Will 2022 be the year of trading down at retail?

Discussion
Photo: RetailWire
Jan 25, 2022

The cost of everyday products has risen more in the past year than the incomes of average Americans, leaving consumers searching for ways to save money on their purchases.

A Wall Street Journal article points to ways that shoppers are seeking to stretch their dollars, including purchasing items in bulk, using coupons or buying on sale, and trading down to lower cost private label or value brands. Cherry-picking is growing as shoppers search out deals.

Government stimulus checks that bolstered Americans at the outset of the pandemic have ended and Congress has not moved ahead with continuing the 2021 Child Tax Credit payments that were particularly important for working class and middle income families.

Workers across the U.S. are finding that raises they’ve received over the past year have not been high enough to keep up with the rising cost of food, fuel and housing, reports The Washington Post. Wages for hourly employees fell 2.4 percent last year when adjusted for inflation, according to the Labor Department.

The ability to pay for goods is top of mind for a growing number of Americans. A Monmouth University poll released last month, ABC News reports, found the percentage of Americans concerned about paying everyday bills (15 percent) and inflation (14 percent) was more than triple (eight percent) the rate of top personal finance concerns when the same question was asked in August 2020.

The inflation rate has been fueled by a combination of factors tied to the pandemic, such as extremely high consumer demand, product shortages tied to supply chain disruptions and companies seeing opportunities to boost their bottom line results.

Major consumer brand companies have been public about their plans to raise prices on popular products in 2022 and retail executives have said in a number of forums that they expect continued cost pressures.

There are, Business Insider reports, some signs that the economy may be cooling. December’s retail sales were down 1.9 percent in December following a record November.

Concerns about the large economy and their own personal finances may also affect Americans’ willingness to spend in the months ahead. The University of Michigan Consumer Sentiment Index’s preliminary January report fell significantly, with three-quarters of those surveyed citing inflation as a bigger problem than joblessness.

DISCUSSION QUESTIONS: Do you think that inflation will have a significant impact on consumer purchasing in the first half of 2022? What are the keys to retailers maintaining or building market share during an inflationary period?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"People traded down during shortages when it’s all they could get, so now that they are comfortable doing it; it will continue if the product is equal AND cheaper."
"The good news for retailers is that advanced pricing and promotions solutions are already turning this challenge into a win-win opportunity for both retailers and consumers."
"With the emergence of high quality private label offerings, retailers now can offer viable, price conscious options when national brands are experiencing shortages."

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25 Comments on "Will 2022 be the year of trading down at retail?"


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Mark Ryski
BrainTrust

Yes, inflation is and will continue to impact consumer purchasing. The inflation is exacerbated by lingering supply-chain issues as well as new geo-political concerns that are creating tumult in the stock market. As 401Ks decline, consumers will be even more hesitant. Inflation isn’t a new problem. Retailers will need to focus on value and be extra sensitive to price pressures on consumers.

Dick Seesel
BrainTrust

At least in the short term, and especially in food retailing, consumers will be economizing by trading down where they can. Will that private label ice cream taste as good as the well-known national brand? Do I need Angus ground beef, or will a lower-priced package do as well? Does that bottle of wine on sale for $19.99 taste as good as the $25 bottle?

The challenge for retailers — not just grocers — is to offer enough choices to satisfy the budget-conscious shopper, to maintain their own quality position, and to confront their own inflationary pressures from cost increases and labor shortages. 2022 will be quite a balancing act.

Jenn McMillen
BrainTrust

People traded down during shortages when it’s all they could get, so now that they are comfortable doing it; it will continue if the product is equal AND cheaper.

David Naumann
BrainTrust

Good points Jenn. During the past 10 years, we have seen steady growth in off-price retail and dollar stores, as consumers have been more value conscious. Consumers are now comfortable shopping in discount store and it has now become a go-to shopping habit, especially for some staple products.

Melissa Minkow
BrainTrust

Inflation will inevitably impact spending patterns — it’s impossible for it not to. However, retailers can take a couple steps to strengthen relationships with shoppers during this time. Taking on as much of the burden as possible away from consumers and being transparent about that is one key way to make a lasting impression. On the flip side, if that’s not possible, communicating openly and apologetically about it will at least demonstrate to consumers that the retailer cares. Lastly, advertising and nudging shoppers towards items with less of a price hike can help soften the impact of inflation.

Richard Hernandez
BrainTrust
Richard Hernandez
Director of Commerce
8 months 7 days ago

At the early start of the pandemic, we saw a rise in private label/house brands in supermarket retailers. This was mostly due to the SKU rationalization that major CPG companies did to try and keep up with consumer demand. What customers found out is that retailers had upped their private label game in regards to flavor and quality, all while offering it at a great price. I see the continuation of the growth of private label products at retailers in 2022 as the economy issues will continue to be persistent and customers will continue to watch their wallets closely.

Dave Bruno
BrainTrust

It certainly looks as though inflation will be with us for a while, and despite low unemployment and some wage growth, I expect many consumers will be forced to look for ways to stretch their grocery dollars. Carefully formed, science-driven pricing and promotions strategies can certainly help drive share and loyalty while preserving price perception.

I would also like to see grocers expand their investments in private label products. While many pundits still label the switch to private label as “trading down,” I am not sure most consumers perceive it that way any longer. And I believe, if presented with good quality and value, shoppers are more open than ever to making the switch to house brands. Hence why I am bullish on more aggressive marketing of house brands as a key part of any inflation strategy.

Cathy Hotka
BrainTrust

Nailed it, Dave.

Jeff Sward
BrainTrust

Great point about proprietary brands. Big opportunity for well conceived house brands, IF executed as a trade up in quality and value, not settling for less.

Katie Thomas
BrainTrust

There will absolutely be more traditional recessionary behaviors this year, but it’s important to remember that many consumers don’t simply trade down across every category — they make tradeoffs. For certain categories, they may trade down; for others, they will buy less frequently. And some categories, they will stick to the brand they love. Many consumers are less price sensitive than we think for core categories such as dairy, bread, and produce. You see it more with categories like health & wellness.

Dave Wendland
BrainTrust

Consumer behavior has shifted and the quality/value equation redefined during the past two years of the pandemic, supply chain issues, and mounting inflation. I don’t foresee a return to “trading up” if what we have witnessed has been “trading down.” Honestly, consumers have re-evaluated their priorities and decided that certain commodity items are exchangeable and purchasing a lower-priced, fit-for-purpose product is acceptable (as long as it meets their baseline criteria).

Retailers must deliver value for money like never before. And right-sized assortments should offer a spectrum of choices to meet each shopper’s spending limits.

Christine Russo
BrainTrust

Yes, it will negatively impact revenue. These prices are the result of the biggest retailers flaunting in Q3 + Q4 2021 that they have “pricing power” (meaning they will pass along their increased costs to the customer) yet now they will suffer reduction in sales. Conversely, in Q4 2021, Walmart said they absorbed cost increases and had a reduction in margin and the stock suffered.

David Spear
BrainTrust

Inflationary creep will continue well into 2022 due to a myriad of policies and practices that are not healthy for the American economy. Consumers are feeling the pinch everywhere they turn, from gas pumps to grocery stores to apparel to electronics and to restaurants. For the last several months, every time I purchase groceries, I’m stunned by the total dollar amount of my basket! Private or “in-house” brands will win big in 2022, but this doesn’t mean all large iconic CPGs will lose out. They should be devising smart promotional strategies that deliver value and/or some kind of unique aspect not seen before. Assortment, pricing, experience will take on even more importance in the eyes of the shopper. Watching this play out will be really interesting.

Jeff Sward
BrainTrust

We were very fortunate to experience a buoyant holiday season, even in the face of some pretty serious headwinds. Hello January. I’m guessing the stimulus money has been spent and the holiday cheer has dissipated. Now comes the reality check.

Inflation will certainly tamp down demand and consumers will be as value conscious as ever. Some retailers will have learned some very healthy lessons last year about sales and margin outcomes based on lean inventories. And some will plunge right back into a deeply promotional stance. I’d love to see an update, any update, on the status of all that slowed down inventory so we can begin to figure out who will digest it slowly, who will promote their way out of it and who will hold it over until next fall.

Measuring demand and managing the supply chain won’t get any easier for a while yet.

Gene Detroyer
BrainTrust

The annual average inflation rate over the last 10 years has been 1.5% +/-. Two of those 10 years actual had slight deflation. For all the reasons mentioned, companies are trying to catch up and take advantage of every reason to increase their bottom line.

For retailers, watch your prices versus competition and take every advantage you can to raise the price of eggs from $3.50 to $3.85.

Inflation is necessary for the economy to move forward. A good average target is about 2.5%. The inflation rate will move toward the mean over the next 3 or so years.

Georganne Bender
BrainTrust

So Business Insider is reporting December sales being down. Didn’t we just discuss click bait about poor December sales a few weeks ago? Steve Dennis wrote in Forbes that we had “the best December in the history of retail.” I’m sticking with Steve.

But back to the question, will 2022 be the year of trading down? I just spent four days all over New York City visiting stores and there was a lot of buying going on. Consumers everywhere were carrying multiple bags. But perhaps that’s not the real world where many of us are finding empty shelves in stores once again.

Inflation always impacts how we shop, and once it really hits home we will see people shopping differently: changing brands, doing more with less, and going without. But we’ve been here before. We’ll all do the best we can and wait it out. I have no doubt that retailers will do whatever is in their power to take care of their customers, just as they have continued to do throughout the pandemic.

George Anderson
Staff

I think Business Insider’s point was that sales slowed in December and that it’s common for revenues to take a step back following the holidays. This, in and of itself, could somewhat reduce some of the pressures that manufacturers and retailers feel in filling supply chain gaps. Americans have not dealt with this type of inflationary pressure going back to the eighties.

Georganne Bender
BrainTrust

Thanks, George!

Richard J. George, Ph.D.
BrainTrust

This is another hallelujah moment for private and own label. These categories having been growing on their own as the value equation (quality/price) has shifted consumers. Continuing quality enhancements with higher prices for branded products will only exacerbate the increase in private label consumption.
For retailers, this is an opportunity to develop a signature own label program focused on quality versus price. In addition, retailers need to develop differential advantages not based on price. Time to be creative.

Matthew Pavich
BrainTrust
As others have pointed out, inflation will definitely continue to have an impact on consumer purchasing in the first half of 2022. There are many ways to “stretch” a grocery budget, which could include private label substitutes, trading to smaller sizes for lower prices, trading to higher sizes for better value per oz/gm, and more importantly — buying a % of products at grocers with more competitive prices and promotions. The good news for retailers is that advanced pricing and promotions solutions are already turning this challenge into a win-win opportunity for both retailers and consumers. Not only can the best pricing solutions surgically identify where to raise and lower prices based on what consumers care about the most and strategic business objectives, but they can also help to solve all of the aforementioned pricing decisions (where to trade-up, where to trade-down, where to adjust the private vs. national brand gap, etc.). The current economic condition is not a “one size fits all.” Some people are thriving while others struggle. Everybody has their own strategy… Read more »
Paula Rosenblum
BrainTrust

Yes, in fact, we posited in our most recent merchandising report (available on RSR’s web site at no charge), that inflation demands grocers in particular get their private label act together, and that other segments consider using PLM to give them the ability to use different sources without a difference in quality or design.

It’s the only way to “break even” as a consumer, and it’s a way to keep top and bottom lines consistent for retailers in these times.

Kai Clarke
BrainTrust

No, 2022 will not be the year of trading down at retail. House brands have been thriving for years. This is not been because of each year representing a “trading down year.” Stores like Aldi and Lidl have been growing for years (whose format is based on a house brand and a national brand being offered side by side).

Everyone from Amazon to Walmart have made it a point to offer a house branded version of the national brand whenever possible. This is the backbone of modern retailing. None of this reflects a short term rise of prices which we are seeing now. We also have to be very careful about absolute statements that talk about purchasing erosion, when we have 3.9% unemployment, and a record number of workers leaving the workforce creating massive workforce demand.

Lucille DeHart
BrainTrust

As a marketer, I firmly believe that being steadfast in your branding and messaging is critical during times of economic flux. The key issue with consumer selection today is that shoppers are becoming even more disloyal when given inventory voids with their chosen brand and being offered alternatives that are probably cheaper and readily available. If a brand/product has true value and is worth the investment (I for one will not trade down from my paper goods like Bounty and Scott), then their brand promise is to be available and consistent. The supply chain issues have created an opportunity for competitors to enter the space and make trading off and trading down not just an option, but an imperative when the shelf space is empty next to them.

Fulfillment is the new loyalty and speed to consumer is the value proposition. Inflation will impact everyone and everything. Brands/products should not compromise, but need to make sure they are addressing their customers core needs and making good on their promises to deliver.

Brandon Rael
BrainTrust

We are witnessing the highest rates of inflation since the early 1980s. Combined with the unprecedented global supply chain disruptions, customers are now experiencing product availability issues while shopping. Retailers such as Target, Trader Joe’s, and Walmart are well-positioned with their private label strategies, along with their breadth and depth of assortments, to offer customers choices across a broad range of categories.

With the emergence of high quality private label offerings, retailers now could offer consumers viable, price conscious options when national brands are experiencing shortages. Thus will ultimately be a win-win scenario, as retailers could focus on assortment and pricing optimization for growth while offering consumers the products they seek. During this disruptive and inflation fueled time, retailers should continue to provide outstanding customer experiences across the entire shopping journey, including product returns.

David Slavick
BrainTrust

Basket size will be smaller. Buying in bulk is not a new trend, Costco Sam’s Club and BJ’s are doing just fine. Prices go up because operating costs have skyrocketed. For all those who push for $15 minimum wage no surprise that overhead expense goes up and there remain significant shortages in many sectors — food, restaurants and other public service industries. Making tradeoffs to buy private label goods in grocery environment benefits the grocer, not the buyer given better margin on goods sold. I’m not buying Signature chunk pineapple squares vs. Dole anytime soon for my honey pineapple chicken recipe!

wpDiscuz
Braintrust
"People traded down during shortages when it’s all they could get, so now that they are comfortable doing it; it will continue if the product is equal AND cheaper."
"The good news for retailers is that advanced pricing and promotions solutions are already turning this challenge into a win-win opportunity for both retailers and consumers."
"With the emergence of high quality private label offerings, retailers now can offer viable, price conscious options when national brands are experiencing shortages."

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