Consumer Trends Tracker
U.S. Grocery Profit Perception and Consumer Sentiment
In this latest wave of our ongoing Consumer Trends Tracker (CTT), we build on the inflation story, turning the focus to profit perception and customer sentiment. How much do shoppers think retailers really make? How high is inflation in the minds of consumers? What is behind the all-time low in customer sentiment, and how positive are customers about the future? We also examine two rising trends – eCommerce and Health – and offer retailers and brands a route to understanding and acting upon customer needs. The Consumer Trends Tracker collects responses from over 6,000 nationally representative grocery shoppers in the US. Wave 3 was fielded in October/November 2022 and is referred to as the latest wave. Wave 2, the previous wave, was fielded in July 2022, and Wave 1 in April/May 2022.
Table of Contents
Customer Strategy & Insight
- For the first time, perceived inflation (24.3%) is more than double the actual (12.0%)
- Consumers believe grocery stores have a profit margin of 35.2%, more than 14x the actual (2.5%)
- Consumer perception of inflation and grocery stores profit margins highlight the need for empathetic retailing – showing customers you are “on their side” through messaging, (member) pricing, and personalized offers/rewards.
- eCommerce and Health are two key rising trends. Retailers should focus not just on the financial challenges/opportunities such as channel profitability or pharma margins, but on understanding and acting upon customer needs.
- Online customers are looking for easy-to-use and reliable websites/apps, and convenient delivery/pick-up slots.
- Keto/low carb is the most followed diet in the US. Retailers should consider consumers’ health preferences in their ranging and pricing – e.g., leveraging private brands or value tiers to offer customers an affordable means to buy meat, fish, eggs, nuts, avocados, and other key ingredients for specific diets.
- By taking a customer-first approach to rising consumer trends, retailers will be better placed to ensure satisfaction, loyalty and positive word-of-mouth among their shoppers.
The perceived rate of food-at-home inflation among US shoppers surveyed for this report was 24.3% in October/November 2022, up 1.5 percent from July 2022. During this time, the actual Consumer Price Index (CPI) for food-at-home inflation fell by 1.1 percent to 12.0% in November. In other words, American grocery shoppers perceived inflation to be more than double the actual rate, for the first time since dunnhumby began measuring perceived inflation.
Food-at-home Inflation (%)
The lowest, and therefore most accurate, perceived inflation was among 18-34 year olds, at 21.9%. The highest perceived inflation was among 45-54 year olds, at 29.2%, who’s estimate increased 5.8 percent from July 2022.
As more waves of survey data are collected, we will be able to complete our geographic map of perceived inflation. Because two of the new states covered in this wave, West Virginia (29.5% perceived inflation) and Idaho (28.3%), both have particularly high perceptions, it prompted the question: do lower population states over-estimate inflation more than average? Looking at the entire U.S. data set – asking whether customers self-identify as Urban (21.1% perceived inflation), Suburban (22.5%) or Rural (26.4%) – we can include this is indeed the case.
Perceived Food Inflation Map of the USA
Source: dunnhumby Consumer Trends Tracker (CTT), April – Nov 2022, n = 6012
Despite perceived inflation reaching a new high, customers appear to be coping a bit better compared to the last wave. Consumers who reported they would have difficulty covering an unexpected expense of $400 dropped from 64% in July to 60% in Oct/Nov 2022. Those getting enough of the kinds of food they want to eat rose by 5 percent, back to 48%, and those with not enough to eat dropped 3 percent to 15%.
of consumers who reported they would have difficulty covering an unexpected expense of $400 dropped from 64% in July to 60% in Oct/Nov 2022.
of consumers said they get “Enough of the kinds of food we want to eat”, rose by 5 percent, back to 48% in Oct/Nov 2022.
15% said they “Often do not have enough to eat”, a drop of 3 percent in Oct/Nov 2022.
3 in 10 consumers have skipped or cut the size of their meals in the last 12 months because there wasn’t enough money for food.
Overall, however 2022 was not a comfortable year for consumers. Three in 10 consumers cut the size of meals or skipped meals, because there wasn’t enough money for food. Retailers need to be mindful of this, in their prices, in their rewards/loyalty offers and in their messaging to best support customers through these challenging times.
Food Insecurity Measures
Consumers more optimistic about the long term than short term.
The University of Michigan Consumer Sentiment Index reported a 50 year low in 2022. Wave 3 of the CTT asked customers why they believed that was the case, and the overwhelming majority of responses referenced inflation. In fact, inflation was mentioned five times as often as the second reason – Covid. When asked about the future, respondents predicted their finances and the state of the country will get worse over 2023 (a net 19% decrease in customer sentiment), before improving three years from now (a net 19% increase) and further still 5 years from now (a net 31% increase). So, over a five-year timeframe, customers are optimistic at least that things will get better in terms of their own finances and the state of the country.
DC3: How do you expect your sentiment (your attitude towards personal finances and the state of the country) to change, compared to now? n= 2000
In 2023, 31% of younger consumers, aged 18-34, believe their finances and the state of the country will get better, compared to just 13% in the over 65’s. This trend does not continue however in the three-year and five-year predictions, where sentiment is consistent across age groups. So younger consumers are more optimistic only in the short-term. In terms of geography, the Mid-West is the least optimistic region (a net increase of 11%) and the South Atlantic is the most optimistic (a net increase of 30%) over a three-year timeframe.
To emphasize the perception challenge retailers face, we asked customers in the latest wave of the CTT, to estimate out of every $100 they spend on groceries, how much they think grocery stores keep in profits (after they pay their own costs and taxes). The perceived profit margin was 35.2%. In reality, the average net profit for the grocery retail industry in 2022 was 2.5% (source: ycharts data, publicly listed grocery retailers). That’s a 14x distortion in perceived reality.
Average Grocery Store Net Profit Margin (%)
Furthermore, 46% of those surveyed believe grocery stores increased their profits in the last year, compared to the year before (34% thought they stayed the same, and 21% thought they decreased). In reality, while profits rose during the onset of the pandemic, profits have since fallen slightly from 2.6% in 2021, to 2.5% in 2022 (source: ycharts data, publicly listed grocery retailers).
As many of the world’s most successful companies know, brand perception is extremely valuable. If consumers believe their grocery store is pocketing over 10x the profit they actually are, this will affect how people feel towards the brand. Retailers should reflect on and communicate the ways in which they are “on the customer’s side” by, for example, rewarding loyalty with personalized coupons, offers, and member pricing.
of those surveyed believe grocery stores increased their profits in the last year, compared to the year before.
Rising Trends: eCommerce and Health
According to IGD, the online grocery retail channel has the highest forecast growth rate to 2027. Our data in the CTT backs this up. Respondents self-reported increasing needs and behaviors in the eCommerce space, across all measures, over the period April to November 2022. In particular, consumers are looking for:
- The website/app to make shopping online easy, 81%, +4% from the previous wave
- Convenient delivery/pick-up time slots available, 78%, +4% from the previous wave
- To interact with a store’s app, 34%, +4% from wave 1 (April/May 2022)
Selected eCommerce Attributes
For older customers, aged 55+, ease and convenience are even more important. They want:
- The website/app to make shopping online easy, 84%, vs. 81% for all shoppers
- Convenient delivery/pick-up time slots available, 81%, vs. 78% for all shoppers
While shoppers with an income of more than $100k have consistently had a greater than average need for the retailer to pick products as well as they would (78% vs. 71%), this trend is growing among less affluent shoppers as well (+6% since April/May 2022). A further 8% growth in the need for the website/app to make shopping online easy – and a 5% growth in the need for ease of online payment over the same time period – shows that the less affluent demographic is coming to expect more from the online channel over time.
Compared to shoppers without kids, families are 16% more likely to interact with a store’s app and have a 10% greater need for the retailer to pick products as well as they would.
It is not surprising to see eCommerce as a rising trend, but this data shows that some of the most important customer needs are amplified among the older demographic and less affluent shoppers. Online growth is coming from all walks of life and retailers need to invest in what matters most to customers – namely ease, reliability, and convenience.
Health is a multi-faceted topic in the grocery sector, ranging from pharmacy services to organic produce. Retailers are quick to realize the potential for revenue and margin opportunities in promoting healthy living, but investment needs to be chosen wisely, delivering on what really matters to customers, in order to win their loyalty over time.
Forty-four percent of consumers reported it was very or extremely important for retailers to help them make healthy choices, an increase of three percent from the previous wave. This need is mirrored in consumer behavior. The percentage choosing healthy foods when shopping, reading diet/nutrition information, and buying products for a specific diet, all rose by two percent in the latest wave of data.
Selected Health Attributes
To help retailers better understand shoppers that are buying for specific diets, we asked an unprompted question to determine which diets they are following. The coded responses indicate the top 5 diets in the US, in consumers own words, are:
- Low carb
- Low sugar
- Gluten free
Other notable diets further down the list are low fat, diabetic, low salt/sodium, vegan, high protein. As the number-one diet, Keto necessitates consuming lots of meat, eggs, nuts, avocados etc. which are some of the most expensive products and also seeing the highest price rises in the grocery store. Retailers should be cognizant of the popularity of Keto/low carb diets and offer the best value possible in at least one brand tier (e.g. private brand), for these product areas. Price is a barrier to choosing healthy foods for 60% of shoppers, so offering affordable health is crucial – for more on this topic keep an eye out for dunnhumby’s Future Gazing: Grocery 2053 article, publishing in March.
Furthermore, differences emerge by demographic groups and region. We note that consumers over the age of 55 are far less likely to mention Keto and are instead concerned with low sodium/salt and diabetes. Vegetarian and vegan diets are more popular in the West of the US and the South Atlantic states.
An awareness of diet trends should be a consideration for retailers looking to optimize their product ranges – something that is more important than ever, with four in five shoppers saying it is very or extremely important for a retailer to have the right variety of products, up three percent from last wave.
- Consumers vastly over-estimate inflation and grocery store profit margins. At a time of economic uncertainty, this could seriously damage retailers’ brand perception in a continued time of economic difficulty. Retailers should demonstrate they are "on the customers' side" through messaging, personalized offers/rewards, and (member) pricing where that is possible.
- There is a wealth of information postulating future grocery trends in the market, but retailers and brands should prioritize data-led sources such as dunnhumby’s Consumer Trends Tracker and RPI survey to identify which needs and behaviors are increasing over time, according to their own customers. Two such areas identified in this article are eCommerce and Health, where customer-first decisions will drive long-term satisfaction and loyalty.