The CEOs of Wal*Mart, Target, and Costco, are sounding the alarm about changes in consumer behavior, including delaying purchases of high-priced items and trading down branded products. They are also saying that in-store traffic has steadily declined this holiday season. Will brands respond?
While the headlines indicate that inflation is cooling, higher prices are turning consumers into the Grinch this holiday season. Not only are consumers putting off high-priced items they are purchasing more private-label products, which are seeing increases in both dollar and unit share.
Many brands increased prices this year but now that shipping costs are decreasing, there is no indication that prices will come down. They’re taking the extra money for their investors and balance sheets, but consumers are noticing and trading down to save money. How bad is it? Walmart says its most significant increase in shoppers is people making $100,000 and above.
As one analyst recently said, “brands that raised prices and blamed it on inflation are losing customers, and it’s going to take a lot of effort to win them back.”
Of course, brands can run promotions, but that will eat into their profit margins. A broker who services three top food retailers said, “it would probably be best if they just reduced prices, but they’re not going to do that.”
Promotional tactics discussed include a return to FSIs and buying in-store end caps. One of the biggest CPG companies, P&G, said it’s relying less on digital and more on “traditional” advertising channels. Retailers are looking more at localized sourcing and reducing the prices of necessities to increase sales.
Marketers will spend hours with boatloads of data before they take action, but retailers aren’t waiting. Stores are resetting aisles and moving slower-moving brands to lower shelves while promoting new and private-label products.
Marketers trying to understand what’s happening are missing a crucial point; consumers know that most price increases weren’t justified, and they are fed up paying more for specific brands and then reading that they are making record profits”. A buyer of a vast chain here in the Midwest told me “consumers are smart about shopping. They know what’s happening in the economy.”
Brands that raised prices to increase profits will pay the fee to consumers, and marketers will have to figure out how to woo them back if they can.