By Epiphany Communications and Coaching*
Real consumer spending is forecast to drop at a 0.5% annualized rate in the second and third quarters of 2023, the first back-to-back quarterly decline since early 2020. U.S. retail sales fell 0.4% in February from the month before according to the Department of Commerce.
USDA reported that the food at home index (groceries) rose 10.2% over the last 12 months.
“We are looking at economics 101, which I addressed in my chairman’s message this issue,” said Bobby Hesano, MIRA Chairman and Owner of D&B Grocers Wholesale & Distributors. “It’s imperative that our retailers look at the supply and demand issues in the industry when it comes to setting prices.”
This year, a family of four is living on a food budget of $1,000 per month on groceries ($979.40), according to the Official USDA Thrifty Food Plan for February 2023. For perspective, two years ago, a family of four on the same budget spent about $300 less per month ($674.80). And even just a year ago, the expense was $887.80, or about $90 less per month.
“Inflation and economy tend to elicit an immediate reaction, while sustainability is more of a part of your belief system,” said Dr. Russell J. Zwanka, Food Marketing Program Director at Western Michigan University. “They both do lead to consumer purchasing behavioral shifts, though.”
For the inflationary impact, and now the sense that banks are not safe, currency discussions are happening globally. “There’s a general unease, most people tend to circle the wagons and shift into ‘savings mode’ if they can,” said Zwanka. “In the case of uncertainty paired with high inflation, a robust store brand program is the best place to start.”
Some of the largest monthly declines were in food services and drinking places (-2.2%), department stores (-4%), furniture and home stores (-2.5%), and auto dealers (-1.8%), according to reports. “Ensuring you have a store brand program with at least three tiers will help ease some anxiety with customers,” said Dr. Zwanka. “The tiers should be opening price point, national brand equivalent, and a value-added tier (think vanilla ice cream with Madagascar vanilla).”
Consumers are getting creative and finding new ways to cut back on spending. In the fresh food departments, Dr. Zwanka says it’s especially important to make protein packages that can serve a family of four for around $12-$15. “You may have to trim the pork chops a bit smaller for each portion, put less ground beef in the pack, etc.,” said. Dr. Zwanka. “Doing this will help the customers still feed their families, although the protein pieces may be a bit smaller. When times are tough, customers gravitate towards foods that can stretch the dollar, like rice, pasta, soup, beans, cabbage, etc. You can still eat healthy on a budget. Items like spinach, bananas and kale are quite affordable, while also being healthy.”
Knowing how customers react, retailers need to respond. “Knowing what your competitors are doing is valuable,” said Hesano. “Customers will not only get creative, but shop the best prices.”
Although the index for eggs increased 55.4% over the year, it decreased -6.7% over the month of February. And that decrease in egg prices is projected to continue. The USDA reported that high egg prices resulted from outbreaks of the avian flu, which has killed in excess of 58 million backyard and commercial poultry species since 2022. The agency said that egg prices will fall nearly 30% during 2023 assuming there are no additional avian flu outbreaks.
For sustainability, Dr. Zwanka suggests stores focus on reducing waste by promoting frozen vegetables, and really anything frozen, as a sustainable solution for reducing waste. “Most waste comes from the produce department, and products in a frozen state are quite sustainable,” he said. “If you have a large offering of foodservice items, watching which ones are thrown away at the end of the day and adjusting production, can help an operation remain viable and sustainable. I’d suggest you look at the total customer, when it comes to helping the environment, sustainability, and include fair trade, rainforest preservation, recycling, etc. It all works together with an entourage effect for the environment.”
*Writers with Epiphany Communications and Coaching are content creators for Bottom Line.
