The years ahead will be marked by a need for budget engineering – “Budgeteering” – understood as balancing budget, lifestyle demands and perceived quality. This is especially true on the background of significant price increases for housing and energy and record inflation, which will inevitably influence the overall size of the shopping basket.
Key behaviors 2021
Despite these behaviors being most widely established, the most significant changes in budget engineering due to the pandemic were an increased willingness to splurge on premium paired with an increased need for products with lifestyle benefits such as natural, rich in protein or limited editions.
On the other hand, as trips grew more infrequent but bigger, price sensitivity made way for basket size scrutiny.
What will stick in 2022
Inflation in the Eurozone has soared to +4.9%, the highest since the Euro was introduced and Germany ranks among the bloc’s largest economies where prices rocketed, taking the inflation rate to +6% and energy costs to +22%.
As inflation continues to rise and pandemic-related uncertainties are prolonged, many shoppers will turn toward tighter budget scrutiny.
However, COVID-19 has increased our desire for fresh, local, healthy and safe products.
Shoppers will choose to trade down on purely functional items, in order to make best use of their household budget. But not at the expense of expectations on added value – on the contrary: they are willing to pay a premium when their lifestyle needs and values are reflected.
The trend towards cocooning will persist, while consumer expectations, related to their values, rising, which opens the road for brands and retailers that excel in offering added value for money.
More communication on product benefits is the order of the day. Whereas older shoppers tend to trust manufacturer brands, for younger shoppers, who grew up with private labels, value-added private labels offer a familiar alternative.
Category managers will need to strike a balance between functional brands and value-added brands, while the total basket size remains under pressure.
The pandemic has also upped the strategy for one stop shopping. Hard discounters, which fared quite well in Eastern Europe, experienced tougher times in many western countries, where budget scrutiny was less apparent.
Soaring prices might tilt the scale again, if and when they operate creatively with added-value propositions.