June 1, 2022

Rising prices impacting shopper demand is perhaps the hottest topic among CMA and SIMA members today. Increasing labor and raw material costs, coupled with supply chain constraints, has disrupted category management work, as much if not more than during the initial onset of COVID-19. The Federal Reserve chair, Jerome Powell said on March 21st, “The labor market is very strong, and inflation is much too high.” In an effort to reduce inflation running at a four-decade high, the central bank approved a half-percentage-point interest-rate increase, and Powell indicated more half-percentage-point increases will follow. How will this impact retail spending?

We were thrilled to host 3 fantastic webinars during the month of May, presented by Kantar, NielsenIQ, and Robin Simon and Sally Martin of the CPG Data Tip Sheet to tackle these questions and more. While the full recordings are available to CMA and SIMA members only, we wanted to share a few key takeaways from our recent content to help the industry at large keep a pulse on the ever-changing pricing environment in the US retail market.

1

Supply chain issues came to a head in 2020, and unfortunately 2022 continues to reflect a “firefighting” approach with stress to the overall system caused by factors including environmental/climate change, social and political factors, and the war in Ukraine. Global average delays from late vessel arrivals have moved from 5-6 days in 2020 to 7-8+ days in 2021. This compared to a reliability rate of 85% just a year earlier, in 2019. Key ingredient shortages include chips, resin, aluminum, and now neon. These supply chain hurdles likely outlast the pandemic.

2

Significant out of stocks on essential items have strained relationships between retailers and suppliers, making it the main topic of conversation over the last few months. The best drawn planogram is only as good as the available product to supply it. We heard from Kantar on how category managers are responding to product shortages caused by these global supply chain challenges. They shared some specific case studies on calculating transferable demand and incrementality to make recommendations on discontinuing items if/when they are out of stock.

3

Shoppers have also become less forgiving of retailers out of stock compared to earlier in the pandemic. Kantar shared that only about 8% of shoppers reported a negative impact at retail from out of stocks in April 2020, recovering to 40% in May 2021, but has worsened again to 21% as of September 2021. As supply chain driven out of stocks remain top of mind, category managers can help make recommendations to retailers on SKU adjustments in the short term. True category leaders will balance solving immediate tactical needs while also maintaining future strategic category vision.

4

An additional by-product of supply shortages (and other factors) has been inflation. We next heard from NielsenIQ on the impacts of inflation, price elasticity and changing demand by category. Measuring inflation is complicated, Nielsen uses 8 variables including EQ price change and base EQ price change. The current average inflation rate across categories hit 8%+ in April 2022 vs. 3-5% in 2020 and 2021. Price increases have been largest in meat, followed by dry grocery, pet, and frozen. Category managers can monitor specific inflation rates by category on the Bureau of Labor Statistics CPI tracker hereBottom line, category managers should update price elasticity models to determine their specific key thresholds for pricing. Products that are considered “staples” or essential to daily living will be more inelastic (like baby formula and toilet paper) while other categories such as prestige cosmetics and confections are more elastic, with demand suffering as prices increase.

5

As Robin Simon and Sally Martin from the CPG Data Tip Sheet advised on their webinar with the CMA, figure out what’s really happening at the shopper level by comparing shipments, retail POS data, unit sales, and basket dynamics. In many categories dollars are rising quickly, and units are already declining. In other categories, retailers have not fully passed along price increases so the impact to the consumer has yet to be determined. Overarching statements about current shopper behavior are difficult to craft, as each category has its own specific dynamics, but in general we are seeing channel shifting for certain products to dollar/value retailers as prices have increased, as well as private label gaining back some of the share it lost during COVID. Robin and Sally’s graphic summarized the current situation nicely:

Various partners of the CMA and SIMA including NielsenIQ, Numerator, SPINS, and NPD offer great additional content on price elasticity, inflation, and current demand by category, and theorize on the outlook.  An abatement of inflation won’t happen overnight, but experts speculate by the beginning of next year inflation will be hovering at more like 4%.

The CMA and SIMA content team will continue to lean on experts and publish real-time content on pricing and supply chain challenges to help category mangers and shopper insights professionals stay up to speed on how these levers impact shopper behavior. Our next webinar presented by SPINS will be on Friday June 10th to explore how rising prices affect conventional and natural channels differently, how price fluctuations impact loyalty, and what insights you should rely on to stay informed and win.  Members can register here.

If you are not yet a member of the CMA and SIMA feel free to contact member services ([email protected]) to get plugged in to this great content and more!