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Value-seeking US consumers cut back on food spending

Cheaper items, smaller sizes, and shorter grocery lists: inflationary effects coupled with a global long-term recession are set to continue shaping food spending habits, according to a recent Rabobank report.

According to a report by RaboResearch Food & Agribusiness, global events over the last 12 months have caused a shift in focus to value, as grocery discounters and warehouse clubs report a surge in popularity.

“Summer marked the start of a challenging trend for many retailers as post-Covid excitement waned and consumers increasingly sought value and affordability among rising prices and deteriorating consumer sentiment,” commented the report’s authors, JP Frossard and Thomas Bailey.

“Inflation is set to remain a problem into 2023. Therefore, we should expect similar spending behaviour to continue for some time.”

Retail acquisitions point to private label opportunities

The report pointed to moves made by the retail industry to meet consumers’ demand for value and affordability.

The authors cited Kroger’s bid to buy Albertsons as a way to generate “significant synergies” in private label brands, vertically integrated manufacturing, and shoring-up of technologies for digital engagement.

Kroger is the second-largest grocer by US market share after Walmart while Albertsons is fourth behind Costco. The deal would inevitably close the gap between Walmart and Kroger.

The $24.6bn (€23.7bn) purchase also adds to Kroger’s online presence as consumers switch between visiting store aisles, ordering home deliveries and curbside pickup.

Report illustrates shifting US consumer habits

In comparison’s to RaboResearch’s July report (The Earnest Files: Inflation Edition), this latest analysis provided further evidence of shifting consumer habits in the US.

The report noted that online groceries were the only subcategory to increase their average transaction size in the quarter (+1% September vs. June).

© AdobeStock/terovesalainen

RaboResearch noted the increase was a continuation of an upward trajectory seen throughout the year. In absolute terms, average online transaction sizes were second only to those of warehouse clubs. However, order frequency has consistently dropped since April 2022, after a steady 2021.

In terms of total spending, discount grocers and warehouse clubs continued to have the strongest growth amid Q3’s heavy inflation environment.

Discounters have experienced solid growth in visits over the past six months (+6% YOY) as consumers look for value, the report highlighted. Warehouse clubs followed as the only other retailer subcategory with gains in visits (+5%), although growth was lower than in the first half of the year.

Meanwhile online, premium & natural, and big box stores – in that order – have been impacted the most.

Transactions at physical grocery stores decreased 2% in September compared to September 2021, when Covid restrictions were still in place.

Economising on groceries to cope in current climate

In addition to focus on value, the third quarter saw consumers prefer lower-priced items, cut out items from shopping lists, and selected smaller sizes.

© AdobeStock/SkyLine

Frossard and Bailey noted anecdotally that they have heard retailers shifting formats to smaller, more affordable sizes. Consequently, the average transaction was $62.98 (€60.46) in September, from $63.75 (€61.19) in June.

“This 1.2% decline comes despite a 2.8% inflation in that period,” the report stated. “Higher prices typically mean higher average transactions, but the current rate at which consumers are cutting spending is more than offsetting these higher prices.”

Other findings revealed that discount grocers had the lowest drop in basket size in the quarter (-0.4%). This category had with the highest increase year-on-year (+11% vs. September 2021).

“These numbers show discounter clients manage to keep items on their shopping lists,” the report said. “On the other extreme of the value-proposition range, premium & natural stores grew baskets by only 1% in the year.”