Here’s how food inflation is changing shopping behavior

Consumers are bargain hunting as food prices continue to rise.

With food inflation at an all-time high, shoppers are looking for value, according to a report from Information Resources, Inc., which recently merged with The NPD Group. The report leverage the latest point-of-sale data for July 2022 and includes data covering all U.S. food channels, including e-commerce.

July’s data shows that prices of goods remain elevated across grocery categories. Prices for food at-home rose 1.2% from the end of June to the end of July, and 14.4% year-over-year as of July 31. In June, at-home food prices rose 1.2% versus May, and 13.7% year-over-year as June 30.

According to the report, promotional activity – including weekly sales and coupons – in many food and beverage categories is returning to pre-pandemic levels as supply pressures ease and consumers increasingly look for the best deals.

Shoppers are responding when promotions are available, the report said. In some of the most-promoted categories within the grocery channel during the trailing four-week period ending July 10, 2022, the percent of dollar sales and percent of sales volume lift have increased significantly.

“Consumers are responding to rising prices by shopping promotions, prioritizing value options, and trading down to avoid going without,” said Krishnakumar (KK) Davey, president of thought leadership for CPG and retail.

Highest Increases
Food and beverage inflation continues to persist on a sequential and year-over-year basis, despite recent price decreases in other areas of the economy. Categories with the five largest increases in prices include refrigerated eggs, frozen dinners and entrees, butter/margarine/frozen pizza and center store bread.

Key insights from IRI for July are below.

• Promotional activity is on the rise. Promotional activity – including weekly sales and coupons – in many food and beverage categories is returning to pre-pandemic levels as supply pressures ease and consumers increasingly look for the best deals. Recent data indicates that the top five food and beverage categories where promotional activity increased in the four weeks ending July 10, 2022, show close parallels to the same four weeks in 2019, before the pandemic, with nearly 50% of these top categories’ sales coming from promoted items.

• Consumers are bargain hunting. Consumers are responding when promotions are available. In some of the most-promoted categories within the grocery channel over the trailing four-week period ending July 10, 2022, percent of dollar sales and percent of sales volume lift have increased significantly.
  • 55% of ice cream and sherbet, for instance, was purchased at promotional pricing in the four-week period, 9 percentage points above what it was two months ago. These promotions generated 93% additional category sales, 13 percentage points more than what it was two months ago. 

• Consumers are opting for value-oriented categories to preserve quantity. Within food and beverage, overall volume and units have remained resilient despite price increases. But are purchasing greater-value meal solutions, such as pasta, frozen potatoes and canned soup. They are buying less in categories such as sports drinks, ready-to-drink coffee/tea, frozen novelties and refrigerated entrées.

• Consumers are trading down to more affordable brands within a category.  Consumers are “trading down” or switching from a preferred brand or higher-priced product for one at a lower price point in many categories, including spirits.

• Private label continues to grow in many food categories. Consumers are transitioning away from national brands in categories where store brands are already well-known or in commodity categories, such as eggs, sugar and bottled water.

• Premiumization continues in select categories despite the high inflation. Mirroring behavior from the Great Recession of 2008-2009, consumers are trading down to trade up on small luxuries, such as premium and super-premium imported beer, frozen dinners/entrées and refrigerated juices and drinks.

• Slower spending outside of food and beverage. Consumers are purchasing less in categories such as foil pans, household cleaner cloths, toilet tissue, facial tissue, laundry detergents and household cleaners.

“We are advising our manufacturer clients to deploy all levers of strategic revenue management, prioritize strong in-market execution, and invest in retailer partnerships to ensure that the right products are available in the right places at the right times,” said Davey. “Additionally, retailers must have the tools to quickly adjust to changes in consumer preferences to ensure they are offering the right assortment at price points that appeal to price-sensitive shoppers as well as their most valuable customers.”