As in the past in tricky economic times, U.S. consumers have been adjusting their household budgets by trading down.
R.J. Hottovy called it the “waterfall effect” in a webinar last week on food at retail, hosted by The Food Institute, a trade group, and sponsored by his employer, Placer.ai, a firm that analyzes consumer behavior via foot-traffic patterns.
A slide he offered showed how discount and dollar stores gained visit share over the past few years as consumers turned there for food bargains as inflation took hold post-pandemic. Visits to traditional supermarkets stayed relatively stable as discount trips rose, coming somewhat at the expense of mass-merchant superstores and warehouse clubs, according to the slide.
Higher-income shoppers who might have gone to a specialty grocer in 2021 and 2022 shifted to a Trader Joe’s or a Walmart or Target, said Hottovy, head of analytical research at Placer.ai. Meantime, lower-income shoppers moved from mass merchants to dollar stores and discounters, he said.
“Dollar stores have certainly, I think, taken [visit] share overall from superstores, and then superstores have taken share from specialty retail, the high-end grocers,” he said.
The pattern seemed to be repeating as 2024 dawned, with weekly visits to the discounters far outpacing supermarkets and superstores, another slide showed. By early March, though, visits to supermarkets and superstores were returning, although trips to the discounters remained high.
“We do see that focus on value here,” Hottovy said, suggesting that other budget pain points for consumers — in energy, housing and health care — keep them hunting for food bargains.
The latest government data says the Consumer Price Index for food at home — grocery purchases — rose 1% in February versus a year earlier, while the 12-month increase was higher for electricity (3.6%) and shelter (5.7%). Medical care was up 1% in February over a year earlier.
And that upper-middle to upper-income shopper turning to Walmart to fight inflation?
In reporting fourth-quarter and full-year results in February, Walmart noted that “one of the biggest contributors” to that quarter’s results was from households earning $100,000-plus annually. “Our value proposition is resonating with customers” regardless of the size of their paycheck, the company’s chief financial officer said on the earnings call.
Noted Hottovy, “even at that [income] level, people are deal-seeking.”
He said he saw “no signs … of reversal” in the waterfall effect yet, even with grocery increases moderating.
“People have gotten comfortable in the channels they’re shopping right now,” he said.