The cost of an average stock-up trip to the grocery store has jumped 27% since the beginning of the pandemic, and Acosta Group reports that although wages are beginning to catch up to higher prices, consumers remain frugal at the checkout aisle.
That poses new challenges for brands and retailers that are accustomed to pulling back on promotions and deals following periods of high inflation, according to the report.
In its inaugural Affordability Tracker report, Acosta, a retail intelligence and marketing firm, analyzed the cost of an 84-item basket of common groceries, revealing that today’s $336.04 price tag is up $78 from the same four-week period in 2020.
The rapid rise in grocery prices, particularly between 2021 and 2023, has made affordability a “defining concern for consumers, retailers and brands alike,” Acosta said in the report.
Inflation might be cooling, but the shopping habits persist, and navigating this new normal will require a strategic shift by brands and retailers, according to Acosta.
The report advises retailers to communicate comprehensive value beyond just low prices, and urges brands to justify their costs by clearly highlighting product differentiation.
The ‘incomplete lens’ of price
Since the beginning of the pandemic, affordability has changed the way consumers shop, what they buy and, perhaps most importantly, how they define value, said Colin Stewart, Acosta EVP of Business Intelligence.
That means the typical approach retailers and brands take on price is now an “incomplete lens” into consumer behavior, the report said.
“Consumers see higher shelf prices and conclude affordability has worsened. Retailers and brands monitor inflation rates and category pricing trends to understand how costs are changing across the marketplace. While those measures are important, they tell only part of the story,” Stewart wrote in the report. “Affordability is not determined solely by what consumers pay, but by the relationship between what consumers pay and what they earn.”
It’s an important distinction for brands and retailers to consider “because affordability is both an economic measure and a deeply personal experience,” he said.
The relationship between prices and consumer earnings is more nuanced and shows that affordability and consumer spending habits are no longer correlated.
Retailers and brands also should consider that housing, health care, insurance and other essential expenses are pressuring household spending, and grocery expenses can still be managed.
Trends in a new paradigm
Consumers’ search for deals is driving the trend of promotional engagement from brands and retailers beyond their typical shelf life when wages begin to catch up, according to Acosta.
“For retailers, this means pricing and promotional strategies remain critically important even as inflation moderates,” Acosta said. “For brands, it means product benefits, quality and differentiation must increasingly justify higher price points in the eyes of consumers who have become more selective and more deliberate with every dollar they spend.”
In many cases, consumers are prioritizing essentials and becoming more selective with discretionary items.
Acosta notes that promotions can help drive consumer spending, but they are only part of the “larger equation that increasingly includes quality, convenience, innovation, reliability and brand trust,” said Acosta.
“Organizations that understand this shift will be better positioned to build loyalty in an environment where shoppers continue scrutinizing spending decisions even as affordability improves,” Acosta said. “The inflationary period may eventually fade into economic history. The shopping habits it accelerated appear considerably more likely to remain.”
Takeaways for retailers and brands
Brands and retailers built success around helping consumers manage rising costs during the pandemic, but moving forward, success may rely more on helping consumers navigate choice, Acosta said.
Tightening their budgets during periods of inflation has made consumers more selective, and tapping into that is key to winning their business, the report added.
“Purchases that clearly communicate value continue earning consideration,” Acosta said. “Purchases that fail to justify their cost face greater scrutiny than they might have received before the inflationary period reshaped household budgets. For retailers, this reinforces the importance of value communication throughout the shopping journey.”
That means reassuring consumers that they are making smart purchases, Acosta said.
“Effective pricing strategies, relevant promotions, compelling merchandising, personalized loyalty programs and clear value messaging all contribute to that confidence,” according to the report. “The retailers best positioned for success will be those that make value visible, understandable and easy for shoppers to recognize.”
Low prices do not equal value
Equating value with low prices might have worked as a marketing tactic during the pandemic, but retailers might reconsider as inflation cools, the report explained.
“As a result, shoppers increasingly evaluate purchases through a broader lens that includes quality, convenience, assortment, trust and overall shopping experience. While price remains important, it is only one component of a much larger value equation,” the report noted.
Separately, brands should reconsider disruption in consumer loyalty patterns, as many shoppers experimented with “private brands, different retailers and new purchase behaviors as they searched for ways to manage rising costs.”
The experimentation led to many consumers discovering products at different price points that challenged longstanding assumptions about consumer trends, according to Acosta.
The new normal means brand relevance must continue to prove its worth in a market where “familiarity alone is no longer sufficient,” Acosta said.
“Increasingly, shoppers expect brands to communicate clear and meaningful reasons to buy. They want to understand what differentiates one product from another, what benefits justify a premium price and why a particular purchase deserves their attention,” the report said.
