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When it comes to inflation, food is in focus.
While gas prices are falling from their highs and overall price gains are starting to ease, food prices continue to rise.
The rising food prices are a big reason that the inflation rate remained elevated at 8.5% in July, according to the latest reading of the Consumer Price Index from the US Bureau of Labor Statistics. Overall, food prices rose at the sharpest rate since 1979. In ecommerce, food prices also rose as other categories were falling, according to the Digital Price Index from Adobe Analytics.
The latest data continues months of rising price pressures, as food has been right beside fuel as a key driver of 40-year-high inflation. As customers make repeat visits to stores and see prices are still up, it is leading them to adjust spending behaviors. To provide insight into the consumer’s mindset Information Resources, Inc. (IRI) released insights that show the decisions being made in considering a purchase.
“Consumers are responding to rising prices by shopping promotions, prioritizing value options, and trading down to avoid going without,” said Krishnakumar (KK) Davey, IRI president of Thought Leadership for CPG and Retail. “We are advising our manufacturer clients to deploy all levers of strategic revenue management, prioritize strong in-market execution, and invest in retailer partnerships to ensure that the right products are available in the right places at the right times. Additionally, retailers must have the tools to quickly adjust to changes in consumer preferences to ensure they are offering the right assortment at price points that appeal to price-sensitive shoppers as well as their most valuable customers.”
Here’s a look at several of the key changes IRI found taking place:
Brands and retailers are increasing promotional activity.
Weekly sales and coupon activity is mirroring pre-pandemic levels. In this case, the deals are motivated by the combination of easing supply chain pressures and deal-seeking behavior by shoppers. In a close correlation, IRI said data shows that the categories that had the highest increases in the four-week period ending July 10 were mirroring the same four weeks of 2019. These categories were:
- Ice cream and sherbet
- Sports drinks
- Breakfast meats
- Bottled water
Shoppers are seeking deals.
When promotions are activated, shoppers are responding. In the most-discounted categories, “percent of dollar sales and percent of sales volume lift have increased significantly,” IRI reports.
The service shared that 55% of ice cream and sherbet was purchased at promotional pricing in the four-week period tracked, which was 9 percentage points above the level it was four months ago. The promotions generated 93% additional category sales, which is 13 percentage points more than the level of two months ago.
Value is in focus.
Shoppers still want to purchase the same amount of food, despite prices ticking higher. This is demonstrated by data that shows overall volume and units sold have remained “resilient,” IRI said. Given this, consumers are choosing specific categories that can provide value in the face of rising prices.
Categories seeing increased purchases include pasta (+6 percentage points), rice (+5 percentage points), frozen potatoes (+6 percentage points), and canned soup (+3 percentage points).
Meanwhile, there is less spend in sports drinks (-9 percentage points), ready-to-drink coffee/tea (-3 percentage points), frozen novelties (-6 percentage points), refrigerated entrées (-8 percentage points), and frozen dinners/entrées (-5 percentage points).
Shoppers are trading down to save money...
When they opt to buy in a given category, consumers are choosing which brand to buy based on price. In some cases, they are trading down for a more affordable brand. Value brands in the spirits category increased their share 4.1 percentage points to 73.6% in the 13-week period ending July 31, 2022, when compared to the prior 13 weeks. In doing so, they took share from premium brands.
Meanwhile, store brands are getting a better look over national brands, particularly in categories where the private label is well known or in a commodity. Here’s where store brand share grew the most in the four-week period ending July 24, 2022:
- Fresh eggs (+6 percentage points )
- Sugar (+5 percentage points)
- Sour cream (+4 percentage points)
- Shortening and oil (+3 percentage points)
- Bottled water (+4 percentage points).
...But they're trading up for favorites, selectively.
Shoppers still want the “small luxuries,” IRI said, so they are trading down to save money in some categories but opting for premium brands in others that they particularly want. This is similar to behavior from the Great Recession of 2008-09. Premium and super premium beer saw a share increase of 2.6 percentage points to 51.2%, while frozen dinners/entrées and refrigerated juices and drinks both gained about 1% in share.
Trending in Economy
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.