Inflation and recession threats have rattled retail to its core

Navigating the last few years hasn’t been easy for anyone. Job growth may be strong, with a near-record low unemployment rate of 3.5% in July 2022. But rising interest rates, inflation, and the threat of a looming recession are all challenging consumers across the U.S.

Even though there hasn’t been an official call from experts on whether the U.S. economy is in a recession, many consumers are acting as though they already are when they shop. The U.S. inflation rate was at 8.3% in August, rising month-to-month despite economists expecting it to fall.

This summer, 66% of Americans reported feeling worried that a major recession is right around the corner, and 82% expected that inflation would negatively impact their purchasing power over the next six months.

In a June 2022 NielsenIQ survey, the majority of participants agreed that economic hardships and supply disruptions will likely continue into 2023 or beyond. Consumers also don’t feel secure in their short-term economic stability and have concerns about paying for their daily expenses.

These consequences from the pandemic, inflation, supply chain disruption, and political unrest have all made it difficult to predict what’s to come and how to stay one step ahead. With this fear that uncertainty and hardship will continue, and potentially worsen, consumers are looking for some guidance and relief.

What’s happening in food?

Much of CPG’s recent inflation has come from food categories. Dairy, frozen food, dry grocery, and meat prices all jumped significantly during 2022, according to recent NielsenIQ data. The rising costs of raw ingredients, shipping, and labor are all contributing to the strain.

So, what can brands do? Despite consumers tightening their budgets in anticipation of a recession, CPG grocery brands should plan for sustained demand. Grocery spend is expected to increase as consumers shift their priorities and eat more at home.

In the same June 2022 NielsenIQ survey, 38% of respondents said that their top concern right now is rising food prices, followed by rising gas prices (22%), economic downturn (21%), COVID-19 resurgence (20%), and rising cost of utilities (16%).

Brands need to know exactly what their customers are concerned about so they can fully understand what strategies consumers will employ to cut costs. For example, there were noticeable changes once gas prices started climbing—people drove less, shopped online more, and shopped closer to home all to cut back on gas expenses.

Similar behavioral changes are happening due to high food prices; 81% of consumers told NielsenIQ they have adjusted the way they shop to manage expenses.

Not only are people spending less on dining out and more on groceries, they are also shopping for those groceries differently. The most popular strategies are stocking up on items when they go on sale, using coupons, shopping at stores with lower prices, and buying private-label store brands.

In order to offset higher material costs, NielsenIQ survey participants said they are most interested in brands offering economy sizes of products for lower cost of use, or increasing prices while maintaining the same product quality. They don’t want brands to offer shallower promotional price points or less frequent price promotions.

But brands must remember that they can’t fall back on promotions or blanket price increases to drive sales, because they can’t rely on shoppers to stay loyal in such uncertain and disrupted times.

Some of today’s disruptions to the economy are short-term, like COVID-19 fallout, but others will have long-term ripple effects, like climate change, financial polarization, political conflict, and shifting consumption patterns.

Learn more about what to expect from consumers through the end of the year by downloading NielsenIQ’s Navigating Disruption infographic.

NielsenIQ is the leader in providing the most complete, unbiased view of consumer behavior, globally. Powered by a groundbreaking consumer data platform and fueled by rich analytic capabilities, NielsenIQ enables bold, confident decision-making for consumer goods companies and retailers both large and small. For more information, visit NielsenIQ.com.