Inflation in the grocery sector has remained stubbornly high and consumers are changing their behavior in response. Grocery sector journalist Sam Silverstein reports, “While grocery spending was up modestly in June, the government’s latest retail sales data underscores how significantly the landscape has shifted for the industry since the start of the year. [June’s] year-over-year grocery sales gain of just over 1% was off from 3.1% in May and continues a steady decline for the economic measure that started last December, when grocery sales growth dropped to 7.3% on an annual basis from more than 8% the month before.”[1] Neil Saunders, managing director of GlobalData Retail, told Silverstein, “Consumers are far from depressed, but neither are they in a celebratory mood. An air of caution pervades society and people are still in the mode of being careful about what they buy and trying to stick to set budgets.”

Consumers are Looking for Value

During the height of the Cold War, the military coined the term “more bang for the buck.” The term quickly became a catchphrase for consumers looking for increased value for the money they spent. However, value is a subjective concept. Journalist Catherine Douglas Moran asks, “What does ‘value’ mean for grocery shoppers?”[2] She adds, “The term no longer refers strictly to a price-to-quantity ratio and now incorporates quality, relevance, experience and convenience. … This shifting definition comes at a time when high inflation has posed financial constraints on shoppers, forcing many to be more prudent with how they spend their food dollars.”

As grocers struggle to identify what roles price, quantity, relevance, experience, and convenience play in providing value to their customers, they also have to factor in age. The staff at PYMNTS.com notes, “As inflation affects consumer spending behavior, many grocers are touting deals and discounts, but while these efforts might be effective for older customers, they will not have the same impact on all consumers.”[3] It’s not surprising that consumers who may be on a fixed income view product price as the standard for judging value. The PYMNTS staff reports that a recent study found, “38% of baby boomers and seniors cite high prices or the lack of deals as the most important factor in in their decision to purchase fewer products from grocery stores of late. In some cases, we see these households switching to lower-priced products and smaller pack sizes.” Rodney McMullen, Kroger’s chairman and chief executive officer, indicates price hunters can be problematic for grocers. He says, “The least loyal customers … are clearly prioritizing the price at shelf over other factors such as personalized offers, convenience and quality.”[4]

Price, however, is not always the standard of value used by younger consumers. The PYMNTS study found, “A far smaller share — only 14% — of Gen Z consumers said [price was important]. Instead, younger consumers are far more likely to be motivated by convenience, and they are apparently willing to pay a premium for it.” Moran reports that research by FMI, The Food Industry Association, agrees with PYMNTS research. According to FMI, “Younger shoppers, in particular, are spearheading this shift [in what value means] due to stronger affinities for certain products, values and services compared to older consumers. For example, more than half (52%) of surveyed millennials and 42% of Gen Z-ers said they are willing to buy the best quality ingredients regardless of price, compared to 22% of baby boomers who said the same. Millennials also said they’re increasingly looking to minimize food waste by buying only what they need (62%) and spending more to avoid multi-store shopping (47%).”

Loyalty at Risk

In their search for value, consumers are not only combing grocery shelves they are switching stores. Another PYMNTS study found, “Nearly half of all grocery shoppers are switching stores. … Discount retailers are seeing the benefits of this trade-down.”[5] And it’s not just grocery chains experiencing a loss of loyalty, brands, too, are seeing an erosion of loyal customers. Journalist Zachary Russell reports, “Market research leader IRI has released new data on how inflation is impacting consumer packaged goods (CPG), with private label continuing to gain share across several categories.”[6] Krishnakumar “KK” Davey, president of client engagement at IRI, observes, “CPGs and retailers will need to remain nimble, closely monitor and adjust to volume responses to price increases and leverage a comprehensive playbook of revenue management levers to drive long-term success while taking price to offset costs.”

To help clients pull the right levers, Enterra Solutions® developed the Enterra Revenue Growth Intelligence System™ (ERGIS™). The system helps optimize pricing, trade, market mix, and assortment. This unique approach balances the goals and constraints of consumer products firm’s strategic revenue goals and business strategies into a global objective function and optimization. Monitoring and modeling consumer behavior will be essential for successful sales in the years ahead. The PYMNTS staff explain, “Consumers’ inflation-related trade-down behavior is not likely to change anytime soon. Even as grocery inflation moderates, consumers continue to be anxious about how price increases will affect their household budgets for years to come.”[7]

Concluding Thoughts

Grocers and CPG brands have not stood idly by as consumer behavior has changed. In fact, Julie Companey, director, client strategy at Vericast, insists, “Two words that best describe the CPG and grocery retail industry’s response to changes in consumer behavior are impressive and ongoing.”[8] She explains, “At every twist and turn, brands and grocers have responded to crisis and disruption with innovation, ingenuity and reinvention. Until the next big thing pops up, I expect that many of the changes to the way consumers now shop for groceries and purchase CPG retail items will remain. The fact is many of the changes we see today now defined as ‘the new normal’ — like online ordering platforms, curbside pickup, improved mobile app functionality — were already in the works but just not ready for primetime. Well, primetime came early with the pandemic, and grocery retailers jumped into action and shifted initiatives into overdrive — impacting the way they do business for years to come.” They will have to demonstrate the same kind of impressive and ongoing actions if they are to adjust to changing consumer behavior in the years to come.

Footnotes
[1] Sam Silverstein, “Grocery sales continue to lose steam,” Grocery Dive, 19 July 2023.
[2] Catherine Douglas Moran, “What does ‘value’ mean for grocery shoppers?” Grocery Dive, 25 May 2023.
[3] Staff, “Older Grocery Shoppers Much More Deal-Motivated Than Younger Counterparts,” PYMNTS.com, 8 February 2023.
[4] Monica Watrous, “Kroger sees consumer shopping patterns shift,” Food Business News, 16 June 2023.
[5] Staff, “Nearly Half of All Grocery Shoppers Are Switching Stores,” PYMNTS.com, 8 December 2022.
[6] Zachary Russell, “Private Label Continues to Gain Market Share Amid Inflation,” Storebrands, 9 May 2022.
[7] Staff, “Consumers Choose Private Label Even as Grocery Inflation Slows,” PYMNTS.com, 16 June 2023.
[8] Julie Companey, “Retailers’ Response To Shifting Behavior Is Impressive, Ongoing,” The Shelby Report, 18 August 2022.