For US consumers, it’s a matter of ‘and’—not ‘or’

| Commentary

This is an edited version of a presentation delivered at the Consumer Brands Association’s CPG Summit in Colorado Springs on September 27, 2023.

They don’t want one thing or another—they want both, but in different ways. Today’s consumers don’t fit into neat segments. They’re living in a world of “ands,” to cite a phrase that we’ve been using to describe the seemingly contradictory shopping behaviors of people across the globe. The phrase very much applies in the United States as well: new data reveal four “ands” that characterize US consumers today. For example, they’re splurging and trading down; they’re saving money on food and planning to spend on restaurants.

Most of the data we’ll be sharing with you today come from ConsumerWise, our proprietary capability that brings together assets, research, and experts to generate in-depth consumer insights. ConsumerWise tracks consumer sentiment as well as spending, thus yielding a 360-degree view of the consumer.

Let’s take a closer look at each of the four “ands,” which present intriguing challenges and opportunities for consumer-packaged-goods companies.

Feeling slightly more stable and concerned about inflation

Consumer confidence held fairly steady through the summer months. One-third of US consumers (compared with only 26 percent in June 2022) say they feel optimistic about their financial situation; they expect the US economy to improve in the near term. This modest rise in optimism comes in part from their perception of prices: consumers are no longer seeing the massive price hikes that caused them anxiety in 2022 and early 2023. Eighty percent of US consumers (versus only 10 percent in 2022) report seeing stability in the prices of household supplies over the past three months.

But there’s still lingering concern. When asked about their financial outlook, more than half of US consumers—53 percent—say rising prices are what they’re most worried about. Also near the top of the list of concerns is their ability to make ends meet, which 27 percent of consumers cite as their number-one worry.

Splurging selectively and trading down

Given the bifurcation in consumer sentiment, it’s perhaps unsurprising that consumer behaviors are also diverging. On the one hand, 40 percent of consumers say they plan to splurge in the coming months. On the other hand, 79 percent of consumers are trading down to save money when they shop.

The splurging is, of course, selective. In general, consumers are gravitating toward splurge purchases that are experiential or provide immediate gratification—so they’re treating themselves to higher-end options in categories like travel and grocery. The intent to splurge is especially pronounced among the younger demographic groups: Gen Zers and millennials.

Overall, consumers are being more discerning in their spending; they’re actively seeking more bang for their buck. Among the 79 percent of people who say they’re adopting trade-down behaviors, 50 percent are buying a different quantity or pack size than what they normally buy, 38 percent are shopping at lower-priced retailers, and 25 percent are switching to lower-priced brands or private-label goods.

Saving on food and spending in restaurants

When they’re looking to cut costs, spending less on food is typically the first action that people take. Indeed, US consumers are keeping a closer eye on their food budgets. Real growth in grocery spending, which was robust during and after the COVID-19 pandemic, is still positive but has fallen by approximately four percentage points since a year ago. And 28 percent of US consumers say they’ve reduced their spending on food in efforts to save money. (Some consumers say they’re also reducing the percentage of their income that’s going to savings, dipping into their savings to cover expenses, or using their credit card more frequently.) The drop in food spending is more acute among Gen Zers and millennials than among older demographic cohorts.

That said, people want to eat out. The pull of restaurant dining is proving hard to resist: among US consumers who are planning to splurge, 40 percent intend to treat themselves by dining out.

Demanding sustainability and affordability

Last year, 57 percent of US consumers said they prioritize environmental, social, and governance (ESG) factors when deciding what products to buy. This year, only 45 percent of consumers said the same. These percentages, although lower compared with the rest of the world (US consumers tend to lag behind in prioritizing ESG factors), are not negligible. Almost half of US consumers—many of them in the younger and higher-income groups—continue to say that ESG considerations are “very important” in their purchase decisions. Fair-trade practices and recyclability, in particular, are high-priority attributes for consumers.

At the same time, premiums give them pause. For example, just 23 percent of consumers would pay a premium for products labeled “organic.” No other ESG-related labels attract higher willingness to pay: on average, only 15 percent of consumers say they’d be willing to pay a premium for items with ESG-related claims. Also, in an inflationary environment, more consumers report being uncertain about whether they can afford to buy sustainable products at all—making it more urgent for companies to develop sustainable products that are comparable in price to what consumers would otherwise buy.

In this world of “ands,” CPG companies must find ways to serve consumers’ sometimes-conflicting needs and desires. For example, a company would do well to develop high-quality options at both ends of the price spectrum: entry-level options for the down-trader and premium offerings for the splurger. What’s clear is that the future belongs to companies that can better understand—perhaps even anticipate and shape—the decisions and behaviors of the modern consumer.

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