In 2023, consumers will continue to be cautious amid a post-COVID period of rising interest rates, mixed job market signals, and the lingering threat of a recession. Although inflation continues to soften, consumer sentiment continues to trend downwards. (Acosta Group)
New data shows Americans have more cash sitting in the bank than they did before the pandemic.
- Americans have ~10%–15% more in their bank accounts than they did in 2019, according to a JPMorgan Chase analysis of 9 million Chase customers’ checking and savings accounts.
- Meanwhile, after lagging behind inflation for two years, wages are finally rising faster than prices. Last month, hourly wages were up 4%, while prices for consumer goods only climbed 3%.
However, households are rapidly spending down that extra cash they’d socked away during the pandemic. Median account balances are at their lowest levels in roughly three years and have dropped as much as 41 percent from their peak in April 2021, when Americans were flush with government stimulus money and tax returns, according to a JPMorgan Chase Institute analysis of the bank accounts of 9 million Chase customers.
Economic uncertainty and rising prices are taking their toll on consumers. Many shoppers think the U.S. is already in a recession or will be soon. They are already paying more for everything from healthcare to housing and utilities. Shoppers tell us that:
- They are cutting back. Shoppers continue to spend less across the board, from eating out to entertainment, from discretionary purchases to travel. The silver lining is that these cutbacks are lower than last year, implying optimism for more financially secure shoppers.
- Food insecurity is a big problem. Four in 10 shoppers struggle to buy nutritious food; they eat less fresh meat (48%) or produce (37%) because of higher prices. This is particularly pronounced for SNAP (Supplemental Nutrition Assistance Program) recipients; Over half struggle to buy nutritious foods for their families.
- Physical and mental health is suffering. Nearly one in five shoppers report that their physical or mental health is fair or poor.
Three Segments Of Consumers Emerge: From Surviving To Thriving
This Surviving, Steady and Thriving segmentation is based on how shoppers’ changing financial situations have informed their current attitudes, behaviors and expectations. Our research shows that:
- The financial situation is not improving. The financial situation is the same or worse for most: Almost 40% of shoppers are worse off financially than before, but 20% say their financial situation is better.
- Working hours have increased. The Surviving segment is trying to make more money—they are more likely to work extra hours, take on a second job, and look for a better-paying job. The Thriving segment has had success making more money. They also work extra hours and a second job, while some have already started a better-paying job.
- Income is not the only factor. This is not a tale of haves and have-nots. There are higher- income households Surviving and lower-income households Thriving. 38% of Thriving have less than $50K household income. 14% of Surviving make over $100K.
Shopping Shifts From Fun To Frustrating
With higher prices and more demands on less income, shopping has become a chore rather than a fun activity. To combat increased costs, consumers are changing their shopping habits–four
in ten now shop at discount grocery stores. But the most significant changes are how they shop, especially the Surviving segment. In this tight economy, shoppers:
- Hunt for deals in their regular store. Low prices remain the most critical factor for all segments, especially the Surviving segment. Four in ten shoppers buy cheaper brands, spend more time looking for deals and buy more store brands.
- Make trade-offs. Almost half of shoppers buy cheaper brands in one category to buy more expensive brands in another category, such as meat or coffee. As part of this trade-off, they are willing to pay more for higher-quality products–especially the Thriving segment.
- Stick to the list with an occasional splurge. Surviving shoppers are far more likely to stick to their list, while the Thriving segment will sometimes buy on impulse. But there is still room for an occasional splurge. Half of all shoppers splurge on dessert, ice cream, or snacks. Shoppers even view staples like fresh meat and fresh produce as a splurge.
How Retailers And Brands Can Ease The Burden:
1ne: Make it EasyShoppers want retailers to make it easier to shop. Most helpful? For 65% of shoppers–low prices on everyday staples.
2wo: About half of shoppers want some form of a discount from loyalty program rewards or high-value digital or paper coupons. For example, Kroger’s new “Smart Way” brand offers basic groceries like sliced bread and mustard at the lowest price point. Drug stores such as CVS, Walgreens, and Rite Aid promote exclusive digital deals through their loyalty programs, and Walmart strives to attract more customers to its subscription service, Walmart+. To put the fun back into shopping,
3hree: Fight brands trying to raise prices and add more store brands to compete.
4our: Remerchandise products based on the “better value” versus lower margins.