High Food Prices Continue to Impact Consumer Spending Behavior

According to Circana, consumers will continue to use mitigating tactics in 2023 to ease the pressure on their wallets.

CHICAGO — Last year, food inflation in retail and foodservice exceeded levels reached during the Great Recession, according to a new analysis from Circana. 

Even with inflation currently moderating, higher food prices will continue influencing consumers' spending and eating behaviors this year, according to the research firm. As food is prioritized by consumers in both tough and good economic times, consumers will use multiple tactics to reduce or reallocate food spending when prices rise, such as trading down to private label, buying in bulk or choosing a quick-service restaurant over a full-service restaurant. Recent examples can be seen in the rising market share of dollar stores in the fresh food vertical more typically the purview of grocery retailers.

Of the $2.9 trillion in consumer retail spending Circana tracks, food and foodservice spending represents the largest share at nearly $1.5 trillion. Food inflation for the 12 months ending February 2023 was 10.2 percent at home and 8.4 percent away from home. Higher food costs also had an impact on discretionary spending, David Portalatin, Circana food and foodservice industry advisor, told attendees at Circan’s Growth Summit this month, and that some of the declines in discretionary retail spending last year were due to food inflation.

At- and away-from-home food and beverage sales grew 8 percent in 2022, exceeding historical norms. At-home food spending remained a larger portion of the food and beverage sales, said Cara Loeys, principal of consumer packaged goods client engagement at Circana, presenting with Portalatin on the "Complete Food & Beverage Consumer" at the summit. Retail food and beverage sales were up 9 percent and reached $931 billion in the 52 weeks ending December, while direct consumer foodservice spending was up 6 percent. With higher food costs and a return to many pre-pandemic routines, consumers shifted their eating and spending behaviors.

A consumer worried about inlfation

However, Loeys said, while consumers will trade down to manage higher costs, they are also likely to get "frugal fatigue" and start to acclimate to the current pricing situation, indicating there is no need to race to the bottom of the price ladder. 

While 2022 was about value pricing to manage budgets, Portalatin explained that 2023 will be about the other attributes that play into value.

"Price will always be important, but consumers define value differently. For example, consumers who visit a restaurant aren't necessarily looking for the cheapest meal," Portalatin said. "They're looking for the menu items they crave or foodservice outlets that offer quality and variety and enable them to treat themselves."

Portalatin and Loeys expect consumers will manage high food costs in 2023 similarly to the previous year. They advised the summit audience to stay focused on targeted approaches and pay attention to the ways income, household composition, lifestyles or ethnic and generational propensities could impact consumer needs and wants.

Formerly Information Resources Inc. and The NPD Group, Circana serves as an advisor on consumer behavior, tracking millions of products spanning more than 2,000 categories across more than 500,000 stores in 20 countries.

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