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Food Costs Remain High As Consumers Look For Other Options

Circana pacesetters food

Last year, food inflation at retail and foodservice exceeded levels reached during the Great Recession. Even with inflation moderating, higher food prices will continue influencing consumers’ spending and eating behaviors this year, reports Circana, formerly IRI and The NPD Group.

Food will always be consumers’ priority in tough and good economic times, whether eaten at or away from home, according to Circana food and beverage and foodservice industry analysts speaking at the company’s Growth Summit March 20-22 in Las Vegas.

When faced with higher prices, consumers will use multiple tactics to reduce or reallocate at- and away-from-home food spending, like trading down to private label, buying in bulk, using more leftovers or choosing a quick service restaurant over a full service restaurant.

Higher food costs have had an impact on discretionary spending. David Portalatin, Circana food and foodservice industry advisor, told Growth Summit attendees that some of the declines in discretionary retail spending last year were due to the need to fund higher spending on food and beverage. 

At- and away-from-home food and beverage sales grew 8 percent in 2022, exceeding historical norms. At-home food spending remains a larger portion of the food and beverage sales, 61 percent, which corresponds with the 86 percent of annual eating occasions sourced from grocers and other retail outlets, said Cara Loeys, principal, of CPG client engagement at Circana, presenting with Portalatin on the “Complete Food & Beverage Consumer” at the summit.

Retail (at home) food and beverage sales were up 9 percent and reached $931 billion in the 52 weeks ending December, and direct consumer foodservice spending was up 6 percent with $606 billion in sales. With higher food costs and a return to many pre-pandemic routines, consumers have shifted their eating and spending behaviors.

However, consumers are likely to get “frugal fatigue” and start to acclimate to the current pricing situation, indicating there is no need to race to the bottom of the price ladder. While 2022 was about value pricing to manage budgets, Portalatin explains that 2023 will be about the other attributes that play into value.

“Price will always be important, but consumers define value differently. For example, consumers who visit a restaurant aren’t necessarily looking for the cheapest meal,” Portalatin said. “They’re looking for the menu items they crave or foodservice outlets that offer quality and variety and enable them to treat themselves.”

Portalatin and Loeys expect consumers to manage high food costs in 2023 with the same behaviors they used last year, like trading down, shifting to value retail channels or from full service to fast casual restaurants. They advised the Summit audience to stay focused on consumer needs. Targeted approaches in delivering convenience and value, innovation and using digital to alter consumer interaction with brands are ways for food manufacturers, retailers and foodservice operators to win in 2023. 

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Donald E. Stephens Convention Center
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