In the fourth episode of McKinsey’s Future of America podcast, McKinsey’s André Dua, Kelsey Robinson, and Tamara Charm discuss new research on consumer trends in sustainability and inclusion, the impact of inflation, and supply chain disruptions. An edited version of the conversation follows.
André Dua: Welcome to the fourth episode of McKinsey’s Future of America podcast, where today we’ll explore how we can build a future that drives sustainable and inclusive growth. I’m your host for today, André Dua. I’m a senior partner with McKinsey and the managing partner of our Miami office.
Today, I have the privilege to be joined by two of my favorite colleagues, Kelsey Robinson and Tamara Charm. Kelsey is a senior partner in our Bay Area office, where she partners with executives to integrate digital into all facets of their business and marketing strategies. Kelsey has also been a driving force behind McKinsey’s diversity and inclusion efforts—including McKinsey’s Bay Area Diversity & Inclusion initiatives and previously with McKinsey’s partnership with LeanIn.Org on Women in the Workplace.
Tamara is a partner in our Boston office, and she’s also the coleader of McKinsey’s Agile Insights group. She focuses on serving clients across consumer-facing industries using cutting-edge agile insights.
Kelsey and Tamara, welcome, and thanks for being here today. Perhaps I could get each of you to tell the listeners a little about your background. Kelsey, maybe we could start with you.
Kelsey Robinson: I’ve been with the firm for about 11 years, and I spend my days really waking up and thinking about what motivates consumers, how that is changing, and how businesses can develop deeper relationships with them. And that’s a passion I’ve had going back to when I started my career in digital-advertising e-commerce, probably 15 years ago.
André Dua: Great. Tamara?
Tamara Charm: I also spend my days really reflecting and thinking about what the consumer does, believes, and how that impacts what they will do in the world: what choices they’ll make, what brands they’ll buy, and what organizations they’ll support. I use this [reflection] to understand what’s happening with consumers. Kelsey and I have gone really deep over the last two years, as consumers have faced COVID-19, and what has happened with that. But I also use this work as I’m talking to companies about what they should do to drive growth and innovation.
André Dua: Tamara, that’s actually a useful jumping-off point for this conversation. I know that both of you, and your teams, have been actively monitoring consumer sentiment and behavior globally since 2020, since the pandemic started. In particular, I want to talk a little bit about your latest research on the future of US consumer behaviors and buying patterns. I want to start, Kelsey, perhaps by asking you what is on the minds of consumers?
Kelsey Robinson: It’s been a pretty incredible two years. Lots of incredible seismic shifts, in terms of how we all individually, I know for me, how I shop, where I put my dollars, and how I feel. I’d say over the last month or so, if we think about what’s really on the minds of the US consumer right now, I think one thing is they are still spending in a strong way, but there is this kind of pivot point right now around inflation confidence. That’s pretty different than what we saw, say, in the first two years of COVID-19, where we did see spend recover, and we saw it come back and it was strong, and it was strong across consumer segments. And now there is a little bit of a pivot point, and we’re all kind of taking a breath and wondering what lies ahead this year.
Second, one of the most surprising things is consumers are shopping around. There’s been a huge loyalty disruption, and it continues. Consumers are choosing brands and retailers for different reasons, and they’re also very likely to stick with the new brands and retailers that they’re trying. For example, when we spoke to consumers over the last month, 90 percent said, “Yeah, I’ve tried something new,” and 90 percent of the people who had tried something new said, “I”m going to stick with this new brand, this new retailer, because XYZ.” So there was a surprising loyalty disruption amidst COVID-19 that really shook out where consumers are putting their dollars.
There’s been a huge loyalty disruption, and it continues. Consumers are choosing brands and retailers for different reasons, and they’re also very likely to stick with the new brands and retailers that they’re trying.Kelsey Robinson
Third, when we think about online and in store, there was this big question when the stores were all shut down in March 2020 of what was going to happen. And I think what we’ve seen is that pulled forward and truly did enable a stickiness of e-commerce that without COVID-19 probably would not have happened in such a dramatic way. They are still shopping online, and they are shopping now, as stores reopen, in a more omni way.
Last, and particularly relevant for the theme of our podcast and today’s conversation, is there are different buying factors. While value is important, there are a lot of other drivers. I think more than ever, values are actually shaping how consumers are deciding to spend that next dollar.
André Dua: That’s very interesting. I want to just touch on a couple of those factors, which are particularly interesting. You mentioned loyalty disruption. What do you think is driving that disruption?
Kelsey Robinson: At the beginning of COVID-19, it was actually availability. So we were surprised by this theme of loyalty disruption. At the beginning, Tamara and I said, “Oh, maybe it’s just because they can’t find a product on the shelf.” Remember when we were all unable to find paper towels and hand sanitizer? But then what happened is it quickly became not about availability but about the fact that they were shopping in new ways. So in some ways, they were shopping online. They weren’t going about their normal shopping habits—trips home from work, trips on the weekends—and so they were exposed to different brands and different retailers. In those moments, they actually found new things they loved, and they were served in new and different ways by brands they hadn’t experienced before. This disruption of the day-to-day really caused them to be open to new things.
We also saw that the fickleness, so to speak, in terms of being willing to try new brands and retailers was particularly acute with some of the younger generation. They’re much more open to trying new things. Stuck at home, let’s try new things. And we’ve seen that behavior continue through this year.
Tamara Charm: Early in the pandemic, May 2020, we did some qualitative research. We talked to consumers, and there was a woman in her late 40s who said, “For the first time, I am adulting now as a consumer.” What did she mean? She’s an adult already. She was saying that in the disruption of COVID-19, when everything stopped, she was able to sit back and think about why she’s buying and who she’s buying from. And that had lots of effects, as you’re talking about, Kelsey. It had the effect of asking, “Well, why won’t I try something online when I’m sitting here at home? Maybe I’ll like it.” It turns out, many people did like what they tried.
But the other thing she was specifically talking about was thinking about the companies she’s buying from and how they think about people. Do they put people before profits? Do they make things that she needs versus just wants? If she just wants something, why does she want it? So there was a level of reflection that consumers had that we saw intensify at the beginning of COVID-19, and we can talk about how it’s developed over time. But that’s been a big factor as well.
André Dua: That’s really interesting. I want to pick up on two pieces of that. The first is online. I saw from the research you’ve done that e-commerce has seen somewhere in the order of a 35 percent uplift since COVID-19 began. It really sounds like with online shopping, this higher level appears to be here to stay. How do you think that changes the consumer landscape? And are you seeing consumers returning to stores as well? Tamara, maybe you could start with that.
Tamara Charm: Sure. Yes, we’re seeing consumers go back to stores. We’re seeing store growth, but we’re seeing even bigger growth in online, which is keeping that 35 percent uplift a reality. I think what consumers are finding is that they can now shop for what they want, when they want it, and exactly how they want it.
As consumers have added digital behavior, they haven’t really gone back. Yes, there was a time when everyone bought everything online, but that ended after a couple of months. There are a ton of people who had never tried getting groceries online that are now more regularly mixing into their routine getting groceries online. While people are definitely going back to stores, that digital freedom that they’ve gained is not something that will go backward.
Kelsey Robinson: I also think the points of influence have changed. If you talk to younger consumers—say, Gen Z or millennials—almost three-quarters of them, 70 percent, say they turn to social as a key influencer. And that’s not just, “I’m watching a YouTube influencer.” It’s things like we’ve seen take off in the last few years, such as live shopping: I am actually participating, in a way, live online, in a shopping event that’s completely different, that’s enabled by how the last two years have changed my life. And I’m not just going into the store to ask the associate for their counsel. So [consumers have]a far broader web to be introduced to these new brands and ideas.
André Dua: Right. Tamara, you mentioned this consumer that really stuck out to you, the one who is adulting, as you said. And one of the things you said is that this consumer was also really thinking about the places she’s buying from, the companies she’s buying from—how do they treat their people? I think this is a nice segue to the broader topic of how consumers are thinking about what we might broadly define as ESG [environmental, social, and governance] factors. I am interested, overall, in the extent to which you think ESG-related issues have become important in consumers’ purchasing decisions.
Tamara Charm: Absolutely. I think ESG issues were important before COVID-19, and I think they’ve intensified since COVID-19. What we’ve seen is, especially among Gen Z and millennials, when we ask people what is important in their purchasing decisions, values come up, environmental comes up. Social responsibility comes up. DEI [diversity, equity, and inclusion] comes up. Again, this is especially among Gen Z and millennials, where, in our latest survey, two-thirds of them told us that at least one of those issues was very important in driving their decisions. This is true also of Gen X and boomers, older consumers, but just less so.
The other really interesting thing we’ve seen is that what is important is quite different across generations. Whereas authenticity—companies that put people before profits, companies being transparent—is really important for both Gen Z and millennials, something like no artificial ingredients, being natural, GMO free, recyclable products is actually more important to millennials, or to more millennials, than it is to Gen Z. DEI is important to both millennials and Gen Z, a little bit less so right now than, say, authenticity or health and environment, but still important and, my guess, will be growing over the coming years.
André Dua: Can I just unpack one of those a little bit? Specifically, DEI—you said DEI is an important factor. On the corporate side, I think one of the ways that manifests itself is that large enterprises, Fortune 500 companies, are looking to build a more diverse supplier base of small and medium-size businesses run by people from diverse backgrounds. But in the context of individual consumers, when you say DEI is an important factor, what does that really mean? What are consumers saying?
Tamara Charm: One important factor is that companies have an inclusive environment. So might that be their supplier base? Sure. But I’m guessing one huge factor is how employees are treated, and for people they know of, what their day-to-day experience is. So in a company, if you’re a woman, if you’re a person of color, how are you treated day to day? That is important, increasingly important to consumers. And they’re increasingly looking out for that. Gender equality, very specifically, also came up as an important factor. So, again, how can they tell whether there’s gender equality? Most of this will be through stories they hear from other consumers who happen to have association with the company.
Kelsey Robinson: The public stance is super important, too. For example, we did ask consumers about the importance of companies taking a strong stance in a public and a visible way on social issues, and 40 percent of consumers say that’s something that’s important, in terms of how they think about purchase decisions. And to Tamara’s point, same thing on gender. That might be what the company says, but it’s also increasingly the spokespeople and the individuals who are associated with the company, as well. That matters too. Who are the individuals that you’re choosing to represent your brand or be associated with your company?
André Dua: Right. Let’s talk a little bit more about sustainability. What is it that, you mentioned in particular, younger generations are interested in? What are they really looking for from companies when it comes to the topic of sustainability?
Tamara Charm: If we’re talking about health and environment, it’s things like having recyclable products. Natural is a huge signifier. Sometimes, consumers don’t even particularly differentiate between natural, because of this reason or that reason. But just wanting things to have a simpler list of ingredients, or something that’s closer to something they recognize and is very transparent, and then less packaging. They’ll even talk about fair-trade practices. So folks are thinking about how companies are treating the people at the other end of the supply chain.
André Dua: One of the things we’ve been paying a lot of attention to is how different groups of Americans are bouncing back from the pandemic. Early on, we saw that different groups were more affected than others. Are you seeing differences in purchasing patterns or behaviors among different demographic groups as we come out of COVID-19?
Tamara Charm: It’s interesting. At the beginning of COVID-19, likely given stimulus, those who had lower incomes were actually increasing their spending at higher rates than those with higher incomes. In the last couple of months, that switched around. I think a large piece of this is inflation. If you think of inflation, especially around gasoline, but also around groceries, the two categories that consumers notice most, the percentage of people’s budget that those take up will be disproportionately higher among lower-income consumers. And I think as we look at inflation impacting the amount of money people have to spend, we’re going to see that there’s more pressure on those with lower-income bases to start with.
André Dua: Right. So we’ve talked a little bit about, I would say, the power of the consumer. Because one of the things you spoke of is the way in which consumers are looking for certain things. Let’s take that a little bit further and focus on the topic of sustainability. How do you think consumers can continue to influence companies’ behavior around sustainability to get the change they want to see?
Tamara Charm: I think a huge piece of what companies will do will be in reaction to what consumers are saying. So, as Kelsey said, social media is more and more of an influence for everyone in the way they buy. More so for Gen Z and millennials, but really across the board. As folks know what they care about, and can articulate what they care about, and why they’re making decisions, as they include more around sustainability on inclusivity for companies, I do think companies will continue to hear those voices.
André Dua: Right. Kelsey, since you actually do a lot of work in this area on the inclusion topic, what are the ways in which you see consumers trying to influence companies to be more inclusive? And do you think consumers have real power here?
Kelsey Robinson: Absolutely. They have real power, and their power is effectively where they choose to spend that next dollar. So I think given everything we were just talking about, consumers are telling us that all of those topics are important, especially inclusion. They support a brand, a company, that is prioritizing that, in terms of they’ve added and broadened their assortment to just recognize that the customers they’re trying to serve are not monolithic but in fact represent all kinds of different genders, all kinds of race.
That’s where the consumer has incredible power. And I think you’re starting to see that—if you look at different facets of retail and consumer products, you’re seeing the entry of more product categories. And, yes, you mention it’s the ownership of suppliers or brands—for example, Black-led businesses. But it could also be the actual product. Am I serving, for example, the Black consumer? And do I have an assortment of beauty products for her? Am I truly trying to serve her when she walks in the door, when she comes to my website?
Our colleague Shelley Stewart had an awesome podcast on this, and he went as far to say, if you actually quantify it, by 2030, the Black consumer, as an example, will be $1.7 billion of consumption in the country. So what does it mean to serve that group, and to not serve them as a segment of one, but to really understand what’s motivating their purchases?
André Dua: I’d now like to talk about one of the issues it seems everybody is talking about these days, which is inflation. As you think about consumers and their behaviors, it’s very hard to talk about consumers without mentioning inflation. So my question for you, Tamara, is how is inflation interacting with the trends we’ve already discussed?
Tamara Charm: Great question, André. One of the things we’re all wondering about is what will happen with inflation. We’ve seen in the last ten months unprecedented inflation, and with inflation reaching 8 percent, folks are really focused on it, not only economists but consumers. We’re seeing consumers notice the inflation: 90 percent of consumers say they notice inflation in groceries and gas the most. But they notice it across categories. When we think about what’s going to happen, and what we see has already happened, one major thing is consumers are focusing on value. What are the prices they’re paying? And they’re switching when they feel like they can get better value. So they’re switching brands to lower-class brands and especially to private label. They’re also switching retailers, to channels where they feel they’re going to get a better deal.
What we’ve seen in this switching is, attitudinally, they’re saying that they’re switching for value more often and switching for values, purpose, and sustainability less often. So I do think that what we’ll see going forward is consumers being very careful with that extra dollar. Where are they going to spend it? If they’re going to spend more on an item, what is really worth spending more on and why? And then really cutting back where they can to make sure they’re left, in some ways, in the good financial position that many consumers are in right now, with very strong balance sheets.
André Dua: That’s really interesting. Let me ask a follow-up question. Does that make you feel that values are a luxury good?
Tamara Charm: That’s a great question. I think for some categories, it actually is used to enhance luxury goods. So if you think about chocolate, and you think about high-end chocolate, if I go to a Whole Foods, if I go to any other store and look at high-end chocolate, they will talk about their values in an extreme amount. There’s something about consumer behavior when we are all indulging. We want to feel OK about that indulgence, and, in some ways, indulging in something that has great values allows us to feel good even while we’re doing something that we feel is a little bit extra.
Going forward in the next year, with the inflationary environment, companies that are able to offer something with value—so a better price, better packaging, something that offers value—while at the same time showing inclusivity or authenticity or other values consumers care about will do very well. Consumers probably will be going less for luxury—the luxury goods, big luxury, small luxury—and more for things that feel responsible in a responsible purchase in this tougher economic time.
Companies that are able to offer something with value—a better price, better packaging—while at the same time showing inclusivity or authenticity or other values consumers care about will do very well.Tamara Charm
Kelsey Robinson: The question is could you get these things to work together? Tamara touched on that. You could hit both value for the consumer and company values by thinking about packaging, by taking a look at reducing something, from creation to how I put this on someone’s doorstep. And actually, potentially hit both. There’s a really interesting problem statement for business leaders now to say, “Hmm, is there a win–win here?” But I do think, André, to your question, it would also be a shame to think of values as a luxury in some ways. Because I think there is still a requirement and expectation from consumers. So while value is king, if you only pursue that, and you’re not addressing some of the value statements, especially that your consumers are going to expect, and we’ve seen how that can have backlash and how that could actually walk customers out of the door as well—it’s this delicate balance that business leaders have to strike today.
André Dua: Tamara, I want to come back to something you said before, which is we’re seeing a pretty significant level of inflation, which we haven’t seen maybe for about 40 years. And it would be fair to say that many of today’s leaders actually have never had to deal with inflation before. What are you seeing, from companies and their leaders, as a response to this inflation, and how are they dealing with it?
Tamara Charm: One of the things that companies really have to think about is understanding price point and understanding the way that they’re presenting value to the consumer at a whole new level of depth. What we’re seeing from companies who are, I would say, at the forefront here is they’re using deep analytics to understand which are the categories, which are the products, that consumers really, really are going to look to and invest in, and how do you make sure that prices are ones that are going to work for the consumers? But in our state of supply shocks, which will also continue to happen, how do you make sure that those products are in stock? That’s one thing we’re seeing companies doing, really relying on analytics to understand things at a very micro level.
A second thing is thinking about for the consumer who is going to want to trade down. They might want to trade to private label, but how can you offer them products, if you’re a branded company, that will meet their need for value without having them go off to private label? Or if you’re a retailer, how do you make sure you have the right assortment of, again, next-stage value products, as well as the right private label?
Kelsey Robinson: Tamara hit on this idea of how do you communicate value, and how do you actually use this as a moment to strengthen relations with consumers? What’s interesting is, if you think back to the beginning of COVID-19, I think we all got those emails from companies saying, “In these trying times, here’s how we’re trying to help you.” But companies did act, and they did get rewarded for that a little bit. I think right now, if you think about the equivalent pressure consumers are feeling on their wallets with inflation, it is a moment to be really explicit and to actually talk to consumers about how are we trying to give you something of value? How are we trying to deliver value to you, knowing that your household’s feeling that. We understand you as a consumer. So I think it’s a huge opportunity.
André Dua: As you think about inflation, and now a number of people believe that it’s not just something that passes in a few months, how do you think this might fundamentally change the consumer landscape? Do you have any insight or thoughts about that?
Tamara Charm: We’ve started to look at what has happened in January and February or even, really, the last ten months, as consumers have faced inflation on many goods. There are some categories where consumers are actually cutting consumption. But those are actually fewer, and there are categories where they were pressured away because of COVID-19—so something like travel or out of home. What we’ve seen is that consumers are actually still continuing to spend. Some of that spend is just the extra inflation added on, but there’s still extra volume being spent on many of the categories that we all care about and have been purchasing more during COVID-19.
As we look out to the next year or two, what will be important, not to get too technical, is seeing how consumers’ cash positions will hold. Right now, consumers are in an incredibly advantaged cash position, versus pre-COVID-19. And that’s partly stimulus, but that’s also because we’ve been spending less on services and spending less on travel.
Wages have also had inflation. So if consumers have wage inflation more than goods inflation, we might see less consumption than we did before, but it might be a very similar picture playing out. If, conversely, we see more inflation and it outpaces labor inflation, I think you will see consumers start to tighten wallets, and you could potentially see a recessionary environment.
André Dua: Right. One of the things we’ve been seeing in the American Opportunity Survey, which is a big survey McKinsey conducts to understand the sentiment of Americans, is that almost half of Americans report being on the financial brink. Do you think companies really understand this, and how do you think they’re responding?
Tamara Charm: I think this is a tough message for companies to really internalize, as they’ve seen so much spending in the last two years—again, fueled by many things that might not continue in the same way going forward. So I do think companies really need to understand how important the value message will be, as consumer sentiment starts to go down and, as you say, André, as people feel the squeeze of the change in circumstances very acutely right now.
Kelsey Robinson: I also think there are two watch outs. One is there’s always this question of, as inflation continues, is there likely to be an inequitable impact, if we think about different segments of the population? That’s a big topic to keep our eyes on, and for companies to really ask, “Who am I serving and how are they uniquely experiencing this inflationary environment?” It’s not a one-size-fits-all experience, so really understanding who I’m serving, and what their day-to-day feels like.
Then again, I do think it is a moment to deliver value and to recognize this strange paradox. We’re coming out of this very isolated time, and we’re starting to see the promise of being able to enjoy time together in some form. We see that in our research: people are doing more things out of home. But then we’re also feeling a tightening of the belt at the same time. So what is the role of a company in this moment, when you’re so excited to go maybe spend time with people in a way you haven’t in two years? But you’re actually now wondering, can I spend the money on the travel, on the shirt, on the sneakers that I would normally do when I’m excited about that? How do companies strike that balance and actually let you feel like you’re able to live in the moments you’ve been waiting for, by delivering you a product of value and communicating that way.
André Dua: Kelsey and Tamara, I appreciate you sharing your insights with us today. I was just thinking about our conversation, and three things really struck me as very interesting.
The first is the extent to which there’ve been some real fundamental and enduring changes in consumer behavior since the beginning of COVID-19. And there’s been a real acceleration in a number of different trends, including the shift toward e-commerce and omni shopping.
The second thing I really took away was the power of consumers in driving change and in driving company behavior. The way in which consumers are, in many cases, prioritizing values, things like sustainability, the way companies treat their employees, and so forth. And that is a powerful new trend being driven, I think in large part, by younger generations, the millennials and Gen Z.
The third thing I really took away is that we’re at a very interesting moment with this surge in inflation, which seems to be persisting. While consumers are interested in values, at this moment, they’re really interested in value. I think that gave us something to think about, so I wanted to thank you for that.
Now, we always wrap up our Future of America episodes with a rapid-fire Q&A. Kelsey, I wanted to have you go up first, and ask you three questions. The first is, is there a book or article that you’ve recently read that excites you about a more sustainable and inclusive future?
Kelsey Robinson: I work a lot in retail, and over the last few weeks, there have actually been a few articles about circularity: how to think about closing the loop when it comes to materials, and the consumer demand behind that kind of trend. There have been some articles on the business of fashion. Some of our colleagues wrote one on the circularity concept of the state of California. And it was super exciting, because it actually quantified both the waste potential and the fact that the vast majority of consumers want to actually see a brand sponsor a true circular product. That was a little more visionary, and it seems like it’s happening sooner than I anticipated it would.
André Dua: Interesting. What makes you optimistic that we can achieve more sustainable and inclusive growth in this country?
Kelsey Robinson: What makes me optimistic is that we’re shifting from a conversation of why it’s the right thing to do to why consumers are demanding it and why it really matters in a broader dialogue. Some of the example data we talked through today, being able to say that 70 percent of the younger generations actually really care about environmental, social, and governance topics—to me, that is a really big shift, where I don’t think we were having that same conversation a year or two ago.
André Dua: Right. And maybe just to end, what’s the one thing listeners can do today to help promote sustainable and inclusive growth?
Kelsey Robinson: Use your purchase power.
André Dua: That’s very clear, thank you. Tamara, let me go over to you and ask you the same three questions. Is there a book or article that you’ve recently read that excites you about a more sustainable and inclusive future?
Tamara Charm: I’m going to give a slightly unconventional answer. My tween daughter and her class created restaurants as part of a class assignment. And all of them were sustainable. All of them. They talked about how much of the planet’s resources they were taking up. How do we get consumers to change their behavior? Part of it is what the restaurants are going to offer. And just seeing that energy and seeing the specificity and the passion with which they were demanding change was really inspiring.
André Dua: So I guess you’ve answered my second question, which is what makes you optimistic that we can achieve sustainable and inclusive growth?
Tamara Charm: Indeed, I do think the power—again, this is very deep in Gen Z that I was looking—and the passion of consumers, as Kelsey was saying, demanding change versus a nice to have makes me optimistic.
André Dua: Is there anything that you would suggest our listeners do to help promote sustainable and inclusive growth?
Tamara Charm: In addition to using the power of the purse, I agree with Kelsey, I really do think talking about it makes a huge difference—both in closer circles, where you can dive deeper, but also publicly about what you care about as a consumer. Social is having an amplifying effect, not only for other consumers but also in a way that companies can hear.
André Dua: Well, thank you both. That was Kelsey Robinson and Tamara Charm. I’m André Dua, and you’ve been listening to McKinsey’s Future of America podcast series. Thanks for joining us.