Latest / C-Suite Perspectives / Consumer Spending on Food Signals Deeper Economic Pressures

Transcript

Consumer Spending on Food Signals Deeper Economic Pressures · C-Suite Perspectives

• 0:07
  Welcome to C-Suite Perspectives, a signature series by The Conference Board.
• 0:11
  I'm Dana Peterson, leader of the Economy, Strategy & Finance (ESF)
• 0:15
  Center of The Conference Board, and the host of this podcast series.
• 0:19
  Today we'll discuss recent research from The Conference Board on consumers
• 0:24
  changing spending habits, especially around food and discretionary items.
• 0:29
  Joining me is Malala Lin, economic research associate with the ESF
• 0:33
  Center at The Conference Board.
• 0:35
  Welcome, Malala.
• 0:37
  Thank you.
• 0:38
  Your report shows nearly nine in 10 consumers are actively
• 0:43
  trying to save money on food.
• 0:46
  What does this shift look like in real life?
• 0:49
  What we're seeing is that being cost conscious is almost a universal mindset.
• 0:56
  Like you said, nearly nine in 10 consumers, so about 87% of the consumers
• 1:03
  who answered our survey, report taking at least one action to save on food.
• 1:08
  In real life, this doesn't necessarily mean they're making one big change
• 1:14
  where you completely cut off something.
• 1:16
  So maybe you're cutting out all dairy products.
• 1:18
  I don't think that's what that really looks like.
• 1:20
  It's probably a series of small trade-offs.
• 1:24
  People are clipping coupons, they're switching to cheaper
• 1:29
  brands, or maybe they're waiting for sales and promotions to go on.
• 1:34
  We also see some consumers who are buying in bulk when they can because
• 1:39
  the unit costs are lower and some are even changing what they're eating.
• 1:45
  They're choosing to buy frozen food or canned goods instead of fresh
• 1:50
  foods because they last longer.
• 1:51
  It's less about cutting food altogether and more about reoptimizing
• 1:58
  the same grocery list or the same grocery basket to make it cheaper.
• 2:03
  That's why in the report we're describing it as "recession-mode behavior." Even
• 2:08
  though the broader economy is not in a recession, the way consumers are
• 2:13
  choosing to manage their food costs is telling on how they are reacting
• 2:17
  to the current economic situation.
• 2:20
  Thank you, Malala.
• 2:21
  That's really fascinating.
• 2:22
  Cutting back on dining out and delivery is the most common response.
• 2:26
  Why is that the first behavior consumers change?
• 2:30
  In our data, about 46% of consumers said cutting back on dining out or
• 2:35
  delivery was their top strategy.
• 2:40
  That makes a lot of sense because when budgets tighten, consumers don't
• 2:44
  really start changing their essentials.
• 2:47
  They're probably looking to trim on what you would consider a luxury,
• 2:52
  something more discretionary.
• 2:53
  It makes a lot of sense that the top strategy is cutting
• 2:56
  things like dining out.
• 2:58
  Cooking at home becomes the most immediate substitute for something like that.
• 3:03
  Consumers are trading down, buying fewer premium items, switching brands, and
• 3:08
  even substituting fresh food with canned food or frozen food, as you mentioned.
• 3:14
  How significant is this shift?
• 3:17
  Consumers aren't technically just doing one thing, right?
• 3:20
  Say just switching brands.
• 3:23
  They're stacking these strategies.
• 3:25
  Over one-third are buying fewer premium items.
• 3:29
  We've got almost 40% switching to cheaper, less expensive brands, and
• 3:34
  we've got 17% even substituting fresh food for frozen and canned alternatives.
• 3:40
  That last point is especially important because it signals a
• 3:43
  shift of not just where people are shopping but also in quality,
• 3:48
  freshness, and consumption habits.
• 3:51
  I would say this is not necessarily a marginal adjustment.
• 3:53
  It's more of a broad-based reset toward value in food.
• 4:00
  Thank you.
• 4:00
  Malala.
• 4:01
  Bargain hunting is happening apparently across all income levels.
• 4:07
  Why are even higher-income consumers behaving in a more
• 4:11
  price sensitive fashion right now?
• 4:13
  What's especially striking about this is that trying to save on food, it
• 4:18
  isn't just about financial stress.
• 4:21
  Even higher-income consumers are using coupons.
• 4:24
  They're switching stores, buying in bulk, and trying to take
• 4:27
  advantage of reward points.
• 4:29
  But I think the motivation might be a little bit different
• 4:33
  for lower-income consumers.
• 4:35
  I would think they are reacting out of necessity while higher-income households
• 4:40
  are optimizing for value and efficiency.
• 4:44
  Higher-income consumers can afford these higher prices
• 4:47
  but they are choosing not to.
• 4:49
  That really tells us inflation has shifted some of the consumer psychology.
• 4:53
  Being price conscious is no longer just about personal financial
• 4:57
  situations but more about how you're choosing to spend the money based
• 5:02
  on what you're seeing outside.
• 5:04
  What does the price tag look like?
• 5:06
  That makes sense.
• 5:08
  The report also highlights the K-shaped economy.
• 5:11
  Now there is always a K-shaped economy.
• 5:13
  You always have people with lots of money and people who don't.
• 5:17
  When times get tough, the people with lots of money may economize
• 5:21
  here and there but for the most part they're going to consume.
• 5:24
  They just don't carry out a shopping bag with a logo.
• 5:27
  It's just a brown paper bag.
• 5:29
  Meanwhile, when times get tough, middle-income and lower-income
• 5:33
  persons respond very differently.
• 5:37
  It seems like the gap between how much and what lower-income consumers
• 5:41
  spend on versus higher-income consumers appears to be widening.
• 5:47
  How are food shopping behaviors different between higher-
• 5:50
  and lower-income consumers?
• 5:53
  Anything different that you already haven't said?
• 5:56
  It just comes down to flexibility and constraint, mostly what I just mentioned
• 6:01
  earlier, where higher consumers are buying in bulk and leveraging credit and rewards.
• 6:06
  They're focusing more on lowering their unit costs while lower-income
• 6:10
  consumers, they're probably shopping more frequently with smaller baskets.
• 6:15
  This might look like trying to time your purchases around your pay cycles.
• 6:20
  That might also mean you're relying more on cheaper brands and discount stores,
• 6:25
  and that's where substitution comes in.
• 6:28
  We also saw that lower-income consumers are more likely to use
• 6:31
  food banks and assistance programs.
• 6:34
  Overall, both groups are saving but, just to summarize, higher-income consumers
• 6:39
  seem to be optimizing the way they are spending money on food, while lower-income
• 6:45
  consumers are more likely to be coping with their financial situations.
• 6:51
  Understood.
• 6:52
  Makes sense.
• 6:53
  We're going to take a short break and we will be right back with more
• 6:57
  of my conversation with Malala Lin.
• 7:00
  What does the future of work mean for your employees?
• 7:04
  How will your company navigate the future of AI?
• 7:07
  Will there be a global recession?
• 7:09
  At The Conference Board, our experts translate the latest research and economic
• 7:13
  analysis into insights and real-time problem solving for your organization.
• 7:19
  Membership at The Conference Board provides your team with an assortment
• 7:22
  of knowledge from economics, marketing and communications,
• 7:26
  governance and sustainability, public policy, and human capital.
• 7:31
  As a member, you'll have access to our Center experts, Member exclusive events,
• 7:35
  data and benchmarking tools, and peer sharing that will help you understand
• 7:40
  the present and shape the future.
• 7:42
  Consider becoming a Conference Board Member today by visiting
• 7:46
  www.conference-board.org.
• 7:50
  Welcome back to C-Suite Perspectives.
• 7:52
  I'm your host Dana Peterson, leader of the Economy Strategy & Finance
• 7:56
  Center of The Conference Board.
• 7:58
  Again, I'm joined by Malala Lin, who is an economic research associate with
• 8:04
  the ESF Center at The Conference Board.
• 8:07
  Let's dive back into this, Malala.
• 8:09
  Some consumers, as you just mentioned, are turning to food banks or assistance
• 8:14
  programs, while others are buying in bulk or optimizing purchases.
• 8:19
  Both of these suggest that there's some kind of stress
• 8:22
  level here or financial strain.
• 8:25
  Can you talk about that please?
• 8:27
  Yes.
• 8:28
  The financial strain is somewhat more related to inflation than incomes
• 8:35
  because higher inflation means it decreases the amount consumers
• 8:39
  can buy with the same income.
• 8:41
  Wage growth for most people in the US is still faster than before
• 8:47
  the pandemic, except for consumers in the lowest-income quartile.
• 8:52
  But prices are rising faster again due to tariffs and increasing costs for
• 8:59
  shelter, insurance, and health care.
• 9:02
  This is on top of the already elevated costs of goods and services post pandemic.
• 9:09
  Another significant inflationary shock is the current war in Iran.
• 9:14
  US consumers are feeling this impact through gasoline and fuel prices,
• 9:19
  especially because oil prices are soaring.
• 9:22
  If the war persists then costs for goods containing oil-based
• 9:26
  products may also start to rise.
• 9:28
  This will continue to force some consumers to economize on things like food.
• 9:33
  Too much inflation negatively affects everybody but it's worse for consumers
• 9:39
  who have to use a large share of their paychecks for necessities like food.
• 9:45
  Thank you Malala, for providing more detail and also giving us an update
• 9:48
  on how current events are impacting or could impact the decisions
• 9:54
  that consumers make around food.
• 9:57
  When we look at how consumers are buying food, traditional
• 10:00
  payment methods still dominate.
• 10:01
  That's cash and credit cards, but we're noticing that younger consumers
• 10:07
  are adopting mobile wallets and even buy now, pay later for food purchases.
• 10:12
  That's seems almost extreme.
• 10:14
  I get it if you're buying tickets to Taylor Swift or a new video game
• 10:20
  or something like that, you might want to try buy now, pay later.
• 10:23
  But for food?
• 10:25
  What stands out in how people are paying their food in general and who's
• 10:30
  paying, who's using cash and credit cards versus buy now and pay later?
• 10:35
  Just as you mentioned, the top payment methods for food in general are
• 10:38
  debit cards, credit cards, and cash.
• 10:41
  If we break those down by income you'd see that debit cards and cash are
• 10:47
  mostly used by lower income and credit cards for higher income, which makes
• 10:51
  a lot of sense because debit cards and cash are more readily available money
• 10:56
  and credit cards for higher income.
• 11:00
  They get to reap the rewards that come with it but they're also the group that
• 11:04
  is likely to be able to maintain credit card and all the fees that come with it.
• 11:10
  When we break those down by age, you'll see that the more traditional payment
• 11:15
  methods are mostly used by the older age groups rather than the younger ones.
• 11:23
  Like you mentioned, mobile wallets and alternative financing payment
• 11:28
  methods like buy now, pay later are mostly used by the younger generation.
• 11:33
  Our survey found over 20% of those under the age of 44 use mobile
• 11:40
  wallets more frequently but most of that is concentrated in the group
• 11:43
  of consumers between 25 and 35.
• 11:48
  As for buy now, pay later, it's emerging.
• 11:50
  Our survey found about 5% of people use it for food but there are a lot
• 11:56
  of reputable surveys out there who are reporting about 20% to 25% use
• 12:01
  buy now, pay later in food shopping.
• 12:04
  But what makes this story very interesting is that it's generational.
• 12:08
  Younger consumers are more open to digital and flexible payment
• 12:13
  methods while older consumers stick to more traditional methods.
• 12:18
  Did the survey ask about crypto?
• 12:22
  Anyone using crypto?
• 12:24
  Yeah, we did ask about crypto but it's almost non-existent.
• 12:27
  I actually wouldn't know how you would go into the grocery store and use crypto.
• 12:32
  Maybe we need to do a study on where you can buy anything
• 12:37
  with crypto, anything physical.
• 12:40
  Let's look ahead.
• 12:41
  Which of these consumer behaviors do you think are temporary responses to inflation
• 12:47
  and which are likely here to stay?
• 12:51
  That might differ probably in your current financial situation or your
• 12:56
  income because when and if the current inflationary environment eases or
• 13:01
  ends and the downward pressure on financial assets lifts, consumers with
• 13:07
  higher incomes will probably revert back to prior spending behavior.
• 13:11
  Maybe they decided to cut a little bit on dining out and then when you don't
• 13:17
  see that much of an inflationary impact on the prices of dining out, maybe it's
• 13:22
  time to go back for your Taco Tuesday.
• 13:25
  While consumers with lower incomes may continue to economize because
• 13:32
  they have fewer financial safety nets to manage unexpected price hikes.
• 13:36
  That might be what that looks like.
• 13:38
  It might look different for income groups depending on what the economic situation
• 13:43
  will look like in the near future.
• 13:46
  Absolutely.
• 13:46
  What we do know going forward is that there's still probably
• 13:50
  going to be a lot of uncertainty.
• 13:52
  So it absolutely makes sense that consumers across different income
• 13:55
  groups and ages are thinking about food costs and oftentimes food is one of
• 14:03
  the areas that you can easily adjust.
• 14:06
  Whereas something like childcare, you probably had a difficult time
• 14:10
  finding a daycare in the first place.
• 14:13
  Yeah.
• 14:14
  So you're probably not going to jump to a cheaper one.
• 14:17
  It does make sense where people can economize they do.
• 14:21
  And certainly for the lower-income consumers, it's been shock
• 14:24
  after shock after shock.
• 14:26
  This has been fantastic Malala.
• 14:28
  Thank you so much for joining us today.
• 14:30
  Yeah.
• 14:31
  Great to be with you.
• 14:32
  And thanks to all of you for listening to C-Suite Perspectives.
• 14:36
  Again, I'm Dana Peterson, and this series has been brought
• 14:39
  to you by The Conference Board.