With the UK and Europe experiencing inflation at its highest level since 2011, shoppers are now looking to retailers to help them manage with the rising costs of living expenses. In this blog, we delve into just a few of the new shopping habits consumers are taking on as inflation continues to rise, which is proving to be a challenge for many.
Inflation is the concept that the cost of goods and services increases over time. What £10 could purchase today is more than what £10 will have the potential of purchasing years from now. As the price of goods and services increase over time, the purchasing power of the £10 starts to diminish. While there is often disagreement about healthy and unhealthy rates of inflation, most economists have agreed that inflation in the 5-6% range and below is healthier for the economy - whereas anything above 9-10% is harmful.
Inflation is defined as the increase in price of a broad basket of goods and services. It is not the increase in price of a single good or device. For example, if the price of a single range of product increases, that isn't considered as inflation. The rest of the economy would continue as mostly unaffected, whereas inflation refers to the increase in prices across a broad range of goods and services, this typically impacts multiple areas of the economy.
The UK's Current Inflation Crisis
Inflation in the UK and the rest of Europe has started to rise faster than wages are growing, so in short, things are starting to become much more expensive, which is now currently being labelled as a crisis.
The market researcher Kantar has said that it was evident that the switch had started from the Covid-19 pandemic, which seemed to be the dominating factor that was driving shopping behaviour towards the growing impact of inflation, as the cost of living is becoming the bigger issue on consumers' minds.
Grocery price inflation is now standing at 5.9% this month, which is the highest level since December 2011 - the average household is now expected to be exposed to a potential extra £271 per year. A lot of this is going on non-discretionary, everyday essentials which is going to prove difficult to cut back on as many budgets are being squeezed, so we're now seeing plenty of consumers move to value products.
According to Kantar, they have stated that the level of products bought on promotion is currently at 27.3%, and that the major retailers listening to their shoppers' concerns are the likes of Asda, Morrisons and Tesco - all offering money saving schemes.
As the cost of living strikes, consumers are changing the products they buy, the stores they buy in, whilst eating less, and lower quality food to try and keep up with the inflation rate. With consumers now having to watch every penny they spend, what will they be doing to survive the 'squeeze'?
Turning to own brand - Consumers are turning towards own-brand products in order to save money. New figures have stated that the proportion of spending going towards own brand versus leading brands has now grown to 50.6%, which is up from 49.9% last year.
As mentioned previously, businesses are responding. Asda will be launching a 300-strong new budget range called Just Essentials. This range has been specifically designed for their customers who are worried about the cost of living crisis.
The move isn't just in categories that are experiencing inflation. Research from IRI have found that shoppers are also lowering discretionary spend in different areas.
"We are seeing millions of shoppers adding and dropping brands from their baskets as they've been forced to re-evaluate their brand affinities. These choices aren't just taking place within categories, but also at a wider level, which will likely result in unexpected and much broader changes to demand." - IRI, Senior VP, Kieran South.
Chasing value - In further evidence with the switch to value discounters, Aldi and Lidl were the only retailers to have actually grown sales according to the Kantar report. Both stores have boosted sales over the last 12 weeks by 3.6% in comparison to last year - this has now pushed Aldi to a brand new record high market share of 8.6%.
Less shopping trips - Discounters are currently benefitting from 'growing repertoires' among shoppers who now visit more stores to complete their grocery mission. However, rising fuel prices in recent weeks could impact this, pushing consumers towards online shopping.
Online shopping - As mentioned previously, the rising fuel prices will definitely be boosting online sales. However, along side of the online shopping surge, there will be a lot of consideration of the delivery fees, which will involve weighing up the cost of driving and even convenience factors.
Although, a survey that was conducted by Virtual Store Trials have stated that cost-concerned shoppers, (more than half of the UK population) are 50% more likely to shop in a larger store over online shopping.
Less of the good food - The fresh food inflation started to accelerate in March to 3.5%, up from 3.3% the month prior. This has been said to be the highest rate since March 2013 and its outpacing inflation of pre-packaged food, which was reported at 3% in March.
This typically results in people's diets suffering, as budgets are being challenged drastically, and for some, even a complete reduction in food intake. Research from The Food Foundation back in February, found that 3.6% of the population reported going a whole day without eating in the last month, simply because they couldn't afford or have access to food.
Reliant on different payment methods - According to Salesforce, some consumers navigate higher prices by opting for new payment methods. This is has been highlighted in the 66% YOY increase in buy-now, pay-later plans as customers start moving away from the higher-interest credit card purchases. This trend could also accelerate the adoption of mobile wallets even further as consumers seek lower prices, along with more convenience.
The trends we have just discussed, were just a few of the new shopping behaviours that consumers are switching to in order to cope with the inflation crisis. One of the best ways to navigate the high inflation environment, is simply to make smarter spending choices. For example, shopping sales, using coupons and discount codes, or opting for the buy-now, pay-later options, only if you know that this is a reasonable option for you.
If you're looking to be one step ahead of inflation rises, many people now invest into their future and outpace inflation with portfolio returns. Although there are no guarantees, seeking out high-interest savings accounts and AI-backed investment models, these can help you to not only preserve your wealth, but also get ahead of the game.