Walmart Chief Financial Officer Brett Biggs said shoppers aren’t trading down to cheaper brands, buying smaller packages, or skipping over discretionary items — but they are paying attention to rising prices. With financial stimulus all but gone, how long before they switch brands?
Inflation is driving up food, fuel, vehicles, and other everyday products across the country. According to the Labor Department, the consumer price index rose by 7.5% in January compared with the year-earlier period, the fastest jump in four decades. Food costs have been up 7% over the past year — and grocery is Walmart’s largest sales category.
Consumers notice and blame everyone for the high prices, from greedy corporations to the Government. Logic would dictate that eventually, consumers will have to make tradeoffs between the products and brands they love to less expensive products.
The average American consumer “is still in good shape” due to a confluence of factors: low unemployment, rising wages, and an increase in household savings during the pandemic. That may help explain why they are not shopping differently, but someone will have to pay the price of raising wages, which will fall on consumers.
While brands are often built around a specific product or service, marketers must consider how elastic the brand will need to balance the near-term positioning priorities with the long-term requirements associated with future offerings. This is especially true when consumers have so many choices.
Many big brands don’t seem concerned about passing price increases to customers in the wake of rapid inflation and supply chain bottlenecks. But perhaps they should be, with many federal stimulus effects fading and rising consumer concerns about higher prices. Brands’ current confidence that consumers will stick with their favorite products as prices continue to climb may be shortsighted. “We’ve got this false sense of security from some of these brands, who are saying we can raise prices and consumers are going to pay it,” says Phil Lempert, an analyst and food trends expert known as the Supermarket Guru.
The last time consumers’ wallets were significantly impacted was during the Great Recession—and brand loyalty dropped. Only about 40% of brands held on to at least half of their highly loyal customers during the start of the recession between 2007 and 2008.
The environment for consumers has changed, and in all likelihood, those changes are permanent. The average price for a new car is over $40,000, and 80% of purchasers are paying the full MSRP. Rents across the country are increasing 40-50%, and the housing market is a shoppers nightmare.
It will all correct, but it will correct with higher prices and higher wages. Brands that put shareholders and CEOs first will pay the price in social media public opinion. There is a huge opportunity for private labels and new brands to take away market share from brands that take their customers for granted.