High food inflation is expected to continue impacting consumers and retailers through the end of the year, according to new research from AlixPartners.
Though UK shoppers are expected to spend £131 billion during the final weeks of November through the Christmas period for a 4% projected jump in retail sales, inflation will lead to a real-term volume decline of 4.1%. Those numbers are highlighted in AlixPartners’ The Critical Consumer 2023.
Though consumers are expected to spend 50% more on groceries than last year during the season, retailers are looking at negative volume growth rates.
“Many retailers are facing into a special kind of ‘Jingle hell’ this holiday period,” Matt Clark, Partner & Managing Director and, EMEA Retail Lead at AlixPartners, said of the Christmas Retail Forecast. “Our latest consumer research shows widespread belt-tightening across the board, with only grocery maintaining spend levels but even here, volumes still drop sharply because of inflation. Only those retailers at the very top of their game will retain or grow share of wallet and I fear we are in for another round of restructuring and consolidation in early 2024.”
For retailers hoping for a late-year surge from consumers, they may not get it from their biggest foundation – the 35-44 and 45-54 age groups. AlixPartners notes they plan to spend about a third less on gifts to friends and family members, so it is imperative for chains to provide value where they can. Where they may find a silver lining is with younger shoppers (age 18-24) who say they will spend about a quarter more this year.
Although shoppers are intent on keeping their fridges and shelves stocked despite high prices, it remains to be seen whether they will in fact commit to that tradeoff – food vs. electronics, clothing, sporting goods and other gifts. Grocery retailers should be wary of overbuying, offer promotions where they can and not expect their premium products to be purchased en masse.
“The study shows a shift towards more pragmatic spending, with over 60% of ‘high income’ consumers planning to switch to cheaper alternatives, including supermarket own brands,” AlixPartners said in a statement. “The study predicts continued caution in 2024, urging retailers to employ smart pricing strategies.”