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Shoppers are cheap right now. Here’s why that’s good for grocery.

Frozen and shelf-stable foods may benefit from shopper frugality

Though consumers’ efforts to protect themselves from rising food prices shows little sign of abating, in some ways that frugality may actually end up help fighting inflation, according to a new report.

According to the report, “Food Fight: Consumers Confront Inflation with Frugality,” via New York-based advisory firm Deloitte, consumers are also making are tradeoffs to keep the cart full and grocery bills down, with 31% of survey respondents switching to cheaper cuts of meats or different sources of protein.

In addition, 29% said they are choosing cheaper ingredients, such as dried beans, rice, and lentils.

“The resulting change in the sales mix for grocers affects profitability and could cause challenges for the supply chain’s ability to keep the right items in stock,” Deloitte said. “However, some trade-offs could open up new opportunities for retailers.”

About 30% of respondents, for instance, said they are dropping popular name brands for often less expensive store brands, and that includes a relatively large portion of high-income Americans, Deloitte said.

Such actions may contribute to lower prices moving forward, Deloitte said.

“When consumers signal they can no longer tolerate higher prices, retailers and consumer products companies could begin to lose their pricing power,” Deloitte said. “It may be painful, but frugality is expected to precede, and with time, contribute to decreased retail food inflation.”

In the meantime, retailers and suppliers will have an interest in continuing to manage costs tightly, Deloitte said, which includes decreasing waste and stock loss, reducing SKUs, scrutiny in the margin management process, and aggressively collecting trade funds or better targeting them to the most effective marketing channels.

“Grocers should understand how these frugality behaviors are playing out in their own stores and pass on that data to their CPG suppliers,” Deloitte said, noting that understanding the extent of price push back and where it’s happening also could help in decision making and pricing contract negotiations.

“The extent to which consumers are being frugal, and exactly how they’re going about it, has important strategic implications for retailers and consumer packaged goods companies, including their pricing strategies, marketing, promotions, product mixes, and volume expectations,” Deloitte said in the report. “But there may be potentially broader implications too.”

Consecutive months of sticker shock and stress around everyday purchases like milk and eggs, for instance, could spark a frugality ripple effect across other purchase categories, Deloitte said, noting that global consumer discretionary spending intentions have been slipping over the past year and weakening U.S. retail sales have started to echo the sentiment.

In a January Deloitte consumer survey, for instance, 40% of respondents indicated that they were making efforts to reduce their food waste by shopping in accordance with the food and ingredients already at home.

“Rising prices are likely making consumers more diligent about what ends up in the trash,” Deloitte said. “And that’s an important sentiment for consumer product companies and retailers to consider—largely because it can create a foundation for many other behaviors.”

Consumers may be more likely to buy frozen and shelf-stable foods to prevent waste, Deloitte said, while shopping for fresh food within the strict confines of planned meals.

Indeed, one-third of global consumers surveyed indicated that they are only buying the essentials, while 18% of U.S. shoppers said they left the grocery store over the past two weeks buying less than they wanted to, which could hint at food insecurity, Deloitte said.

“One might assume these consumers would be less likely to take risks with new products or be influenced by promotions for items not on their shopping list,” Deloitte said.

When possible, brands also should share their price advocacy efforts with customers, Deloitte added.

“Let them know you are fighting along with them,” Deloitte said.

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