While the US is gaining ground on the inflation front, consumers and retailers are not out of the woods yet. Fewer government support programs for pandemic relief coupled with another year of inflation created added financial pressure for both low income households and retailers alike.
March marks one year since the official end of the pandemic hunger relief program; a program designed to provide additional assistance to households participating in the Supplemental Nutrition Assistance Program (SNAP). Approximately 42 million people rely on SNAP to purchase groceries. When the pandemic hunger relief program was dismantled, their monthly benefits dropped from $9 a day per person to $6 a day per person. Roughly 3 billion dollars allocated for food spending was gone.
The impact has been farther reaching than retailers anticipated. A year later, we can reflect with more clarity on the socioeconomic spectrum of US consumers and their trends.
A Rising Consumer Price Index
The end of the pandemic hunger relief program came at a tough time for low-income households because inflation prices for groceries were still very high. The average cost for a cart of groceries has increased approximately 25% since 2020, putting 22 million households under financial stress as they consider how to spend money on food for their families.
The question of what to make for dinner when funds are extra low has prompted consumers to shop differently. Several seemingly stable brands are having to rethink products, supply chain costs and marketing strategies to navigate the shifting dynamic.
Retailers Underestimated Government Support
Food companies anticipated that less money would be spent on their products when the pandemic relief program came to an end, but companies like Nestle are admitting the ebb of money has had a farther-reaching impact than initially considered.
Though everyone has noticed higher grocery store prices, consumers on the low end of the socioeconomic spectrum have faced greater stress. This group of consumers opted to let go of expensive grocery options in favor of inexpensive products; most of which are private label, or generic, products.
It’s the unforeseen impact of private label options on branded products that has produced a more targeted effect on specific product lines. Private labels like Classic Cola, tend to do better in economic recessions than branded labels like Coke. In the last year consumers have moved away from brand name frozen options, beverages and baby food, to name a few, in favor of the less expensive private label options. The move has decreased demand for several household name brands including PowerBars, Jenny Craig and well known frozen pizzas lines.
The few cents saved by purchasing the off-brand option adds up for households who are contending with the high costs of everything from food to vehicle fuel, to monthly electric bills.
Large companies like Nestle and their competitors are taking a hard look at specific product lines as they watch this consumer trend continue to unfold. Pizza, single serving frozen meals, and other reheat and eat food options have been impacted more than expected.
Prepared foods have taken a hit for another reason. An increasing number of low -income consumers are purchasing individual meal components instead of the more expensive already made and frozen options. Retailers are seeing several product lines underperform and believe this is a direct result of the dissolving of the pandemic hunger relief program.
Rising Consumer Debt
Consumer debt is also influencing spending practices. In general, purchases that can be paid for on an installment plan have remained steady. As shoppers max out limits on credit cards, the struggle to afford to put food on the table intensifies.
2022 tax returns were expected to alleviate some of the strain on low income households, but the average return was characteristically low. Most households chose to pay off debt rather than shift spending habits with their tax return money. 2023 returns could change the purchasing dynamic in the coming year by bringing some slight relief to lower income homes.
The current situation puts retailers in an equally tough spot. Is it time to let go of underperforming brands? Or should big companies like Nestle wait out the slow growth season in the hope that things will level out in the coming year? Idle time will mean money lost for once popular brands if consumer spending habits maintain the current trajectory. For now, Nestle insists they will place a firm focus on understanding consumer demands. They have also expressed stronger commitments to more nutritious options in their single meal frozen options.
Consumer Clarity
Another driving force for companies like Nestle is a changing value system for consumers. Across the socioeconomic spectrum there is a growing demand for quality and highly nutritious ingredients. Where once convenience drove spending habits, we are now seeing consumers at all income levels desire more bang for their buck in the form of nutrients. More people are willing to trade minutes of their day for meal prepping purposes than they are to trade dollars for convenient meal options.
The consumer’s perception of what is healthy is changing. Shoppers at all income levels seem to be taking a closer look at labels which is prompting companies to find alternative recipes and campaign strategies. “Easy to cook” marketing strategies are not getting as much traction as “all natural” or “no preservatives” labeling. It’s highly likely that we will see well known brands offering new product lines that meet this consumer demand. Already Nestle is investing in additional options for their Salad Additions and Honestly Good lines.
Higher production costs and inflated commodity prices are impacting bottom lines for many big-name companies like McDonalds, Pepsi Cola, and Krispy Kreme. Consumers, especially low-income homes, are increasingly unable to pay for food at elevated prices. These imbalances continue to shape the business of food.