New research shows that up to a third of consumers are unable to find affordable alternatives at their preferred retailer, forcing them to look elsewhere.
Prices for food at home shot up 12.2% during the past 12 months, the largest increase in 43 years, according to the U.S. Bureau of Labor Standards. Spending has held up, but falling savings rates and rising credit card balances mean consumers will soon have to start making some changes. GlobalData’s latest consumer panel data suggests they already have:
• 52.8% are traveling less to save money on gas (up from 49.1% in May)
• 45.7% are hunting more for bargains (up from 39.2% in May)
• 40.1% are trading down to less expensive brands (up from 28.4% in May)
• 38.6% are shopping around more/switching stores to find better prices (up from 34.5% in May)
It’s that last finding that really ought to raise alarm bells among conventional retailers, which are starting to lose their most cost-conscious shoppers to other outlets.
TRADING DOWN NOT ENOUGH
A Q1 survey of 550 million transactions across 57 million households in North America and Europe by Symphony RetailAI found that the most price-sensitive shoppers — about a third of all consumers — aren’t reacting to rising grocery prices the way researchers expected.
Conventional wisdom suggests price-driven consumers will simply trade down to cheaper alternatives — a private label or a smaller size of their preferred brand — when budgets get squeezed. “But we measured a surprisingly lack of change in price-focused customer purchasing behavior in those two areas,” reports Josh McCann, head of HQ client delivery and analytics. That’s because trading down still wasn’t enough for the most budget-conscious consumers to make ends meet. “And when customers can’t meet their needs by switching within categories, they are forced to look elsewhere,” he says.
McCann’s team found that price-sensitive customers have been able to find affordable alternatives at their retailer of choice in certain categories — candy, beer, fresh fish and water. But in categories such as frozen pizza, poultry, frozen potatoes, dairy and vegetables, options to offset inflation are few and far between, forcing them to other outlets for those purchases. As a result, reports McCann, the number of price-driven consumers in conventional supermarkets has been declining for well over a year, which means mainstream grocers are losing shoppers faster than they can replace them.
“If traditional grocery retailers want to affect the behavior of their price-focused customers, they need to address gaps in their assortment for value-driven items and their promotion and display support for the same,” says McCann.
“They must ensure they can offer those customers alternatives to what they have been buying to allow them to save money. Without them, price-driven customers will continue to leave for places that do offer the ability to save.”
UP YOUR PRICING GAME
Conventional retailers can also up their pricing game, holding the line on key value items that saw sharper increases in price (+9.9%) than their less important counterparts (+7.2%). While margins may take a hit in the short term, that’s a lot less expensive than losing a customer for good.