What shoppers want: Can food makers retain brand loyalty as the cost of living crisis bites?
In the UK, 81% of people say they are ‘highly concerned’ about the rising cost of living, data from innovation and intelligence platform Vypr reveals.
"Our findings prove the reality now facing the public,” Ben Davies, founder at Vypr, observed.
Indeed, experts at US-headquartered bank Citi predicted UK food price inflation is on track to hit 20% in the first quarter of next year. The Consumer Price Index reached a 40-year high of 9.1% in May as rising food costs overtook surging energy prices as the main inflationary driver. Food and non-alcoholic beverages were 8.7% more expensive at the till than in May last year, the CPI showed.
This upward trend looks likely to accelerate thanks to the higher cost of imported food – up 20.5% - and a 10.3% increase in domestically produced ingredients.
"Food inflation overshot our forecasts. We now expect price growth here to peak at a little over 20% in Q1 2023, with producer price inflation here continuing to accelerate," Citi analysts wrote this week in an investor note.
Rising prices have prompted shoppers to reassess their food and beverage purchases, with a renewed focus on pricing and value coming to the fore, Vypr data reveals.
Figures taken this month from a sample of 5,000 of Vypr's nationally representative panel of 65,000 consumers show 50% of us are now spending less. This number increases to 60% when adjusted for low income households with earnings of up to £25,000 p/a. Looking specifically at food and drink, 30% of people reported spending less on groceries, with 53% stating they are cutting back on eating out and takeaways.
“The majority are cutting back on all aspects of their spending and when it comes to food and drink, and people are looking to supermarkets to increase value ranges, improve offers and do all they can to help the consumer in these extremely challenging times,” observed Davies.
The search for value: Deals, discounts and private label
Vypr’s research demonstrates how far and fast consumers are changing their shopping habits in response to the difficult economic outlook. The data and analysis group notes that rising prices have had an impact on shoppers from across ‘all age groups’.
Shoppers report that they want to see ‘better deals and offers’ with 52% believing this will help them weather the cost of living storm. Ranging in basic or value lines in supermarkets was also identified as important to 37% of people.
“It’s not necessarily about having more value products and ranges on the shelf; it’s about getting the availability of the value ranges as high as possible and ensuring the overall range represents the best value proposition for as many consumers as possible. The opportunity for private labels to offer the most compelling version of a product on the market from a value perspective is clear, as demonstrated by the discounters,” Davies told FoodNavigator.
Indeed, discount retail formats like Aldi and Lidl appear well positioned to meet the needs of this growing value-focused consumer base, with a sizeable 14% of shoppers surveyed reporting that they have already changed their ‘main supermarket’ due to rising living costs.
To attract and retain footfall at a time when price and value are front-of-mind, Davies advises a sharpened focus on the value and differentiation that innovation in private label can deliver. “Private label innovation is one of the few routes to differentiation that the retailers have, and it should be leveraged, not ignored in a time of economic inflation. It’s not necessarily about product engineering – it means product propositions can be re-thought to deliver more value to the consumer, not less,” he suggested.
The value appeal of private label is particularly noteworthy when considered in the context of the price hikes that some brand owners have pushed through this year. Kantar data examining June prices showed a significant hike across various brands, with the price of Heinz Tomato Ketchup jumping 35%. Birds Eye Steamfresh Garden Mix vegetables surging 28%, McVitie's Digestive Biscuits rising 15% and Actimel yogurt gaining 9%. This will translate to an extra £454 on grocery bills this year, Kantar forecast.
“Shoppers will be watching budgets closely as the cost-of-living crisis takes its toll," Fraser McKevitt, head of retail and consumer insight at Kantar, predicted.
Will rising prices put brand loyalty to the test?
If private label is seen as an important tool for consumers trying to keep a lid on spending, what does this mean for brand loyalty?
The Vypr research findings suggest that household income has an influential relationship over brand purchases and promotional strategies. If shows that lower-income households buy fewer branded products, whereas higher-income households are looking for more deals or offers. Respondents said they are seeking out more 'yellow label' reduced items, using more voucher websites for discount codes before shopping, and finding price freezes on essentials.
Which promotional strategy resonates most? Davies believes the greatest value is that which is delivered in the simplest way.
“From the insights we’re getting weekly from consumers, we know they want the retailers to make pricing and promotions as simple as possible and not ‘hide’ value in vouchers or loyalty cards. This is one of the reasons why the discounters are growing so rapidly now – the simplicity in understanding the value they offer is hard to match,” we were told.
In the short term, Davies expects brand loyalty could well take a hit. In the longer term, the outlook for brands will depend on a range of factors, from economic context to the value they are able to communicate and deliver.
“Private label has been outgrowing brands for a few weeks and will continue to do so. It may erode brand loyalty in the short term, but it’ll likely bounce back in due course, subject to the value proposition these brands bring to the market as we exit the downturn, hopefully, next year.”
In the meantime, Davies advises: "For retailers and manufacturers, it's about getting the basics right at the moment. Their strategy should be informed by what will represent the best value range for the consumer in the next 6-9 months and likely beyond. This is a significant opportunity for supermarkets and food retailers to evaluate their private label product offerings to ensure consumer loyalty and support households during a difficult time."
