Early in the year, manufacturers telegraphed plans to pass along their higher costs from transportation, commodities and labor, and the inherent expense of a struggling delivery infrastructure. And consumers are making the connection: In the Ingredient Communications survey, 74% of U.S. respondents blamed higher food and beverage prices on supply chain issues. In terms of who was responsible for the problems, 59% of U.S. consumers pointed to the government, with 17% blaming food manufacturers.
That said, the increase in food prices has been uneven across categories. According to the Bureau of Labor Statistics, the Consumer Price Index for food at home rose 6.4% over the past year — the largest 12-month increase since December 2008. But while prices for dairy — which the survey found had the lowest price sensitivity — was up the smallest at 1.6%, the increases were much higher for other categories, like meats. The price index for beef rose more than 20%. This trend has been dampening demand, with U.S. retail sales of meat down more than 12% this summer, Bloomberg reported.
Although it’s considered a staple by many consumers, meat already started off at a higher base price, which could make it tough for many to swallow a large increase. “For basic goods, even a large percentage price increase might still only be a matter of cents or pennies,” said Richard Clarke, managing director of Ingredient Communications, in a statement. However, a small percentage increase in the cost of an already premium-priced item “might be measured in dollars or pounds.”
Consumers are also willing to consider their options when the price rises on their preferred brands, the survey found. Among U.S. respondents, 58% said they switched to a less expensive brand in the previous three months because of a price increase in their original choice. And 28% said they had switched to a retailer’s private label for that item. This matches up to other recent research that finds consumers more willing to switch brands in this environment, with price a top motivator.
Here, making a value sell is key to retain customer loyalty, Clarke said. He recommended CPGs demonstrate their products’ added value through high-quality ingredients that clearly differentiate or earn consumers’ trust, “whether that’s through proven efficacy, sustainability, strong co-branding, or a combination of these.”
“These values, communicated effectively,” he said, “will tie a consumer to a brand more closely, mitigating the impact of price increases on purchasing behaviour.”