Spend shifts
How the world is learning to live with inflation
As we move through 2023 some respite is found in the easing of country-level inflation in many markets, but prices remain high, particularly when it comes to food. This may be our new normal.
Consumers will adjust their sails to meet the challenges of the inflationary storm
We foresee no soothing return to a familiar landscape; instead, change will be our constant companion as consumers navigate a terrain of higher prices misaligned with real spending power.
Human adaptability, proven time and again throughout history, will turn shoppers into explorers where down-trading, smaller pack sizes, and more private label products will shape new habits. Some products or categories may even be abandoned altogether. In short, consumers will adjust their sails to meet the challenges of the inflationary storm.
Adapt and overcome
In this environment, it will be imperative for brands and retailers to match this adaptability. Sitting still won’t be an option. An understanding of regional idiosyncrasies, and a keen comprehension of consumer preferences are the essential compass points.
We already see clear signs that brands delivering value and meeting consumers’ new needs will win more often.
Inflation rates, which we have not seen for decades in Europe and remain high in other regions, are reshaping the shopping terrain. Let's examine how consumers are not just coping, but adapting, evolving, and learning to live in this new inflationary epoch.
Regional relativity
Each region has its tale to tell. Latin America, for instance, has witnessed inflation rates higher than elsewhere, mirrored by its FMCG spend. This synchronization could be attributed to consumers’ familiarity with enduring high inflation levels. In most other markets, a gap exists between inflation and value growth, averaging about 8%, which demonstrates how shoppers are devising ways to counteract the rise in prices.
But how exactly are consumers navigating their new normal? The response is multi-faceted. Some choose to adjust by reducing volume within categories, while others opt to abandon certain categories completely. A shift in shopping location is also a viable route, as consumers turn to more economical stores. Choices within the product sphere are also shifting, with an increase in promotional purchases, private label buying, and the selection of cheaper branded alternatives.
The tools to combat inflation are varied, yet specific trends have emerged in different markets. In Latin America, for instance, Colombia sees a reduction in volumes, while Mexico has adjusted the product mix. Europe, unaccustomed to such high inflation levels, combines both tactics. Meanwhile, Egypt leans towards reduced volume, and the United Arab Emirates employs a mix similar to Europe. In Asia, where inflation is lower, tactics vary from market to market.
Even within a single market, such as Spain, the approach varies by sector. Notably, the level of inflation absorption by consumers is influenced by the level of mitigation. This underlines the fact that a 'one size fits all' strategy is not applicable in the world of FMCG. To truly comprehend the impact of inflation on consumers, an in-depth, market-specific, and category-specific analysis is crucial.
