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Inflation may be starting to slow down, but elevated costs remain and the food-buying habits kickstarted by large cost increases in 2022 are proving resilient. A study by The Feedback Group found that a majority of grocery shoppers have actually increased their food inflation coping strategies in 2023 compared to 2022, including buying more items on sale (52%, up from 43% in 2022) and choosing private label over national brands (44%, up from 38%).
While rising interest in private label goods is an ongoing trend, grocers now have to contend with the fact that only 48% of consumers believe supermarkets are on their side when it comes to inflation. The average shopper said they believe their primary grocery store has a net profit of 35%, up from the average estimate of 33% in 2022. However, the average net profit has been close to 1% historically, though it rose to 3% in 2020, according to data from FMI, The Food Industry Association.
Concerns regarding price have also led to the entrenchment of several dollar-saving habits that could affect grocers’ strategies across the store. For instance, more shoppers are buying fewer last-minute or impulse items (36%, up from 25%), using a store’s weekly sales flyer, whether paper or digital, to plan a shopping list (31%, up from 23%), comparing prices at multiple stores before buying an item (29%, up from 18%), and purchasing more bulk-pack items to lower the price per serving/unit (26%, up from 25%).
Additionally, cost is more important than health for many of these shoppers. Many consumers say they are substituting similar, less expensive foods (27%, up from 24%), purchasing food that is less healthful but also less expensive (22%, up from 15%), and buying fewer organic items (16%, up from 12%). While a September 2022 study by Deloitte found that 78% of consumers believe the right foods can prevent them from suffering certain health problems, inflation woes may be overriding interest in health benefits.
However, the findings also point to opportunities in the private label space. When asked to rate whether private label brands were less expensive than their national brand alternatives on a five-point agreement scale, the mean score was 4.16 in 2023. This is up from 4.06 in 2022, and it serves as a sign that shoppers believe private label products are a clear winner on price. Additionally, private label brands scored a 4.18 when consumers were asked if they compared well to the quality of national brands.
Many grocers are recognizing the power of private label and acting accordingly. Dollar General, which positions itself as a price leader, is adding 100 new grocery-focused products to its assortment. Target has likewise been bullish on private label, though rival Walmart outcompeted the brand last quarter. Private label won’t win by itself, but it could be one element to consider for grocers looking to forge a strategy that will win shoppers over at a time when they feel supermarkets aren’t on their side.
BrainTrust
James Tenser
Retail Tech Marketing Strategist | B2B Expert Storytelling™ Guru | President, VSN Media LLC
John Karolefski
Editor-in-Chief, CPGmatters
Zel Bianco
President, founder and CEO Interactive Edge
Discussion Questions
How can grocers win back shoppers’ trust and make them believe supermarkets are trying to help them weather inflation? Are there any opportunities being created for savvy retailers by the fact that most consumers don’t feel grocers are on their side?
Poll
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The decline in trust is something of an issue for grocers. It’s not just the US. In the UK, negative sentiment has been fueled by an accusation from the Governor of the Bank of England that supermarkets have been profiteering. However, let’s be very clear: this deflection from the Governor, who has been negligently asleep at the wheel and has completely failed in his own duties to control inflation, is nonsense. The UK’s competition authority, the CMA, has looked at prices and concluded that supermarkets have actually held back on passing all cost increases through to consumers. This is reflected in a drop in profits from retailers like Tesco and Sainsbury in their latest fiscal years. No one likes inflation, least of all shoppers, but fingers should be pointed in the right direction and not at parties who have neither caused nor facilitated price rises.
Perception is reality, so this is a tough challenge to compete with a perception of profit that is way off the mark. If grocers’ margins were anywhere close to where shoppers think they are, well, there would be a lot more grocers in this game! But grocers need to sell to perception. Present the mix of private label, healthy foods, and value items in a way that fits with shoppers’ expectations.
Grocers have all the tools and techniques they need to leverage often irrational shopper beliefs — if they’re willing to invest in them. Private label is one lever to use, a focus on local suppliers is another, and a loyalty program that has value as well. Pushing suppliers to lower prices is a fool’s errand, of course, as that ship has sailed.
Here are a couple more ideas. Merchandise based on actual shopping behaviors, moving items to where they convert best. Turn planograms into interactive tools and not set-and-forget busywork. All these ideas are possible today. Grocers just need to know where to find and how to use the right tech and techniques.
Ken, great points as usual. Those of us in the retail industry understand the low margins that grocers have experienced for years and it is hard for us to understand the wildly inaccurate perceptions consumers have about grocers’ profits. That said, all grocers have to deal with it by offering low cost options like private label, daily deals and other special promotions to make consumers feel like they are getting a good deal. Private label has been a great tool for grocers and that is why we continue to see growth in this area.
If the shoppers think, and that is the way the shoppers think, the product they are paying $4.99 for is being bought by the retailer for $3.50 or less, they are surprisingly correct.
The woe-is-me 2% profit is a red herring. A retailer that turns their merchandise 15 times is actually experiencing a 30% ROA. Not bad for any company.
As a retailer, I like inflation. If the $3.50 item’s cost, mentioned above, is now 7% higher, do I raise the price to $5.35 or to the next price point, $5.49?
Amen
Paula, so many “Amens” today. AMEN!
Classic “kill the messenger” challenge, at retail is where consumers experience the pain of high prices. This is the other side of retailer’s number one advantage, they have the consumer relationship. As we all know, relationships aren’t always easy. As for the private label opportunity, this is definitely happening. Not only are retailers increasing their private label assortment and shelf space, we’re seeing increasing promotion of private label products in retail media channels.
I think retailers are not getting a fair shake in many cases from their suppliers and their shoppers. Yes, there is the perception among shoppers that retailers are making a huge profit and the reality is they are not.
It’s time to do a little balancing between the supplier and the retailer so that they are true to their messaging – that meeting the needs of the shopper and consumer is the ultimate goal.
Double amen
Grocers have to be much more fluid and opportunistic about how they manage their inventory. My local Stop&Shop removed about 12 feet of permanent aisle fixturing on 8 rows and opened that space for flexible pallet or table offerings. That’s a big swing by eliminating their least productive sku’s and instead offering an ongoing rotation of fresh and new and unexpected products. Hopefully this will allow them to be much more responsive to their customers wants and needs.
It seems the US’s “inflation” problem is instead an episode of simple greed. Food manufacturers reduced packaging sizes and jacked up prices. The result stuns customers who don’t remember being charged $5.99 for potato chips before. When customers refuse to purchase overpriced SKUs, manufacturers may respond.
Amen Cathy….the $6 potato chips and $6 box of triscuits will not be donning my pantry…
Triple amen
Shoppers have (relatively) short memories, and shopping habits change slowly, so there’s probably more grumbling than switching to competitors (who also raised prices) . My cynical side says that suppliers and retailers decided that when they raised prices to go infrequently and to go big – probably more than was needed at the time. Time will level the relationship.
I don’t doubt that survey data — I doubt that it is very important. Consumers may grump and grouse but the situation still requires that they buy groceries to live. Perhaps they buy somewhat fewer but grocers must be able to thrive through those very natural ups and downs.
The ability to measure public opinion has a downside — we can too often respond to ebbs and flows we should simply ignore. This seems to be one of those situations. Grocers need to focus on doing what they should as a good business.
As one of the principals who conducted the research, I’m glad you don’t doubt the survey data. That said, I’d have to disagree here a bit on your assessment of its importance.
While it’s true that consumers will always need to purchase groceries, it’s a misconception to believe grocers can simply ignore the nuances of feedback from their shoppers. In an age where consumers have a plethora of choices, from local markets to international chains to online grocery delivery services, loyalty is paramount. If retailers don’t pay attention to customers’ feedback and sentiments, they can easily switch to a competitor that does. And in an inflationary environment, this becomes even more pronounced.
Further, the “natural ups and downs” you mention are often indicators of larger market trends or shifts in consumer behavior. By analyzing and responding to these signals, grocers can innovate and adapt, ensuring they remain relevant and competitive.
In the end, feedback from shoppers is precisely what grocers need to do a good business, support their community, and thrive into the future.
In a capitalistic system, the laws of supply and demand and the relentlessly increasing operational costs often dictate the grocery and retailer pricing strategies. During this extended inflationary and disruptive period, the grocery industry has faced a ton of scrutiny as consumers are struggling to balance their budgets, and the weekly shopping trip has become a challenging undertaking.
Despite the mass media rhetoric, the grocery prices have been relatively stable. Additionally, we have seen the grocery industry take the necessary steps to offer value and products that price-conscious consumers seek in the form of private labels and deeper promotions on some commodity items. However, we should not expect grocers to lower their prices as they face their challenges with the rising costs of goods sold, operating costs, and the already thin profit margins.
The more significant macro challenge is that our economy is in dire need of a turnaround. Wage increases have not kept up with the rate of inflation. Our housing market is experiencing another disruption, and the costs of living are not improving.
Grocery leaders build trust by showing empathy for consumers who try to stretch every dollar.
Membership programs like Walmart+ offer exclusive deals. Value-tier private labels like Kroger’s Smart Way line provide more choice. More grocers emphasize discounts on essentials and place these items near the store entrance to save shoppers time and money.
Frankly, I think the problem belongs more with cpg suppliers than retailers. Retailers didn’t change the size of a bottle of Gatorade from 36 to 28 ounces.
and then we can roll back to 2020 when we had the great toilet paper crisis, which totally belonged to the manufacturers. They blamed everyone else, from consumers to people being out of the office. For me it was simple: toilet paper is low value, bulky and likely pretty low margin. The manufacturers didn’t want to deal with the bullwhip effect so they thought the pandemic would pass like a hurricane.
that finished my trust forever, and they still haven’t admitted it, which only makes things worse.
Rising prices have certainly hurt grocers. But the pain is lessened somewhat
because shoppers are buying more of the grocer’s store brands. If the quality is
good, they may never go back to the name brand equivalents even if their prices decline.
Very discouraged shoppers may move to Aldi or discount stores for their groceries. They may stay there.
At the moment consumers don’t have confidence that prices are being set fairly and not being inflated, partly because retailers don’t have confidence in their margin data to assure them that’s not the case or the agility to offer savings where price reductions are possible. Those who have solid real-time margin insights can take a strategic approach to price management to protect revenue while still offering discounts on lines that consumers value the most.
Grocers are inevitably in a tough spot: it’s a very competitive, low margin field, traditionally focused on price, and inflation has only increased that focus; differentiating strategies like “nicer” – but inevitably more expensive – stores are even harder to make work right now.
I’m not going to try and squeeze two centuries of wisdom into a few words , but I’ll point out that while current conditions have given private label increased opportunities, they shouldn’t be taken for granted: the goal should be for people to want to buy your brand, not be forced to.
Interesting that the marketplace doesn’t seem to hold brand marketers accountable for their intentional contributions to inflation. Covering ingredient and transport costs is one thing. Opportunistic price increases to benefit shareholders are a whole ‘nother matter.
The irony is that shoppers confront the consequences at the retail POS. So naturally they will blame the store.
Loss of shopper trust seems congruent with the general loss of trust we face across our society. Grocery retailers have several tools they can use to help: Well-managed loyalty programs that deliver real value and personalized experiences. Top-quality store brand programs that help shoppers stretch their budgets. Pricing Intelligence systems that enable them to make responsive, shopper-first decisions across their assortments.