Here's how our behaviour is changing as the cost of living bites

Wednesday, 31 August 2022

Supermarket shoppers are changing their behaviour to minimise price shock at the checkout.

Shoppers are switching to more economical bulk purchases, favouring cheaper frozen foods over fresh, and downsizing their luxury purchases as high inflation swells grocery bills, according to the world’s largest consumer insights company IRI.

Inflation is running at 7.3%, the highest rate in 32 years, as the war in Ukraine and the Covid-19 pandemic disrupt global supply chains and push up prices. Households are feeling the pinch and IRI has launched a quarterly inflation impact tracker to provide retailers and manufacturers with insights into consumer behaviour to help them respond.

“There’s no blueprint for this environment,” said IRI New Zealand managing director Craig Irwin. “There’s just so many things happening at once that don’t usually happen together.”

Groceries were getting expensive and consumers were responding by managing what was in their trolley to try and minimise price shock at the checkout.

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During the earlier stages of the pandemic, shoppers tended to trade up to a more premium option if the product they wanted was not in stock. However as budgets tightened, they were shifting to more affordable options like private label supermarket brands, he said.

“Consumers are undertaking a number of strategies to manage their weekly grocery budget,” Irwin said. “This includes buying larger pack sizes, shopping at multiple locations to get the best price and in some cases, going without if the product they want is not in stock or becomes too expensive.”

He said consumers were favouring larger pack sizes on everyday staples. While an economy size might cost more upfront, the per-unit cost was lower, for example buying a value pack of toilet paper.

People were also buying smaller amounts of more expensive items. That could mean buying two packs instead of six, or buying a smaller pack of biscuits to allow you to still enjoy the indulgence but adjust to eating a few less to keep your basket size down.

Irwin said manufacturers had to be transparent about shrinking package sizes or risk getting called out by consumers.

Seasonal bad weather was an additional factor pushing up the price of fresh fruit and vegetables and consumers were switching to more affordable frozen alternatives which would also last longer.

IRI New Zealand managing director Craig Irwin says not all consumers are doing it tough.

To help save money, shoppers were either cutting out meat or switching to cheaper options such as sausages and mince instead of more premium cuts like steak.

People were also dropping some ingredients such as capsicum from their recipes if they were too expensive or swapping ingredients such as switching out cherry tomatoes to a cheaper tomato.

Still, Irwin noted that while many were impacted by the Covid-19 pandemic, not all consumers were doing it tough in this environment.

“There’s a bunch of people who weren’t really impacted by Covid – their careers and jobs were safe and their income was safe, but they weren’t able to spend a lot of that money on the things they normally would like holidays and travel, and they’ve still got a bit of money to spend,” he said.

That meant there was still demand for luxury premium products like a nice tub of ice-cream, choccy biscuits or bottle of wine.

If manufacturers and supermarkets just focused on offering the cheapest products they would miss out on a big area of opportunity, he said.

“There's still an element of the community that's got some money to spend and wants to enjoy those little luxuries,” he said.

Manufacturers had consolidated their ranges to focus on the biggest selling products during the pandemic as they faced supply constraints but those pressures may be starting to ease, Irwin said.

While the outlook was hard to predict, he expected the current inflationary conditions may last into the first half of next year before returning to a more normal environment.

“Consumers have already started to change their shopping behaviour and this is likely to accelerate as New Zealand’s economic situation becomes more challenging,” he said.

IRI’s inflation tracker is based on scan data, and its cost of living and cost benchmarking surveys.

Irwin said the next 12 months would be challenging for businesses as labour shortages, worker absenteeism, supply and transport issues and continued increases in input costs persist.

“New Zealand’s fast-moving consumer goods sector is the country’s leading barometer of, and a major player in, the economy,” he said. “As the front-line sector for the economy, we are facing one of the biggest challenges thanks to a maelstrom of global and local events which are pushing up inflation and creating other market pressures.”

However he said 83% of suppliers surveyed were optimistic they could weather the storm ahead.