Inflation

Location, lifestyle and price

Short term budget concerns at odds with long term confidence

Prices are on the rise for any raw material, be it crude oil, up +65% (comparisons April 2022 vs. 2021), and gas +151%, or wheat +66% and oat at +109%. Already soaring during the pandemic, supply chain disruptions and the war in the Ukraine have sent shipping costs to an all-time high with an increase of +218% ¹.

The end to inflation is not in sight, which has a strong impact on household budgets, especially in FMCG – some examples: In Germany, the economic experts of IFO institute forecast an easing of inflation in the second half of the year, as fewer companies are planning to further raise their prices – with one exception: the retail sector, where nine out of ten companies plan an increase in FMCG.

According to the Italian Statistics Institute (ISTAT), the average Italian family will have to spend an additional 480 Euros on food this year.

Based on data from Eurostat, food prices across Europe rose by +8.9% in April, with Eastern European countries being hit much harder than Western Europe: In Lithuania, consumers had to pay +22.1% (YoY) more for food, in Bulgaria +21%. Food prices also rose double-digit in countries including Hungary, Estonia, Romania and Slovakia, and still by +8.5% in the Netherlands, whereas the lowest food inflation rates in the EU were reported by Ireland (+3.6%) and France (+4.3%).

year, as fewer companies are planning to further raise their prices – with one exception: the retail sector, where nine out of ten companies plan an increase in FMCG.

According to the Italian Statistics Institute (ISTAT), the average Italian family will have to spend an additional 480 Euros on food this year.

consumers had to pay +22.1% (YoY) more for food, in Bulgaria +21%. Food prices also rose double-digit in countries including Hungary, Estonia, Romania and Slovakia, and still by +8.5% in the Netherlands, whereas the lowest food inflation rates in the EU were reported by Ireland (+3.6%) and France (+4.3%).

Not surprisingly, the consumer climate is plunging across Europe with negative income expectations in more or less all countries, which obviously will also have a strong negative impact on shopping behavior.

Consumer confidence plunges

Source: GfK, survey on behalf of EU-Commission | May 2022

¹ Source: Shipping costs: https://fbx.freightos.com, https://www.freightos.com/freight-resources/coronavirus-updates/

Notwithstanding, their general outlook on the future remains optimistic, say 41% of consumers and even 46% of businesses. At the same time, more than eight out of ten companies worry about the negative implications of the Ukraine war: 36% already report a slight decline in their business and 56% are expecting it, 13% even fear a sharp decline.

Similar worries among consumers are especially high in Central and Eastern Europe with 72% (really) worried. Compared to 2020, short-term consumer concerns have shifted. Consumers increasingly worry about their economic situation – it continues to be their No. 1 concern.

In addition, personal aspects are moving into focus, especially concerns about own and family safety, and energy supplies, whereas topics such as climate change, and waste and pollution are for the moment taking more of a back seat.

are expecting it, 13% even fear a sharp decline.

Similar worries among consumers are especially high in Central and Eastern Europe with 72% (really) worried. Compared to 2020, short-term consumer concerns have shifted.

Consumers increasingly worry about their economic situation – it continues to be their No. 1 concern.

topics such as climate change, and waste and pollution are for the moment taking more of a back seat.

Location, lifestyle and price – factors impacting shoppers’ behavior

How are shoppers “internalizing” the described external forces and adapting their behavior?

The direction, speed and depth of these assimilations depend on a number of factors, which also differ in the dimension that shoppers are being affected. Analyzing these factors will help to better understand and predict shoppers’ coping strategies.

Exposure factors & coping strategies

Where you live

Unsurprisingly, where people live has a major impact on budget concerns and a potential budget squeeze. As mentioned previously, inflation rates differ considerably by region: Budget is a major concern for 57% of consumers in Central and Eastern Europe, and only for 35% in Western Europe. Whereas 33% of Swedish shoppers declare to take more control of their household spend, it is a top priority for 53% of Italians.

Food inflation

Though we have seen similar inflation rates for food and beverages in the past, especially around 2008, total inflation rates were lower then. Today, consumer wallets are squeezed by other aspects, primarily household electricity: While food prices in the EU rose by +8.6% on average in May, energy and housing rose by 16.3% (1). As people need to spend more on energy, they have to adjust their wallet shares on the expense of other components including food.

electricity: While food prices in the EU rose by +8.6% on average in May, energy and housing rose by 16.3% ². As people need to spend more on energy, they have to adjust their wallet shares on the expense of other components including food.

Price versus quality orientation

With the exception of Germany, where shoppers slightly prioritize quality over price, shoppers in all other EU countries are more price-sensitive – as a consequence will pay less for food and beverages. For example, price-oriented consumers pay on average 10% less for beverages. Also, the share of private labels is higher with price-oriented shoppers than quality shoppers. This is especially true for Denmark, where 64% of shoppers rate price over quality.

Yet, a clear behavior change can be noted in both, more price-and more quality-oriented countries: Collective trading-down already started earlier in the year, with people shifting to other options, be it cheaper brands, private labels or cheaper retailers.

In times of hardship, FMCG tends to benefit in volume, as out-of-home consumption is often sacrificed. In addition, working from home continues this year, albeit at much lower levels than during lockdown periods, which is also pushing FMCG volumes beyond 2019 levels. The question is whether inflationary value increase and volume trends will outweigh down-trading effects. In 2008 and 2009, volume growth and down-trading were balanced out, however total inflationary pressure was much lower then.

Brand investment in times of hardship

Today’s cost-of-living crisis sets the scene for private labels and hard discount returning to growth, and we are seeing plenty of evidence for that. Brands therefore need to be aggressive to defend their position. During downturns, investments in brand salience and availability are typically cut, but this proves to be quite detrimental and often irreparable in the long run. Now more than ever, the common laws of growth still apply. Brands should keep investing, if only to maintain their position.

² Source: https://www.ecb.europa.eu/stats/macroeconomic_and_sectoral/hicp/html/index.en.html

Winning brands: what we know

1Winning brands grew their product range with 40% via additions, not substitutions

2 Winning brands gained twice as many listings at discounters

3 In categories where shoppers have a very positive image about the level of brand investment, innovation, brand trust and value for money, private label shares are up to 25% lower

4 Brands, which increased their advertisement share in times of contraction, gained 12% more market share than those that did in times of market expansion (and this number even rises to +19% for R&D expenditures). ³

³ Source: Meta-learnings BG20 database, >11000 brands, 100 categories, 30 countries; Europanel, GfK, Kantar, 2008-2020 1. 2015-2019; 2. 2015-2020; 3. Europanel Global Private Label Study; 4. 2008-2018

Budget security determines crisis type and strategies

Not all households act alike and adding to the denominators described above, the private, financial situation of households including expectations about its stability are probably the most differentiating factors for shopping behavior in the current situation: Across Europe more than 1 in 3 households (37%) is struggling to make ends meet. In countries such as Italy, Croatia and Serbia this counts for around half of the population. On average, 15% of EU-people are afraid of losing their job, especially in Eastern and Southern European countries, and as many as 28% of Bulgarian citizens fear their job at risk.

behavior in the current situation: Across Europe more than 1 in 3 households (37%) is struggling to make ends meet. In countries such as Italy, Croatia and Serbia this counts for around half of the population.

On average, 15% of EU-people are afraid of losing their job, especially in Eastern and Southern European countries, and as many as 28% of Bulgarian citizens fear their job at risk.

At GfK, we have condensed these fundamental household dynamics into three crisis types and representative budget concerns.

GfK’s crisis types

Source: GfK, Behavior Change survey EU-15 n=7,855 April 2022

Across Europe;
43% of shoppers are “concerned”, struggling financially and slightly worrying about their job or not working,

18% are “affected”, being highly afraid to lose their job or currently unemployed, whereas

39% of “resistant” shoppers are in a financially comfortable situation with no or only slight worries about their job, or no longer working.

Matching budget with lifestyle and trends

Obviously, household realities and concerns are influencing the FMCG behavior of shoppers: On average, the resistant spend +7% more on FMCG than the affected. This gap is widening, especially in Austria (+19%) and the Netherlands (+24%).

Lifestyle exposure

Similarly, (resulting) lifestyle choices affect the amount spent on FMCG as well as the product categories and products shoppers will buy. While resistant consumers, especially following the pandemic lockdowns, will, for example, continue to visit restaurants, the concerned and affected shoppers will need to cut down on out-of-home, spending more money on home cooking.

lockdowns, will, for example, continue to visit restaurants, the concerned and affected shoppers will need to cut down on out-of-home, spending more money on home cooking.

Two examples of product categories that showcase the differences in budget and lifestyle choices: With coffee being a popular yet pricy product, 86% of resistant shoppers in Austria continue to buy coffee versus only 70% of the affected. On the contrary, looking at fabric conditioner, only 38% of resistant consumers in the Netherlands buy fabric conditioner, whereas 45% of the affected will stick to this product category, which often has to do with a tumble dryer being available or not.

Trend exposure

Naturally, the three crisis types also display significant differences in their attitude and respective shopping behavior, when it comes to general, social topics and trends.

Whereas concerns about inflation and budget are (more or less) top of the list for all three crisis types, physical health continues to be a big concern for the affected and concerned, not least as their household income very often depends on it. As the resistant could afford lifestyle changes, only 28% are concerned about their physical health.

On the contrary, the resistant worry much more about climate change and it is probably fair to say, that the affected and concerned can no longer afford to worry about this, having to deal with more direct, private concerns such as budget issues.

household income very often depends on it. As the resistant could afford lifestyle changes, only 28% are concerned about their physical health.