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Tribune News Service
Tribune News Service
Business
Brooks Johnson

How frugal shoppers are helping to fight inflation

It's not just the Federal Reserve that can fight inflation — consumers can, too, by changing their buying habits, Deloitte researchers say.

Consistent frugal behaviors by enough people can force retailers and manufacturers to keep prices, and profit margins, in check. But a new longitudinal study by Deloitte found not everyone is curtailing their spending.

"When consumers signal they can no longer tolerate higher prices, retailers and consumer products companies could begin to lose their pricing power," the study says. "It may be painful, but frugality is expected to precede and, with time, contribute to decreased retail food inflation."

Deloitte's Food Frugality Index measures the adoption of several cost-saving behaviors. Low-income Americans are consistently buying store brands, cheaper proteins and focusing on necessities. Middle-class shoppers are increasingly using everything in their fridge and pantry and taking extra time to plan shopping trips.

"That pressure should be making less expensive foods more popular and taking the price level down, not up," said Mark Bergen, the James D. Watkins Chair in Marketing at the University of Minnesota's Carlson School of Management.

But at the beginning of the year, Deloitte found high-income Americans were less frugal than they had been in previous months, and they often left the grocery store with everything they needed plus several "nice to have" items.

"There will always be a market for premium products," said Barb Renner, a Minnesota-based partner at Deloitte. "It's that in-between product where consumers are making choices."

When consumers widely choose higher-priced items when lower-priced alternatives exist, companies can keep prices high and potentially push them higher.

"For 20 years it has been hard for a manufacturer or retailer to ask for a price increase," Bergen said. "For the last year that has been possible, so if you're a seller, you're going to try to push that window as long as you can."

Food prices rose an average of 2.5% annually for decades, until they jumped 11% in 2022 in part because of rising costs for labor, ingredients, energy and transportation. For 2023, the U.S. Department of Agriculture predicts another 9% jump in grocery prices.

Any indication that shoppers are refusing, en masse, to accept price increases could push that number down.

"Buyer behavior has changed, and all the retailers and manufacturers and suppliers in this industry are desperately trying to figure out which of these changes are permanent and which are temporary," Bergen said. "The constant game of pricing is buyers are trying to get the most out of their dollar and companies are trying to get as much profit as they can from that dollar."

Waste not, want not

One of the most common ways shoppers are saving money across income groups, Deloitte's survey shows, is planning meals based on food they already had at home.

More consumers than ever are paying attention to food waste — using everything they have at home and buying fewer extras, Renner said. That's especially true for lower-income Americans, who were already "trading down" from name brands to store brands and sticking to necessities even before inflation accelerated.

"It used to be a more of a social 'right thing to do' — you don't want to throw out food," Renner said. "But now the issue is people don't want to throw out food because of inflation and frugality."

Middle-income consumers especially say, in survey results, they make the most of the food they already have.

This started showing up in sales data over the past year. While food companies are profiting off price increases, they are selling fewer units as shoppers stock up less frequently, shopping more as needs arise.

As a result, food companies offsetting declining unit sales with expensive "premium" products that offer margin cushion.

"[Food companies] are looking at the upper-end [shopper] and wondering, 'Where is the big luxury in your basket? Where are you willing to pay more?' " Bergen said.

The one budget-friendly practice high-income shoppers do more than other income segments is take extra time to plan their shopping trips, the Deloitte survey found. Yet, most say they also buy as much food as they want and often splurge on extras. Meanwhile, 30% of low-income shoppers say they leave stores with less than they wanted.

National brands brace for impact

As frugal behaviors persist, a preference for store brands, also known as private labels, over national name brands is beginning to grow.

Sales of store-brand foods rose 11% last year compared to a 6% gain by name brands, according to the Private Label Manufacturers Association.

"Store brands were embraced by American shoppers as a dependable ally against persistent inflation and other personal financial hardships," the trade group wrote.

Both national and store-brand sales benefited from price increases, however, as each sold fewer units than the year before.

The Deloitte survey warns that consumers who are continuously pinched at the register could abandon packaged goods companies — such as Minnesota-based General Mills and Hormel. And Hormel just announced another round of price increases on its products slated for later this spring.

"Research suggests once consumers make the switch to private or store-labeled goods, they tend to stick with it and buy more, especially if they find quality and good taste, in addition to price advantages," the Deloitte report said.

General Mills' president of North American retail, Jon Nudi, said in an interview last month that many of the company's categories have seen less pressure from store brands than other parts of the store.

"Part of that is we're marketing well, innovating well and trying to provide value," he said. "That's something we certainly watch."

Survey data and the private label report confirms that some foods are more ripe for private label takeover than others. Overall, 27% of shoppers told Deloitte they are purchasing "mostly store-brand," showing a mix of brands in the average shopping cart.

"We found there are certain categories people would not sacrifice, like pet food and coffee," Renner said. "You always look at the three constants — price, convenience and taste — those are going to be the primary drivers."

Tips for frugal shopping

Plan shopping trips to stay within a budget.

Make the most of food already at home.

Pay attention to sales, discounts and promotions.

Purchase low-cost ingredients.

Consider switching to store brands.

Price compare favorite foods across stores.

Lessen food waste by using frozen vegetables and proteins.

Simplify recipes; buy fewer ingredients.

Find smaller or discounted cuts of meat.

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