U.S. shoppers are making more trips to the dollar store. They’re stocking up with items from stores’ private label brands more than usual and cutting back on snacks and sodas at convenience stores.
Those emerging data points, captured by market research firm IRI in recent weeks, may preview the next wave of grocery shopping during the coronavirus pandemic. They all have something in common: They are the buying patterns that herald an economic downturn.
“As this drags on, you are going to see a lot more recessionary behavior coming up,” said Krishnakumar Davey, president of strategic analytics for IRI. “We are just seeing the beginnings of it.”
In the early weeks of the coronavirus pandemic, customers stockpiled food, toilet paper and other essentials for prolonged stays at home. They shopped for different kinds of items, such as hand sanitizer and antibacterial wipes to stay healthy, computer monitors to set up home offices and supplies to help kids attend school remotely. And they began filling up bigger baskets as they avoided stores or made less frequent shopping trips.
Since then, the financial picture has become bleaker. Unemployment has risen to 14.7%, after 20.5 million people lost their jobs in April alone. The total number of jobless claims is up to 33.5 million over the past seven weeks. Pay cuts have squeezed family budgets. Even those with the same income may feel uneasy, as they read unemployment reports or see neighbors, family or friends get furloughed or laid off.
Davey said all of those factors “have an effect on the psychology of the consumer” and can linger in the back of shoppers’ minds as they scan store shelves or pick items to put in their virtual basket.
About a third of the 2,105 U.S. consumers surveyed by McKinsey & Company in late April and early May said their income has been hurt by the coronavirus. Nearly half of all of those surveyed said they’re cutting back on spending. About half also agreed or strongly agreed that given the economy and personal finances, they have to be “very careful” about how they spend money.
This economic downturn is sharper and more complex than others, though — and that may make consumer behavior harder to predict. Grocery spending has been up significantly since the start of the pandemic. It was nearly 27% higher year-over-year in the week ended May 3, according to IRI.
People are still buying more food as they cook at home. They’re paying more for the same items because of rising grocery prices. And people are juggling health worries along with budget-consciousness.
“In the past recessions, people were just concerned about money,” Davey said. “In this recession, people are concerned about money and their health.”
He said Covid-19 is “a huge X factor.” And, he added, unlike other recessions, the pandemic caused a sudden downturn “in a matter of weeks.”
Despite the differences, he said the pandemic-induced downturn may follow some of the same patterns.
One area that grocery industry analysts are watching is private labels. Typically lower in price compared with national brands, sales of store brands are growing at a faster pace than national brands during the pandemic — though sales have surged for both. Private label sales were up nearly 19% over the four-week period ended May 3 compared with a year ago, according to IRI. Meanwhile, national brand sales were up about 12% year-over-year during that period.
Private labels had already been on an upward trend and have more room to grow. In the U.S., they make up a smaller market share in terms of units and dollars. They’ve made up about 16% of the dollar share of the market so far this calendar year, according to IRI.
Laura McCullough, Nielsen’s executive vice president of U.S. manufacturer client success, said the private label trend “has accelerated during the timeframe when consumer spending has been impacted by COVID-19.”
“As the economic downturn continues, private label has significant opportunity, particularly within lower price tiers,” she said.
During the stockpiling phase of the pandemic, Davey said private labels sold at a higher rate as customers cleared shelves and bought whatever was available. Now, as people tighten their belts, he said the trend will stick for a different reason: People will be more willing to skip a favorite brand and choose a value option.
“You look at it and say ‘Do I need to buy that expensive brand or should I buy something that is more affordable, but it will meet my needs?’,” he said. “That is what we are seeing now.”
During the 2008-2009 recession, shoppers reined in spending by buying smaller items or smaller packs — different than shoppers’ current tendencies of fewer shopping trips and bigger baskets.
But then and now some habits are looking the same, Davey said: Preparing more meals at home, splurging occasionally on affordable luxuries like chocolate or wine and clearing out the pantry before the next trip to the store.
“There’s a lot more of a hunkering down and spending only on what you need,” he said.