From fast food to financial services, people are looking for cheaper goods and services. May’s Consumer Confidence report showed people think inflation is sticking around. Conference Board Chief Economist Dana Peterson told us consumers are pulling back on spending, especially on goods and big-ticket items. She predicts, “They are putting services like travel on credit cards. We will continue to see consumer spending slow.”
Resigned to rising prices, inflation-weary consumers are increasingly looking for value.
Consumer Sentiment and Spending Behavior
Insights from JPMorgan Chase during its recent investor day highlighted a shift: segments of lower-income customers are not only showing stronger spending growth but are also “trading down,” seeking less expensive options and getting more for their money. This behavior is mirrored in higher-earning segments too, where there’s a noticeable slowdown in discretionary spending, especially in luxury travel and retail sectors.
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Thrifty Tables and Private Labels
The restaurant industry has consistently increased its menu prices to cover higher food and labor costs. Consumers noticed. Applebee’s reported its customers were ordering the value side of the menu in Q1, with 28% of the chain’s transactions coming from limited-time and value-related promotions.
Inflation at fast-food restaurants has been even worse than the full-service price hikes. Starbucks, McDonald’s, Pizza Hut, and KFC reported disappointing quarterly earnings results attributed to cost-cutting. Consumers stressed by elevated prices are opting for cheaper meal options, forcing brands like McDonald’s to innovate around budget-friendly offerings like the new $5 meal deals.
In the grocery sector, there’s been a marked increase in sales of private label products since 2020, when private label started to gain share over national brands. Store brands like Walmart’s Great Value have seen increased traction as consumers trade down to manage their grocery bills, which have swelled significantly post-pandemic.
Private labels are claiming a larger share of grocery sales than ever before, but not just among the cohorts most affected by inflation. Amonghigh-income ($100K+) U.S. shoppers, 72% say they feel that private label is a good alternative to national brands, per Nielsen IQ.
Retailers respond to customers buying less stuff (less often)
Consumers are pulling back on spending, especially on discretionary products. That’s bad news for retailers like Target, which relies on impulse and discretionary purchases more than Walmart and Costco, who move more household staples. With sales in categories like apparel and toys declining, Target is aggressively adjusting by lowering prices on essentials like groceries and household goods to maintain foot traffic and sales volume. Its strategy also includes launching new brands that promise value, signaling a clear response to consumer demand for affordability.
Trading down will continue in categories this summer driven by inflation, uncertainty, and value-seeking. Brands have to offer superior value and differentiation to prove they are worth their price tag.