With rising inflation across all regions, how will shoppers react?
How shoppers cope with inflation
In 2021, inflation rose in almost every region in the world and in the first quarter of this year this has only accelerated. During the pandemic, many households could cope with rising prices in the grocery sector, by using savings made elsewhere (less socialising, fewer holidays). But with lockdowns now over in a large number of regions and a return to ‘normality’ the pressure of inflation will be more keenly felt.
The burden of inflation is also highly variable across regions. According to data from the World Bank, the share of consumer expenditure on food and beverages can range from over 40% in the Philippines to under 10% in GB and the US. This share is generally higher across most Asian and Latin American markets. But even in markets where this number is below average, lower-income households naturally feel the squeeze more, given their lower proportion of disposable income.
When faced with increasing financial pressures, shoppers can find a way to cope by using different levers to manage their spend. Shoppers can:
Even before the end of 2021, we were seeing some evidence of these behaviours already in play.
Searching for savings
Across most markets where the Discounters have a strong presence, the channel continued to gain share. This was particularly evident in Eastern Europe with Discounters reaching over 40% in Poland. And although the channel is now well-established in Latin America, it is in Colombia where it has now reached 25% share to become the biggest channel.
Although smaller than the Discounters globally, the Cash & Carry channel is particularly strong in Argentina, Brazil, Mexico, and the US. This channel also gives shoppers a cheaper alternative to traditional hyper/super-markets and was the second fastest channel (after ecommerce) globally in 2021, making gains in key markets, as the graph shows.
Promotions bouncing back
In 2020, as lockdowns increased demand for in-home groceries worldwide, retailers took advantage, with a significant reduction in promotion spend (-1.2% share), and whilst this continued to fall in GB for example, globally we saw a bounce-back in promotional share in 2021 of +0.7% share points.
Mainland China led this uplift (+0.8%), along with Germany (+1.1%) and France (+1.7%).
In Mainland China, we can attribute the continued growth of promotions to the steady rise of ecommerce in this market, as promotional share is 44% online compared to 23.8% (and falling) in hyper/super-markets. In France, rules have been in place since the beginning of 2019 preventing food products being discounted by more than 34%, which led to a decline in promotional share in both 2019 and 2020. However, this is on the rise again in France due to an increase in share across all the major channels, up +1.9% in hyper/super-markets, +1.1% in the discounters and +2% online.
Inflation Coping Impact on Grocery Spend
The last few pages were anecdotal evidence of how shoppers have been coping with rising prices. As said, the impact of inflation impacts every household differently.
Therefore, to understand how shoppers are coping, you need to analyse behaviour on a household-by-household basis. This is the only way to truly understand how shoppers are reacting to current financial pressures.
We have gathered data of this kind from Great Britain. And while the volumes are less useful at the moment, as lockdowns and the releasing of restrictions distorts the data, the changing coping strategies are important to note.
In the latest 12 weeks to 20 March 2022, we see a sharp response to inflation in product mix, i.e., shoppers trading down to cheaper branded alternatives. This is a short-term response, and it will be worth keeping an eye on this over the coming months as inflationary pressures increase. (And naturally this graph, and the spending distribution will look quite different depending on whether a household is ‘comfortable’ or ‘struggling’).
