Economic turbulence, years of unusually high inflation, and even political events are causing significant shifts in grocery consumer behavior. Across Europe, food prices are roughly a third higher than pre-pandemic levels, with increases ranging from 20% in Cyprus to 57% in Estonia since the end of 2019, according to the European Central Bank.
At the same time, consumer confidence is dropping. 56% of European consumers are pessimistic about the economy, and 53% are worried about their day-to-day personal finances, research from BCG shows.
As a result, price sensitivity is on the rise: 63% of consumers report that they “will only buy at a discount or actively seek deals”.
So, what does that mean for grocery shopper behavior, and how should grocery retailers react?
What it means for shopper behavior
In times of uncertainty, rising prices and falling consumer confidence, we should expect a lot to change when consumers go shopping. Firstly, falling confidence typically indicates shoppers will refocus their spending onto essentials. Groceries usually benefit to some extent from this, as people are less likely to dine out and more likely to save money by cooking at home.
However, at the same time, non-essentials like alcohol within the grocery category are likely to see reduced demand as shoppers reprioritize their budgets. Similarly, as consumers become more value conscious, they’re less likely to one-stop-shop, and more likely to visit multiple retailers to get the best value for money.
That’s an example of how brand loyalty declines significantly when price sensitivity increases. 44% of consumers say that their most recent purchase represented a switch to a brand they don’t usually buy, or have never previously purchased. In grocery specifically, 60% say they are willing to switch brands for a better offer.
Another effect of increased price sensitivity is a shift towards private labels, as consumers begin ‘trading down’—a key phenomenon in grocery retail when shoppers are more price-sensitive and looking for value. BCG found that 39% of European consumers now always or often buy private label brands in grocery specifically.
It’s worth noting that trading down doesn’t usually mean a jump from the premium brands in a category to the cheapest option available. Instead consumers are more likely to move downwards in bands, so from premium to midmarket or midmarket to value brands, and from name brands to private labels.
Some categories are more resistant to trading down, where consumers have greater brand loyalty to say, their favorite coffee brand, and might stay the course for that name brand, in spite of price increases relative to alternatives.
Private labels offer an opportunity for grocery retailers to shore up their own brand loyalty. McKinsey found that European grocery retailers where private label sales are above average (as a percentage of the retailer’s total sales) are between two and three times more likely to gain market share.
Turning private labels into so-called private brands, not just cheaper but competitive on quality and with points of difference to name brands, represents a huge opportunity for grocery retailers, allowing them to capture market share with price-conscious consumers, building brand loyalty.
Finally, shoppers may make impulse purchases less frequently, use more coupons, and purchase in bulk more often, in their search for great value.
What can grocery retailers do to succeed in a price-sensitive and competitive market?
Grocery retailers need to be prepared to react rapidly to changing consumer behavior. To do that, they need three things:
- A strategy for cost-conscious consumers
- A real-time picture of what’s happening
- The ability to rapidly act on that information
Strategies for winning in uncertain times
No two retailers will have an identical approach to winning over shoppers in this period when brand loyalty is declining and consumer sentiment is anxious. However, they will all need a plan to effectively utilize promotions, driving additional foot traffic with minimal margin erosion. They’ll need to identify the products that act as drivers of value perception and ensure that they’re competitive on these key items and categories. They’ll also be able to compete more effectively on price and retain greater margins by reducing waste and improving the efficiency of their supply chains.
Getting visibility into demand
Grocery retailers will need an always up-to-date, granular view of demand. Having an excellent strategy depends on understanding shopper’s habits and being able to predict how they will change. Executing a great strategy can’t be done on a one-size-fits-all basis, either. Having real-time store-level demand data allows retailers to refine their assortment and replenishment in a way that will fit the needs of individual stores, reduce overstock and waste, and prevent out-of-stocks.
Rapid action as the picture changes
Retailers who can move quickly will benefit significantly, because consumer sentiment and shopper behavior continues to change fast. Having the technological ability to seamlessly connect demand data with assortment and space planning allows leading grocers to adjust assortments in a fraction of the time it takes when those systems are siloed, and they can do so knowing that the data their decisions are based on is up-to-date, and accurate to the store and SKU level. Failing to move quickly in response to changes in demand means retailers risk ending up with excess inventory, unprofitable promotions and reduced customer loyalty.
