Food price increases hit consumers directly in wallet

Financial concerns are growing in the Netherlands. We recently reported on concerns about energy prices. Now we’re taking a closer look at concerns about rising food prices. Higher energy costs did not lead to cutbacks in other spending categories. So what about these price increases? Where are people cutting back in their “mental household budget”? You can read about it in the Consumer Behavior Monitor, an initiative of VU Amsterdam and Validators.

Three-quarters of the Dutch are very concerned about rising food prices. One way to cope with these concerns is to cut back on grocery spending. 54% do this by buying more private-label brands. This is also reflected in the “Brand Relevance in Category” section of the monitor. Dutch consumers are now paying less attention to the brand when they make a purchase (18%); this percentage has never been this low before. Furthermore, only 17% of Dutch consumers consider it important to buy a brand-name product. Since the crisis is now truly being felt in people’s wallets, it seems that “social demonstration”—showing that you have something—is considered less important. People are less concerned with buying fair-trade and eco-friendly products and are instead opting for the cheaper option on the shelf. According to the price survey by the Consumentenbond, this can lead to significant savings. According to the survey, consumers actually save half the cost by buying store-brand alternatives instead of only premium brands. In addition to opting for B-brands, half of the Dutch say they are consuming fewer luxury products (50%).

Noud Schartman, PhD candidate at VU Amsterdam and Validators: “We often model our own purchases on a particular reference group—the well-known ‘keeping up with the Joneses.’ But when we see that other people are also struggling during times of crisis, it can feel more ‘acceptable’ to buy the store brand after all, or to go to a different store. And it’s not just this social aspect that plays a role; we’re also more lenient with our own principles. If you always have money left over at the end of the month, it’s relatively easy to buy sustainable, organic, or fair-trade products. But when real financial choices have to be made, it’s a lot harder to stick to principles that might come at the expense of yourself and your family.”

The study by the Consumers' Association also shows that prices for basic private-label products vary considerably from one supermarket to another. According to the study, Dirk is the cheapest supermarket, with prices as much as 11% below the average price for private-label products. The survey also reveals that people are saving money by shopping at a cheaper supermarket (44%). In addition, some people are saving money by buying more items at once when purchasing inexpensive products (stockpiling, 39%). More than a third also indicate that they are saving money by cutting back on expensive products (such as fruit).

As a marketer, how do you deal with cost-conscious consumers?

For the major (and often more expensive) brands, such as Coca-Cola, this isn’t necessarily a disaster. Promotions, a strong image of quality, and habitual buying help keep market share stable. For newer, smaller brands—and especially those that want to position themselves as premium or high-quality—it’s difficult to get people to switch to their brand right now. As price becomes more important, the importance of other factors diminishes. Because the crisis is currently felt primarily in financial terms, the importance of buying a premium brand is declining.

But what about risk reduction—another mechanism, alongside social demonstration, that explains the importance of brands? Risk reduction is a cornerstone of a strong brand; consumers choose a product because they know its quality won’t disappoint. While risk reduction was particularly important during the uncertain times of the pandemic, the current polycrisis shows that financial considerations now carry greater weight. Based on the risk reduction principle, one could argue that brands should now focus on emphasizing their brand’s qualities to assure consumers that choosing their brand is the best decision. However, it now appears that consumers are far less sensitive to this in the current crises and are actually opting less for premium brands.

This raises a lot of questions for marketers. Should you invest less in your brand? As a premium brand, should you suddenly start adjusting your pricing? Which associations are—and will remain—important in these times? The answers to these questions are not straightforward. What is now becoming especially important for marketers is measuring and interpreting the performance of their marketing activities. What is the goal of your campaigns, and are you seeing those goals being met? For example, it would be a shame to spend money on an expensive World Cup commercial only to realize afterward that the proposition you’re communicating has become less relevant to consumers.

Marcel van Brenk, partner at EY VODW: “In these times of rising prices and growing consumer skepticism, it is more important than ever to gain a deep understanding of the commercial effectiveness of campaigns. Which promotions have the desired effect, which ones are actually unnecessary, and which ones are counterproductive? The data is usually available. The next step is not only to apply advanced analytics to identify the true impact, but above all to make deep-seated changes to commercial processes so that these insights can actually prove their worth in practice. Especially now, marketing is a combination of art and science.”

You can also read this article on MarketingTribune.

Would you like more information? Please contact: business@validators.nl