There is a widening gap between consumer perceptions and reported inflationary food prices by the U.S. Bureau of Labor Statistics, according to a survey report from PYMNTS.com conducted in late December.
Researchers asked consumers about their economic situations and how their shopping behaviors have changed. The results revealed that while reported inflation may be cooling, respondents said prices for food and consumables still cost considerably more than a year ago and are forcing behavior changes.
The report found that 41% of consumers are actively trimming goods from their grocery lists, and 29% are downgrading the quality and are more likely to reduce the size and quality of their baskets. Additionally, consumers anticipate that inflation will continue above average levels through July 2024, the report states.
Consumers in the survey said they are feeling the high prices deeply, and their perceptions of the increase are more than twice the actual reported inflation figure. For instance, fresh meats and vegetables had increased in price by 4.5% year-over-year as of December. However, the respondents felt the prices had risen 25.3% year-over-year.
The respondents said the perception gap for prepared food was 12% actual against what felt like 23%. Non-edible household items were reported to have increased by 12.4% in December, but the respondents felt the increase was more like 20%.
The report also found that 69% of respondents had altered their shopping behaviors. Among those who felt the high prices, 59% said they have reduced non-essential grocery items, while 35% are buying cheaper alternatives. About 34% said they kept quality unchanged but purchased fewer items, and 11% said they switched to lower-quality items.
Families with children were most apt to switch to lower-quality grocery items, with 41% trading down. It was 29% in households without children. Also, families with children were the most likely to reduce the size and quality at 29%, compared with 20% of non-child households.
Most consumers said they opted out of buying specialty and prepared foods, which tend to have a higher price point. Snacks and sweets were the categories consumers most opted to trade for a cheaper alternative.
The survey also found that all respondents had modified their shopping habits regardless of household income. All income classes said they had reduced the quantity of the nice-to-have items they purchased. Half of the households needing help paying their bills said they buy fewer non-essential items, below the 67% of families living paycheck to paycheck.
PAYING ATTENTION
Food retailers know how higher prices impact customers and continually work with suppliers to keep costs down. Walmart CEO Doug McMillon said inflation in the dry grocery area has been “stubbornly persistent.” He said double-digit inflation is going to be the norm for a while.
“And it’ll get a little confusing because you’ll hear inflation numbers that start to sound lower, but you’ll have to remember, that’s on a two-year stack,” he continued. “So if inflation in dry grocery and consumables is only three or five, that’s on top of 15. And that’s still a problem for the customer and a pressure in their wallet,” McMillon recently told analysts.
McMillon said Walmart’s food business is profitable, despite trying to hold price increases down from suppliers. He said fresh food prices continue to bounce around. Egg and milk prices remain elevated, while beef prices have declined.
Kroger CEO Rodney McMullen said about half of Kroger’s customers were under strain because their wages hadn’t kept up with inflation. He said the company is always thinking about making things affordable and accessible for its customers, especially as they remain under pressure from inflation, which he predicts will moderate or flatten toward the end of the year.
“Our expectation is as you get later in the year, you start seeing quite a bit of moderation in inflation or flat inflation,” McMullen said. “We still don’t see much deflation now.”
Dollar General CEO Jeff Owen recently said the discount chain was seeing strong consumer demand and gaining market share as Americans look to pinch pennies. He said the retailer’s $1 products are helping more families. Owen said today’s shopper is worse off financially because of the high cost of food and consumables, which were up 10% in January, 9.5% in February and 8.5% in March. Owen said shoppers are still employed, but their paychecks are not going as far with higher utility costs and overall core inflation at 5% in March.
Today’s average shopper is “relying more on savings, credit cards and also borrowing money to make ends meet. What we see in the shopping behavior then…
Read More: The Supply Side: Families trading down, buying less amid persistent inflation