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Navigating the Cost-of-Living Crisis

October 2022

After decades of low inflation, economies, companies and consumers worldwide struggle to cope with the surging cost-of-living crisis. While the costs are proliferating, the expansion in remuneration is slow. This squeeze on living standards leads to decreasing discretionary spending, trading down to more affordable items, such as private label, and more frequent visits to discounters. Meanwhile, businesses try to stay afloat by increasing prices, moderating volumes or prioritising streamlined

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Key Findings

Cost-of-living crisis affects both consumers and businesses

Sharply rising prices and stagnant wages result in squeezed living standards and a decrease in consumers’ real purchasing power. In addition to dealing with decreasing consumer spending, businesses face growing production and operation costs, increasing labour expenses and expanding the cost of debt.

Food, housing and energy are the top three costs consumers are worried about

Increases in prices, political uncertainty, looming recession, and economic slowdown yield negative emotions among consumers. Consumers use social media effectively to draw attention to their country’s cost-of-living crisis. Price hikes of essential products, such as food, housing and fuel, emerge as the most significant concerns.

Businesses need to cater to consumers on two extremes

The cost-of-living crisis affects all consumers, just to a different degree. Rising prices of essential goods and services are detrimental to the lowest-earning cohorts since they have limited abilities to trade down. Meanwhile, upper-middle-class and high-earning consumers also grow more price-value conscious, yet are still willing to spend on discretionary items.

Consumers increasingly choose private label goods and discounters as a first-stop shop

The gap between branded goods and private label is narrowing in terms of quality, innovation and convenience. Previously preferred due to the low prices, private label is often of similar or higher quality than branded goods. In addition, discounters’ foot traffic is also growing, not only due to better value offers but also due to their aggressive expansion strategies.

Top strategies to tackle inflation are increasing prices, decreasing volume and streamlining portfolio

Companies convey part of the increases in operational costs to consumers while also accepting lower profit margins themselves. Brands also use shrinkflation and skimpflation to retain consumers, yet the latter might be perceived as much more deceitful than the former. Focusing on core products while discontinuing the unpopular is another strategy employed.

Scope
Key findings
“Inflation” and “cost-of-living crisis” are not the same thing
The war in Ukraine adds to the already high price pressures
Plunging consumer confidence
UK: Consumers agitated by the increasing cost of living
In the UK, food and non-alcoholic beverage prices emerge as the big concern
US: Consumers mulling over largely worrisome environment
In the US, energy prices emerge as the big concern
India: Consumers driven to despair by evolving circumstances
In India, food and non-alcoholic beverage prices emerge as the biggest concern
South Africa: Consumers distressed by the economy
In South Africa, food and non-alcoholic beverage prices emerge as the big concern
Key takeaways from social listening
Significant slowdown in consumption growth
Limited space to manoeuvre for cash-strapped consumers
Top consumer behaviours observed by Euromonitor’s industry experts
Consumers choose a discounter as a first-stop shop
Aldi Price Match initiative by Sainsbury’s and Tesco
Branded experience of the non-branded goods
Lidl accredited for its private label alcohol products
Indian consumers, dissatisfied with price increases, lean towards private label brands
Choosing the alternatives or alternative shopping
Amazon adds Prime Day-like shopping event in October
Navigating the other side of K-shaped consumers
Solar panels present an investment opportunity
Strategies used to manage cost of doing business has severe repercussions on consumers
Increase price or accept a lower profit margin
Bernard Matthews/2 Sisters Food resets poultry prices
Shrinkflation is another way to cope with inflation
Shrinkflation: Toblerone increases the space between the peaks
Streamlining product portfolio by focusing on relevant product lines and SKU pricing
The Coca-Cola Co: Balancing affordability and price increases through price/package mix
Volatility and uncertainty are here to stay
It’s not all challenges
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