Nearly Half Of Americans Feel They Can’t Afford Their Former Lifestyle; Three-Fourths Are Shifting Grocery Purchasing Behaviors, Finds Ncsolutions – NCSolutions/PRNewswire
- Three in Five Consumers Cut Back on Nonessential Grocery Spending – PYMNTS
- Consumers Are Cutting Back on Dining Out, Meat Consumption as Inflation Intensifies – Morning Consult
- Albertsons Companies, Inc.’s Q1 2022 Earnings Call Transcript – Seeking Alpha
- Walmart Inc. (WMT) Q2 2023 Earnings Call Transcript – The Motley Fool
- Target (TGT) Q2 2022 Earnings Call Transcript – The Motley Fool
- Grocery Outlet Q2 2022 Earnings Call Transcript – The Motley Fool
Discussion Questions
DISCUSSION QUESTIONS: Do you suspect grocery shopping behavior will follow patterns seen in recent downturns or do escalating food prices and other factors throw that out of alignment? How may the trading down trends differ from previous downturns?
Poll
Loading …BrainTrust
Escalating food prices will impact how and where people shop, what they buy, and even if they buy. Many in the industry have never experienced a market like this; when it happened last, many of us were still in diapers (if born). Investing in understanding the new shopper mindset is critical. There is no one-size-fits-all way to handle inflationary pressures in 2022.
Well said, Michael. There is definitely no silver bullet to addressing this new shopper mindset.
Many households, especially those which are more hard pressed, adjusted their food habits some time ago. From our panel data the major changes taking place are trading down to own brands, cutting out some expensive items like meats, greater use of discount and dollar stores for food, and searching for discounts and coupons more often. The problem is that even with these actions, food is taking up a much bigger slice of discretionary spend than it did pre-pandemic.
Like previous downturns, price-conscious shoppers will reduce consumption, and seek more deals and value-tier essentials.
What’s different this time is the quality and variety of private labels, which have evolved into brands in their own right. Also, this time more consumers will forego organic and sustainable goods for more affordable options.
Trading down assumes static/declining wages along with increasing food prices — and that hasn’t been all that true. Expect store brands to do better in the short term, because they always do in harder economic times. Expect some of that to stick as times get better and some of that to go back to national brands. And be happy that people are still willing to pay for good beer. 🙂
The grocery retail landscape has dramatically changed since the Great Recession of 2008. With the increase in the number of outlets for discount grocery and expanding dollar channel store counts, there are more options for consumers now. For example, Aldi has over 2,000 locations now. I would expect more shifting loyalty and trading down toward more affordable retailers such as Aldi, Lidl, and Grocery Outlet than in the last downturn.
As Dr. Chris Gray, a shopper psychology expert (dubbed a “buycologist”) suggests, shopper motivation will not change but shopper behavior will continue to evolve. Thus is the case during the economic challenges.
Trading down trends will continue. From my vantage point, this equates to three things: 1) value-based decisions (choosing private label over brands, switching brands for improved value); 2) promotion-driven appetite (utilizing coupons, loyalty points, and other price-reduction measures will remain pervasive); and 3) health matters (thoughtful choices about “better for you” are top of mind to remain well).
The economy, uncertainty as a result of the pandemic, and global challenges (war, supply chain woes, environmental concerns, and the political climate) are all swirling, causing shifts that I have not experienced in my lifetime.
I’m not exactly sure what other choices people have than to sharpen their pencils and eliminate some non-essential items, choose less expensive cuts of meat or types of produce and “trade down” to more value-driven brands/retailers. I am glad to hear people are finding money for small indulgences like premium beers, and suspect that this pattern will continue for the foreseeable future. These challenges of course represent great opportunities for retailers to incentivize and reward consumers for behaviors that will bring them long-term benefits, and wherever possible we should try to play the long game, even at the cost of some short-term profits.
Private label all the way. Smart retailers will have spent the past years building the “cred” of their private label to make that transition easier.
I see a lot of customers who look like they’re muttering “nope” when encountering canned soup for $4.59 and a dozen eggs over $5.00. You don’t have to be poor to reject loopy, jacked-up prices. I’ll guess that customers’ coping strategy will be avoidance.
The biggest difference between this “down turn” and previous ones is that it follows two years of Covid which changed behaviour for many. The major change was cooking and eating at home, which has not gone back to normal, and we now find inflation driving people to eat out less and eat at home more. So with greater home cooking and now inflation taking over, consumers are looking at own brands and cheaper alternatives to use in their cooking. This represents a huge opportunity for retailers with strong own brands, especially ones who have maintained quality which will surprise many consumers how good they are.
As with any lengthy period of change, it becomes a habit and retailers can really gain loyalty and improved margins from the repeated and continued sale of own brand products. The same applies to value retailers like Aldo and Lidl, as consumers trade down they will experience how good these retailers are and will stick with them after the down turn.
Private label adoption will continue to grow. Many retailers have fortified their assortment and are ready to serve their customers.
This is not a simple question, and it’s easy to conflate multiple causes with a single effect. First of all, wages and employment are both increasing, so more people have more money than they did two or three years ago. At the same time the economy has been super-heated and will inevitably undergo some kind of correction, and many mangers and buyers have never lived or worked through a dramatic correction, so their responses will be — in many cases — inappropriate.
For example, the price of certain items is rising to the level of “insult pricing” for little tangible reasons. Even consumers with money and a willingness to spend it aren’t going to pay prices they see as ridiculously high, not because they can’t but because they won’t. Some of the current trading down isn’t solely based on economics, so the right answer is that the pattern, motivation, and duration of trading-down behavior has yet to fully reveal itself.
There are two important questions missing from most of these surveys, I think:
“Are shoppers shifting away from prepared convenience foods in favor of ingredients that they can prepare themselves to save money?”
“How do these money-saving strategies vary among shoppers in different economic strata?”
Cooking from scratch may be today’s “trading down” behavior for some folks. It’s a good idea generally, and can lead to healthier diets. With so much how-to video available for download, even the inexperienced can learn how.
Inflation is inequitable, with much harsher impact on wage-earners and people on fixed incomes versus the salaried classes. Grocers who focus on average sales trends may misinterpret shopper responses unless they look more deeply at shopper segments.
When money is tight and/or prices go up, the bargain hunting begins. Waiting for a sale or coupon becomes a consumer’s strategy. Off-brands and private label foods, which often come at lower prices, will be on the customer’s radar. Overall, grocery retailers should benefit as their customers cut down on restaurant meals and cook more at home to save money.
Many of the headlines talk about inflation as if it puts consumers in an all or nothing situation — do we eat this week or not? It is good to see discussion of the continuum of choices which consumers rely on buying groceries. What’s missing here should include less expensive cuts of meat and simply trimming the total mass of food.
Of course that all leaves the real challenges: how to keep hungry teenagers satisfied for less money. Fortunately, we have moved beyond that phase in our household.
Consumers are watching their spend and being more mindful about overbuying groceries and throwing away spoiled food. This isn’t a time when we can be wasteful. It makes sense to see a rise in freezer and pantry items while fresh fruits and vegetables are in decline. Walmart and Target will continue to thrive in these areas, since they are the perfect outlet for buying these types of items.
In our recent national study, we found 46% of food shoppers are going to purchase more food and groceries at stores with lower prices (think Aldi, Lidl, etc.), 46% eat more often at home instead of restaurants, 43% buying more items on sale, and 38% buying more store brands instead of national brands (and they think highly of the quality and price of store brands too), among a number of other strategies to fight inflation. So yes, in looking at data, I see similar patterns to other downturns.
One thing I have to wonder about — and it isn’t strictly inflation-related (though inflation makes it all the more apparent) — is how long brands that sell what are essentially commodities — rice, oatmeal, etc. — can continue to enjoy (IMHO) enormous price premiums over house, and other lower-priced brands; pay 50 or 100% (or more) higher for a salad dressing or salsa, sure; but oatmeal … uh-uh.
Consumers are used to the conserve/splurge cycle, they will roll through this downturn. However, the combined impact of inflation + ongoing lifestyle changes from the pandemic will make it that much more uncomfortable. For this reason, we will continue to see this behavior of conserve with care where consumers pull back where needed, but hold on to a few things that make life a little more palatable.
The post-pandemic world and inflationary state have significantly impacted consumers’ grocery shopping behaviors. A more significant share of the consumers’ discretionary income has gone to grocery shopping, leading to a more value-led approach to food shopping.
With the increased operational costs, fuel, and global supply chain disruptions, grocers have unfortunately had to push price increases across key food categories. Consumers have had to become more creative to offset these increased costs by shopping private label assortments, seeking value pricing at hard discount grocery stores, and shopping local at farmer’s markets.
This challenge is an opportunity for grocery operations to drive customer engagement via pricing, promotions, and loyalty engagement. While grocers operate at such a tight margin, the lifetime value of a customer is invaluable, and loyalty programs, along with a few goodwill incentives, will go a long way during these difficult times.
Trading down in grocery shopping appears to be following similar patterns from 2008 in terms of buying lesser cuts of meat (or less of it), finding value items in store and, swapping for less expensive alternatives/brands.
In terms of differing trends, it appears inflation has only increased sensitivity for the products that have traditionally been stable or considered more value oriented — like the rising costs of chicken, which costs more than ground beef in some parts of the country.
Consumers have been adjusting since the end of stimulus checks and continued as inflation effectively shrunk their spending power. Specifically, in grocery, low-priced names like Grocery Outlet (self-described as “extreme value retailer”) are seeing increased customer traffic and larger baskets as compared to the national chains. The value equation changes with economic downturns, and the current conditions are on the heels of the most unusual demand and supply imbalance in decades. More generally, established private labels will shine.