Rising US food prices create more pain for cash-strapped consumers

The ongoing Covid-19 pandemic continues to have a widening impact on global society and commerce. In the US, the pressure on households has been escalating month by month as unemployment surges and budgets are tightened.

This has beenparticularly affected by inconsistent local and state approaches to managing the outbreak and a populace divided in their attitude and actions towards it. Now, news on food prices highlights another pinch point on struggling consumers.

The US Department of Agriculture has reported that for a variety of reasons, many driven by Covid-19, retail food prices rose by an average of 3.4% in 2020, and are forecast to increase between 1%-2% more in 2021.

This is against a particularly dire backdrop where records are being broken on an almost weekly basis for the numbers of new applicants for unemployment insurance, with many in receipt of payments now facing the end of that time-limited support, with no resumption of employment in sight.

The US stands out in lacking a comparable and nationwide system of well-developed social safety nets that the majority of other First World free-market democracies have in place.

Long-running political games, such as Republican frustration of federal-level financial support for unemployed and struggling Americans, have further exacerbated the risk of a major dislocation in American societal function lasting well beyond the immediate Covid-19 crisis. And this is without even considering the hyper-partisan, socio-political schism between Trumpism and liberal democracy.

A watered-down package of relief pushed by now-outgoing Senate Majority Leader Mitch McConnell alleviates some pressure, but attention will switch to what additional help can be delivered now that Senate control will switch to the other side of the aisle, following Democrat success in the two Georgia runoff races. 

In the meantime, this adds up to a crisis associated with basic needs for food and shelter: families are going hungry, and also risking eviction. The desperation is also expressed in the form of massive queues and demand seen at food banks across the country.

To make matters worse, the aforementioned food price rises have been creeping into the picture. This is a serious concern for many; 27% of Americans strongly agree that they are on a tight budget when shopping for their household, with a further 34% somewhat agreeing, according to GlobalData's Covid Tracker Recovery Survey (conducted June to December 2020).

US consumers are thus highly attuned to expense in their food purchasing. How well a product aligns with a consumer's time or money constraints always influences 28% of them, with a further 55% often or somewhat influenced.

Consumers' strategies have thus been evolving to respond to the situation in several ways, with consequences – and lessons – for retailers and manufacturers. They have been looking to cut costs on protein consumption, mainly in the form of reducing meat intake or looking for savings via less expensive, less popular cuts of meat.

Bulk buying is also a route growing in popularity to take advantage of discounts, with consumers then cutting bulk amounts into smaller portions at home so as to pace consumption and minimise leftovers and wastage.

Plant-based alternatives to meat have opportunities in this environment. Leading plant-based meats are not quite ready to benefit fully from this trend as they are generally sold at a premium over meat equivalents. If prices can reach parity, or if discounters prove able to get into the plant protein meat replacement space, that may change.

In general, retailers and brands should examine opportunities to improve value-for-money in protein-rich and other nutritionally sound foods. Consumers are budgeting, and will continue to budget around nutritional value.

Shopping lists are likely to be shaped around "calories per dollar", favouring discount lines and private label brands from trusted retail names that undercut national brands, often significantly.

US consumers are also shunning food waste, and paying much more attention not only to their own wastage but also that of retailers and manufacturers. GlobalData's Recovery Tracker Survey notes that 14% of US consumers consider reducing waster their top priority in purchasing choice; a further 18% class it as significantly more important than before, and 16% slightly more than before.

This stands to benefit those businesses already taking a positive stance on "uglies" – those misshapen or discoloured but perfectly edible fresh foods that are often rejected from sale for purely cosmetic reasons. Such items have appeal as discount options for value-seeking consumers.

Local produce is another potential area for enhanced growth. Perceptions are localism can offer cost-savings based on short supply chains and the springing up of 'urban gardens' and farms, producing fresh produce at the neighbourhood level, offer another potential means for some consumers to access healthy basics at prices below that of big chain grocers.

Overall, many US consumers are facing basic challenges that require them to become inventive in meeting household needs and thus retailers and brands need to embrace roles as supportive, ethical, and socially responsible actors.

The economic fallout of the pandemic and associated social cracks risk longer-term damage to consumer markets, and thus it is in the interests of businesses to help consumers get through, while providing themselves with (lower but sustained) sales income in the process.