For Retailers & CPGs, Five Ways to Fight Back Against Inflation

June 5, 2024

By Phil Lempert, SupermarketGuru, Consumer Trend Tracker, Food Trends Editor, NBC’s Today, and Author

Inflation resumed its downward path in April 2024, albeit slightly, signaling a potential shift in the economic landscape. This subtle change, coupled with the cooling off of previously robust consumer spending, carries significant implications for consumer-packaged goods (CPG) brands and retailers. Over the past few weeks, as I reported on CMA’s new weekly Retail Radar webcast, many retailers have taken the offense by lowering prices in the hopes to attract shoppers.

This move by retailers comes at a critical time as all retailers and brands are now faced with a new challenge – the “no-buy movement.” According to the Associated Press, more people are making pledges to stop buying non-essential items for a full year to adjust for overspending or climate concerns. The movement is growing through social media including TikTok where its “No Buy Year Rules” has over 31.7 million views with over 26 million posts. Reddit’s r/nobuy page, with 52,000 members, offers weekly no-buy check in and accountability discussion boards to help motivate the group.

Trends and Economic Indicators

The Personal Consumption Expenditures (PCE) Price Index, which is the Federal Reserve’s preferred measure of inflation, showed a slight deceleration in core inflation in April. Excluding food and energy, prices rose by 0.2% compared to 0.3% in February and March. This marks a modest but noteworthy shift, suggesting that inflation might be on a gradual cooling path, but there is always the chance for the occasional bump in road over the balance of this election year. For all of 2024, core inflation is running at a 4.1% annualized pace, significantly above the Federal Reserve’s 2% target. This discrepancy underscores why officials remain cautious about lowering interest rates.

Consumer spending also saw a modest increase of 0.2% in April, down from the 0.7% increases seen in both February and March. According to Gregory Daco, chief economist at EY-Parthenon, “Disinflation momentum resumed in April.” He attributed this to slower consumer spending growth, reduced markups, declining rent inflation, and moderating wage growth, all of which contribute to the ongoing cooling of inflation.

Impact on Consumer Behavior

The data from April presents a gloomier picture of the American consumer. Spending has pulled back, especially on goods such as vehicles. In this past Friday’s Washington Post, LPL Financial chief economist Jeffrey Roach noted, “Businesses need to prepare for an environment where consumers are not splurging like they were last year.” This shift is evident in the personal consumption expenditures, which fell by 0.1% when adjusted for inflation, compared to a 0.4% increase in March. Real disposable incomes also fell by 0.1%, marking the second decline in three months.

The personal saving rate held steady at 3.6%, lower than pre-pandemic levels. This indicates that consumers are cautious with their spending, no doubt fueling the no-buy movement, and is likely due to uncertainties about future economic conditions, the upcoming presidential election and the slow pace of wage growth relative to inflation.

What CPG Brands and Retailers Must Do

For CPG brands and retailers, these economic shifts necessitate strategic adjustments. The reduced spending power of consumers means that businesses need to reevaluate their pricing strategies, promotional activities, and overall value propositions. Key areas to focus on include:

  • Value-Oriented Offerings: With consumers becoming more price-sensitive, CPG brands should emphasize value-oriented products. Offering budget-friendly options without compromising on quality can attract cost-conscious shoppers.
  • Promotional Strategies: Effective promotions and discounts can drive sales in a sluggish market. Retailers should consider targeted promotions that cater to the needs of different consumer segments, leveraging data analytics to understand buying patterns and preferences.
  • Innovation and Differentiation: Innovating to create unique products that stand out can help maintain consumer interest. Brands should focus on product differentiation through unique features, sustainable practices, or health benefits that align with current consumer trends.
  • Operational Efficiency: With tighter margins, improving operational efficiency is crucial. Streamlining supply chains, optimizing inventory management, and reducing waste can help businesses maintain profitability.
  • Enhanced Customer Experience (the MOST critical and powerful opportunity): Investing in customer experience can drive loyalty and repeat purchases. Personalization, excellent customer service, and seamless online and offline shopping experiences are key to retaining customers in a competitive market.

Looking into the Crystal Ball

The gradual deceleration of inflation, while promising, is not without its challenges. The economic environment remains uncertain, with core inflation still running above the Federal Reserve’s target. All businesses must stay agile, continuously monitoring economic indicators and adjusting their strategies.

For CPG brands and retailers, understanding and adapting to changing consumer behaviors is critical. The shift from a “white-hot” consumer market to a more cautious spending environment requires a new approach. Emphasizing value, sustainability transparency, enhancing operational efficiencies, and investing in your customers’ experience will be the key drivers of success.

There is no doubt that the downward trend in inflation is a positive sign, however the road to economic stability over the next six months is likely to be bumpy and reinforces the need for all retailers and brands to have a laser focus on our consumers’ behaviors.