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.