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Consumer spending is still climbing, but could be at a tipping point as inflation rises

by agrifood
April 17, 2022
in FoodTech
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According to the Census Bureau, advanced estimates of US retail and food service sales in March rose 0.5% to a record $665.7b from February and 6.9% from a year ago.

The bulk of this increase came, unsurprisingly, from gasoline, which climbed 8.9% from last month and surged 37% from a year ago. But increases in food and beverage sales – both at grocery stores and bars and restaurants, came in a close second and third, disregarding ‘miscellaneous retail stores.’

Sales at bars and restaurants in March increased 19.4% over the past year, climbing 1% from last February, while grocery sales are up 9.5% for the year after a 1.3% increase over the prior month, according to the data.

These figures are far higher than the total increase and even that of other fast-growing segments, such as clothing and clothing accessories, which is up 7.3% for the year, and furniture and home furnishing stores, which is up 3.6% in the past 12 months.

However, these numbers do not account for inflation and lose some of their impact when compared to the 10% increase in the consumer price index for food at home​, which was released earlier this week and takes inflation into account.

When placed in this context, Dave Cesaro, retail and consumer behavior expert at Vericast, suggests the jump in grocery spending likely was “purely being driven by inflation rather than volume.”​

To drive more meaningful volume increases – or at least mitigate potential reductions in spending if inflation continues to rise – Cesaro recommends grocers strategically leverage promotions, which he says will become more important in 2022 than they were in 2020 or 2021.

“We are seeing this from all our clients that have continued to promote their products and services,”​ he said.

He also noted that grocers are “witnessing an acceleration of private label purchases due to inflation,”​ and suggested that “staying top of mind with consumers is more critical than it has been over the last two years”​ with history showing that companies that keep their brand – including private label – in front of consumers during tough times win greater market share when things return to normal.

Have consumers reached the tipping point on inflation?​

The optimism around March’s 0.5% uptick in spending also dims slightly when placed in context with economists expectations and February’s spending.

Last month’s spending, while still up, missed expectations by 0.1%, and marks a slowdown from February’s revised spending increase of 0.8%.

Mike Graziano, consumer products senior analyst at RSM, suggested this indicates that inflation is starting to impact consumers’ willingness to spend and that they may no longer be willing or able to absorb additional price increases.

Noting that sustained inflation and fixed spending (such as on grocery, rent and energy) are accounting for a bigger portion of monthly budgets, he predicts, “We are going to continue to see a pullback in goods sales.”​

Part of this sacrifice will be made so that people can continue to dine out, travel and attend events as many are eager to leave their homes and vacations may be pre-paid or budgeted for already.

Tracking and targeting shifting shopping habits​

Graziano also predicts that low and middle income earners will feel the pinch of rising grocery prices and will need to “think through what purchases they are willing to make”​ with many transitioning to less expensive shelf stable goods. This aligns with expectations of the CEO of Albertsons​, who said this week that the retailer isn’t seeing a slowdown yet, but expects one among lower income shoppers is on the horizon.

“For consumer goods companies, it’s more important than ever to have an accurate view and understanding of the customer base to ensure inventory is appropriately stocked with items that will move,”​ he said, adding, “Digital strategies and data analytics can help brands target the right geographies and consumers with the goods they want and need.” ​



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