Consumer behavior can be just as much about perception as it is about data. If there’s a general sense that prices are high or that a downturn has taken hold, consumers could adjust accordingly to account for what’s on the horizon.
This relationship showed up in the recent Consumer Trends Tracker from dunnhumby. The survey of 2,000 US shoppers found that many people believed the inflation for a category of food that includes groceries was higher than it actually is.
According to dunnhumby, Americans believe food at home inflation has hit 22.8%. That’s 9.7 points higher than the 13.1% annual rate that was reported in the most recent Consumer Price Index from the US Bureau of Labor Statistics. This perceived rate is also 5.1% higher than it was in February 2022, conducted just after Russia invaded Ukraine.
Food-at-home inflation is a key measure since it includes the regular food that people purchase for day-to-day consumption. Alongside gas, high food prices have been one of the main contributors to this year’s 40-year-high spike in inflation. In recent months, inflation for food has remained elevated across both the overall economy and in ecommerce, even as gas has started to fall.
Along with this gulf in perception, dunnhumby found that behavior has started to change. Other grocery-focused findings of the study state the following:
- Food insecurity is on the rise. 55% reported they are not getting enough of the food they want to eat, and 18% are not getting enough to eat. Another 31% of households have skipped or reduced the size of their meals in the last 12 month because there wasn’t enough food.
- Checking prices online before and while shopping is the second most popular customer behavior, as 37% of consumers reported this. This behavior is up 6% since the first CTT. Buying in bulk and shopping at different stores to find the best value were the other most popular behaviors.
- Consumers are shifting a significant share of their spending to dollar stores, at the expense of specialty and premium stores. Since April-May 2022, dollar stores’ share of wallet has increased 2.1% (17.8% to 19.9%) while specialty and premium stores has decreased 1.1% (18.7 to 17.6%).
- Ecommerce channel penetration has decreased since the peak of the pandemic, and appears to be linked to customers’ increasing sensitivity to cost, dunnhumby said. Between October 2021 and July 2022, there was a rougly 20% increase in people citing additional fees like delivery and picking fees as a barrier to grocery ecommerce.
- Consumers are trading down in categories. 83% of respondents are looking for cheaper alternatives to the products they usually buy in at least one category. The 35-44 age group is most likely to trade down.
- The purchase of premium or luxury items are on the rise, particularly in the 35-44 age range. "This aligns with the ‘lipstick effect’ that has been observed in previous recessions, whereby consumers will invest in small luxuries that increase their confidence and perceived attractiveness during periods of uncertainty," dunnhumby writes. "Customers are likely to be forgoing more expensive luxuries, in place of small luxuries available at the grocery store."
“Seven months ago we first reported on the mismatch between consumer sentiment and reality regarding food inflation. We now we see it’s at the highest point to date, and we are also seeing that consumers are responding by changing their shopping behavior, and perhaps most troublingly, nearly a third are cutting back or completely eliminating some meals,” said Grant Steadman, President for North America at dunnhumby, in a statement. “While there are signs in parts of the economy that inflation may be dampening, that has not occurred yet for food. Retailers and manufacturers need to ensure that they are putting their customers first when they are making decisions about how to respond to persistent inflationary cost pressures.”
A dunnhumby chart indicates food insecurity. (Courtesy photo)
To be sure, no matter what the perception indicates, it’s true that inflation is elevated. So it could be argued that consumers are responding rationally to that. But what consumers believe to be the case may also influence the degree to which they change behavior. In other words, if they think things are worse, they may take more drastic steps.Given the signs that are emerging, consumers could soon be factoring an economic downturn into their choices. The dunnhumby findings come as the Federal Reserve has raised interest rates at three consecutive meetings, and is warning of “some pain” ahead. JOLTs data from the US Labor Department issued Tuesday showed that job openings fell to their lowest level in 2.5 years in August, offering one sign that a hot labor market could be cooling off. Just like businesses, consumers will be taking in this data, and adjusting accordingly.
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