Nielsen: CPG Inflation Stabilizing, Private Label Sales +13% YOY

As continued inflationary headwinds and supply chain disruptions lead to ever-evolving consumer purchasing behaviors, emerging CPG brands are left to address the market by embracing convenience and understanding how shoppers are moving more fluidly across retail channels. According to Nielsen IQ’s latest report, CPG inflation has stabilized over the past three months but still holds at a record high of 12% compared to last year.

What is the Current State of Inflation?

With costs rising worldwide, consumers have adapted by changing their behavior. According to NielsenIQ, 44% of shoppers report cooking at home more often and a further 31% of shoppers said they purchase whatever is on promotion to save money. Promotional sales are already starting to trend slightly higher than total market growth, with promotional sales up 11% versus market growth, which is up 9%.

Meanwhile, 26% of consumers reported they have stopped shopping for certain categories altogether. This demonstrates that shoppers are directly addressing the crisis by buying less and becoming more responsible with their waste.

However, inflation in the U.S. is currently less than in other countries. The cost for dry pasta in the U.S. has risen 26% year-over-year, while Canada experienced a 29% increase and Poland experienced a 33% increase. Still, the report encouraged emerging brands to factor in the continued impact inflation will have on consumers as they plan for the upcoming year.

How are Consumers Responding?

At the height of the pandemic, consumers were almost completely reliant upon DTC and online shopping to acquire their basic necessities, including groceries. The total number of online grocery shoppers grew from 16.1 million in June 2019 to 45.6 million by June 2020, according to NielsenIQ.

“In recent years, consumer behavior has been changing fairly quickly, but 2020-2022 saw drastic changes arrive,” the report read. “Consumers were forced to adapt to a tumultuous environment with inflationary pressure, pandemic bubbles and more. ”

Now, with the aid of tools such as mobile apps and click-and-collect, more than one in five (22%) of shoppers plan an in-store shopping trip combined with a prior online order. Convenience is quickly becoming one of the most important driving factors behind consumer trends.

In a separate recent study by MarketWatch, Buy Now Pay Later (BNPL)has experienced explosive growth over the past year. Overall revenue from BNPL was up 72% year-over-year the week of Black Friday.

Consumers are also reducing their spending by forgoing brand names in favor of private label products. As prices rise, so does the growth of private label goods, according to NielsenIQ. In September, private label sales increased 13% year-over-year. Private label products, which on average provide 14% savings versus name brands, now account for 19% of CPG sales in the U.S.

As the pandemic kicked green consumerism into high gear, brands must become increasingly sustainability-focused and reduce environmental impact to appeal to consumers. When surveyed, nearly 78% of consumers said a sustainable lifestyle is more important to them and many said they have begun avoiding brands that don’t align with their stance on the environment.

How are Manufacturers Responding?

Consumers are not the only ones who have been forced to adapt to inflationary pressures and supply chain issues; brands themselves have also had to address these ongoing setbacks.

“Shrinkflation” has been one of the key setbacks faced by manufacturers under global inflationary pressures, and will likely carry over into 2023. The term, which was coined by economists nearly a decade ago, refers to the phenomenon where the physical size of products shrinks while prices remain the same or simultaneously increase. According to Nielsen, consumers are less likely to notice shrinkflation than price increases.

Going into 2023, brands will also seek to manage price reductions in an effort to be more profitable and better manage inventory, the report suggested. Thirty-two percent of surveyed shoppers reported that deals fell a bit short in comparison to typical Black Friday holiday sales, according to Nielsen. Looking ahead, promotions will be closely monitored to ensure brands are not losing out on growth revenue by “trying to appeal to consumers’ thriftiness.”Brands will also cut back on their assortment offerings, as overextending may lead to weaker returns than those that focus on fewer products as consumers pull back.