dunnhumby Consumer Trends Tracker
A soaring perception of food Inflation is driving critical shifts in consumer behavior across America
Table of Contents
Robert Hayes
Customer Strategy & Insight
SECTION 1
Executive Summary
Now, more than ever, shoppers are looking to save money on their grocery shops. This article examines the customer needs, attitudes, and behaviors in the current high inflation climate.
The perceived rate of food inflation among US shoppers surveyed for this report was 22.8% in July 2022, up 0.8% from April/May this year. Despite perception being higher than the actual rate in July of 13.1%, the impact of soaring food prices is very real. And the recently reported Consumer Price Index (CPI) for August shows that food inflation went up 0.8 % since July, dampening hopes that inflation was coming under control. We also found that consumers who reported they would have difficulty covering an unexpected expense of $400 rose from 60% in April/May this year to 64% in July. Financial insecurity leads to food insecurity, with nearly one in three households having skipped or cut the size of their meals in the last 12 months because there wasn’t enough money for food.
In these uncertain times, three in four shoppers express a need for consistent prices, and low base prices remain as important as ever, even among more affluent shoppers. For households with income above $100K, the importance of low base prices rose 7% from April/May to July this year. While higher income households buy in bulk to spend efficiently, this option is not available to lower income households who need to buy small-pack sizes to keep spending low. Yet despite all the financial pressure, the “lipstick effect” often noted in recessions appears to have kicked in, with a 3% rise in premium or luxury items from the grocery store likely substituting more expensive luxuries.
In this report, we will look at a number of consumer coping mechanisms for real and perceived inflationary pressures:
- Money-saving behaviors – shopping around, checking prices online, swapping to private brands, and engaging with loyalty schemes have all risen since April/May this year. Young families are most likely to exhibit these money-saving behaviors as they struggle to keep household spending under control.
- Where to shop – Dollar stores have seen a 2% increase in share of wallet, at the expense of specialty stores.
- What to buy – 83% of shoppers report looking for cheaper alternatives to the products they usually buy in at least one category. This trade down behavior is most likely to occur in packaged food and common household products. It is closely correlated to the importance of price in that category, but notable exceptions such as beverages and pharmacy suggest strong branding can withstand customer trade down.
SECTION 2
Inflation Impact
US consumers vastly overestimated inflation in the latest wave of dunnhumby’s Consumer Trends Tracker, reporting a perceived food inflation rate of 22.8% in July 2022. This is an increase of 0.8% from their perceived inflation rate in April/May 2022.
Perceived Food Inflation Map of the USA
Despite the perception being higher than the actual rate (13.1% in July), the impact is very real. Comparing July data to April/May this year, we see consistent trends across a range of measures:
of consumers would have difficulty covering an unexpected expense of $400 versus 60% in April/May, a marked sign that households are feeling less resilient.
of consumers said they get “Enough of the kinds of food we want to eat”, a decrease of 5% since April/May.
5% said they “Often do not have enough to eat”, an increase of 2% since April/May.
of households have skipped or cut the size of their meals in the last 12 months because there wasn’t enough money for food, a 5% increase since April/May.
While all these changes are statistically significant, we see that the nation’s financial struggles are not uniform:
Difficulty covering an unexpected expense of $400, by state
Where inflation is being felt the most, retailers should consider their geographic footprint and be particularly sensitive to consumers.
SECTION 3
Customer Needs
Customers have a great need for good prices, but this has long been the case and is why we see a 0% change wave-on-wave in the Customer Needs graphic. Prices after all are one of, if not the, most important driver of store choice. But particularly relevant during inflationary times is the need for consistent pricing – three in four shoppers say this is very or extremely important. Consistent pricing helps customers manage their regular expenditures in uncertain financial times.
While the overall trends are stable, 73% of households earning over $100k reported that low base prices are important, an increase of 7%. This is our first clue that inflation is now affecting higher income households to a greater degree.
Low base price
Low base price need, respondents with HH income $100k+
Over half of customers say it’s very or extremely important that a retailer rewards them for shopping, up 3% since April/May this year. A corresponding 3% rise in behaviors relating to customers identifying themselves to earn rewards and redeem rewards suggests loyalty schemes will be an increasingly important means of accessing value.
Needs such as price competitiveness are not uniform across the nation. In Oklahoma, Arkansas and Louisiana, part of the West South-Central region, the need is significantly higher (74%), compared to the West region where it is significantly lower (66%). The need for low base prices and pricing consistency is also lower in the West, implying retailers may have a few more levers with which to win, versus a region such as the West South Central.
Finally, the channels customers shop affect their pricing needs significantly. Those engaging with the Mass and Discounter channels have the greatest pricing needs across a range of measures. For Club and Dollar stores, pricing consistency is particularly important, at 77% each. Needs are lower in Specialty and Traditional format channels. And it’s noteworthy that the need for low base prices in online pureplay retailers has increased 5% since April/May this year.
Low base price
Low base price need, respondents shopping online pureplay
SECTION 4
Customer Behavior
So, what behavior-change trends have we observed in customers over the last few months of high inflation?
The most common money-saving behavior is shopping at retailers with low base prices. Fifty-nine percent of customers claim to do this most or all the time and it has been consistent wave after wave. All other behaviors shown in the Customer Behavior chart have seen a 3-6% increase compared to the previous wave in April/May this year. Customers are shopping around more (+4%), checking prices online more (+6%), and altering the pack sizes they buy to save money.
We may well be seeing the effect of customers forgoing more expensive luxuries in place of small luxuries available at the grocery store.
The lipstick effect
Interestingly, the frequency of buying premium or luxury items, while still relatively low, has increased too. Although this may seem counter-intuitive, it aligns with the well-documented “lipstick effect” that has been observed in previous recessions. The broad idea is that consumers will invest in small luxuries that increase their confidence and perceived attractiveness during periods of uncertainty. We may well be seeing the effect of customers forgoing more expensive luxuries in place of small luxuries available at the grocery store. This behavior is especially prominent (38%) in the 35-44 age range. As a Wall Street Journal article concluded, “Wealthy Americans still offer some hope to luxury brands, but most U.S. consumers now have more important things to spend their money on than a $1,000 bag.” In China, an economy known for its spending on luxury goods, one consumer reflected on life post-lockdown: “I have a lower threshold for what makes me happy now. Even just going out under the sun, buying some delicious snacks, satisfies me.”
Young families turn to bulk buying and private brands
Young families are the shopper group most likely to exhibit these money-saving behaviors. Since April/May this year, there has been a massive 11% jump in customers aged 35-44 buying in bulk/large pack sizes to stock up. They are also the group most likely to choose private brands over name brand alternatives. For older shoppers, it is likely that they are more attached to recognizable name brands and less trusting of some private brands. However, it is not just younger shoppers displaying these behaviors, as there was a notable 10% rise in those aged 45-54 checking prices online, since the last survey in April/May this year.
Inflation-coping tactics differ by income
More affluent households, with an income of $100k+, are significantly more likely to buy bulk/large pack sizes to stock up as a means of being efficient with their spending. For lower income households, less than $50k, that option is not always available to them and so this group are significantly more likely to buy smaller pack sizes to keep their immediate spending low. While choosing low base price retailers is a behavior seen by all shoppers, it is particularly important to lower income households. It is also significantly more likely to be seen in the Mid-West region, and least likely in the West – where buying premium or luxury items is most popular -- followed closely by the South Atlantic.
SECTION 4
Channel Switching and Category Trade-down Behavior
When it comes to managing budgets in a high inflation period, two of the main choices customers face are where to shop and what to buy. dunnhumby’s CTT tracks channel trends and category dynamics to help understand both.
Looking first at channel, we saw a significant increase in share of wallet being given to dollar stores, at the expense of specialty stores. This is a shift in behavior we might expect given the financial pressures facing households. Aside from this, most channels remained flat suggesting customers are not making widespread changes to where they shop just yet. The In-store graphic shows a Share of Wallet ranking for Brick & Mortar purchases only.
Category Trade Down
Customers are most likely to trade down in packaged food and common household products, followed by frozen food. In these categories, it is crucial that retailers stock low price items and use their private brand offering to help support shoppers. For fresh categories, hard goods and pharmacy items, customers are far more likely to stick to their preferred products.
Also noteworthy is that only 17% of people are not looking to trade down in any category of their grocery shop!
So why is there such differentiation in which categories customers are looking to trade down? Looking at the Likelihood to Trade Down scatter chart, we see a strong correlation (0.78) between customers’ likelihood to trade down and the price-to-quality trade off customers make in those categories. In other words, where price is already the main consideration, the trade down behavior is more apparent. Where quality is of higher importance, the trade down behavior is less likely.
Only 17% of people are not looking to trade down in any category of their grocery shop!
Likelihood to Trade Down
From looking at the categories above and below the trend line, we can infer that the deviations from this trend are due to the influence of brands. Non-alcoholic and alcoholic beverages and pharmacy items have a lower-than-expected trade down likelihood for their price importance, suggesting customers may stick to their intended purchases based on the strength of the name brands in these categories. The opposite is true for seafood, deli meat and bakery – fresh categories which tend to have less name brands.
Closing note
To conclude, inflation is impacting shoppers’ financial security and therefore their food security. While shoppers may have an exaggerated sense of how bad inflation is, both perception and consumer data provide insight for how grocers should respond to the moment. The impact from inflation varies by region, affluence, and age, but even higher income shoppers are changing their behavior. Customers are increasingly engaging with money-saving behaviors, visiting Dollar stores, and trading down in certain categories such as packaged foods and common household products. The strength of brands in certain categories provides an interesting nuance to this trade-down behavior with implications for both name brands and private brands within the grocery store.