Leading into the end of 2023, inflation rates, while still elevated overall, in total have begun to come down from mid-year highs of 9.1%1. This downward trend is a bright spot; however, financial pressures continue to erode buying power leading into the holiday season. Inflation is noticed by everyone, whether it’s with groceries, gasoline, vehicles, or home utility bills, they feel the pressure. Even with the slow of inflation, prices across the board are elevated versus last year. As a result of inflation, consumers begin to prioritize spending when and where they can, but the overall impact of these increases are unavoidable.
Amid economic uncertainty and concerns about inflation, consumer sentiment towards the U.S. economy remains ambiguous. Retailers are cautiously evaluating how much consumers will spend during the holiday season, crucial for discretionary retailers, which can represent up to 40% of their annual sales.2
The National Retail Federation (NRF) predicts a 3-4% increase in holiday sales to $957.3 billion – $966.6 billion during November and December, marking the slowest growth rate in five years. This contrasts sharply with the 5.4% rise in the previous year and a 12.7% surge in 2021. Americans, impacted by sticky inflation, are cautious about spending during the holiday season. High prices for fuel and food, coupled with pressures like student loan repayments, are affecting household budgets. Consumers are adjusting their spending patterns, prioritizing essential purchases and reevaluating discretionary spending.3
The NRF anticipates a growth of 7-9% in online and non-store sales, reaching between $273.7 billion and $278.8 billion. This projection suggests that consumers might prefer online shopping due to convenience and possibly better deals compared to in-store purchases.3 Retailers are employing various strategies to attract customers, including loyalty programs, price match guarantees, widened return windows, and improved supply chains. Investing in an enhanced omnichannel experience is becoming essential for providing convenience to shoppers.2
Early Shopper Trends
While consumers are eager to save where they can and pursue sales, with the inflation-adjusted discounts, it could be an uphill battle. An estimated 182 million individuals plan to shop both in-store and online from Thanksgiving Day through Cyber Monday, marking an increase of 15.7 million compared to the previous year. This figure represents the highest estimate since NRF began tracking this data in 2017. Three-quarters of holiday shoppers plan to shop during the five-day Thanksgiving holiday weekend, primarily attracted by enticing deals (61%) and the tradition of holiday shopping (28%).
More than 40% of consumers took advantage of retailers’ October sales specifically for holiday shopping, indicating that early promotions influenced consumer behavior.4
Consumers are adjusting their holiday shopping habits due to concerns about price increases, availability, and convenience. A significant percentage (79%) are trading down—seeking cheaper alternatives or cutting down on purchases. While better prices and promotions are becoming increasingly important to consumers, overall spending versus the previous year is up.
The average household plans to spend $1,652 on holiday purchases, which include experiences, gifts, and other retail spending, according to a survey from financial firm Deloitte. This is up ~$200 versus last year (+14%), however, only increased a modest CAGE +2.5% since 2019. With consumers expecting higher prices, they are making adjustments to stretch their budgets. They plan to buy fewer gifts (eight versus nine in 2022, and down from sixteen in 2021), spend more on gift cards ($300 versus $217 in 2022), and pounce on promotional events.4
Cutting back on the number of gifts is not the only area consumers are pulling back this holiday, as some may be reducing the number of dishes, or baked treats, they’re setting out at family gatherings.
Mitigating Meal Costs
During the festive season, the most significant portion of Americans’ expenses goes toward food or celebratory meals, with 51% identifying it as one of their biggest expenses. Alcoholic beverages, either in tandem or separate from events, will also be a significant expense for 41% of survey respondents.6
Food at home inflation rests at just over 3% while food away from home sits at over 5%. This not only impacts weekly grocery lists, but also for holiday dish decisions.
Rising costs impact everyone, but not all increases are created equal. Some retail channels, departments, categories, etc. have felt the impact to various degrees. At the channel-level, Conventional (MULO) saw total store average retail price (ARP) increases of +9.0% for the most recent 52 weeks. The Natural Channel, on the other hand, saw around a +6.7% increase for the same timeframe. These price increases have softened to ~3%, in both channels, for the most recent 4 weeks. This could be considered encouraging but looking at a cross-channel view of Conventional Multioutlet (MULO), and the Natural Channel, edible department ARPs are up double-digits versus two years ago.
Total US, SPINS Natural Enhanced Channel + SPINS Conventional Channel (powered by Circana) | Trended & 4 weeks ending 11.05.2023 | Edible Dept: Grocery, Refrigerated, Frozen
Holiday meal cost today is up considerably compared to 2021. Like the overall retail industry, rise in costs have consumers heavily prioritizing their spend, by seeking out available promotions (which have increased), targeting lower priced products, all while trying not to compromise the overall quality of the foods.
Private Label Engagement
Noted in the above chart, ARP price increases have slowed in more recent time periods. With these decreases, we have seen sales growth and engagement across total Private Labeled (PVL) items slow. Over the past 52 weeks, PVL sales growth posted 9% versus the previous year. In more recent timeframes, total performance is flat/down versus last year. While not all buyers are shifting dollars away from PVL items, there seems to be interest among part of the consumer base in being selective where they pivot dollars to PVL to stretch money further and mitigate costs where possible. For example, subcategories (ex. SS Entrees & Mixes Potato Based) seeing double-digit ARP increases for the most recent 4 weeks, we saw explosive sales growth for their PVL counterparts.
Total US, SPINS Natural Enhanced Channel + SPINS Conventional Channel (powered by Circana) | Trended aggregate weeks ending 11.05.23 | Private Labeled Items | Edible Departments
Overall, these synthesized themes depict an environment where consumer behavior is influenced by tightened budgets, early promotions, tradition, and the quest for lucrative deals. Retailers are poised to cater to the heightened consumer demand, leveraging insights from surveys and strategic preparations to navigate through what promises to be a bustling and significant holiday shopping season.
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