Shopping behavior & turbulence
Households frequently experience changing financial conditions because of shifts in personal and economic circumstances. For example, the main breadwinner receives an increase in pay or a household member reduces her working hours. Household income, however, is also subject to changes along the business cycle. A recent paper analyzes how households respond to these changing conditions: Do they change shopping budgets and allocate it differently across brand types (national brands vs. private labels) and store formats (discounters vs. non-discounters)?
The analyzed data covers purchase decision from 82,000 unique German households between 2006 and 2012. Purchase information was available for 39 product categories (food, beverages, and non-food) from 467 retailers.
Here are the major results:
- Not surprisingly, a decrease in households’ incomes leads to lower purchasing volumes and a significant reduction in total CPG spending. The overall decrease in consumption specifically affects PLs in discounters and NBs purchased in non-discounters.
- Changing macro-conditions affect the structure of the shopping basket:
During contractions, expenditures for NBs purchased in discounters get replaced by PLs purchased in discounters and non-discounters. This shift is supported by a general increase in total spending as households buy more (likely replacing out-of-home consumption).
In expansions, households switch from PLs (purchased in both store formats) to NBs purchased in non-discounters. Additionally, households switch to more expensive brand types during expansions even if their available budget remains constant.
Manufacturers and retailers may have little control over economic conditions. However, knowledge about resulting household reactions could help to adapt. For example, brand manufacturers and discounters can benefit from listing national brands in discounters when wages are expected to decrease (giving consumers choices which they perceive as rewarding, yet economical). During economic contractions, retailers can expand their PL portfolio into new product categories or higher price positioning. In contrast, during expansion, retailers may narrow/close the price gap to national brands via strengthening their branding.
Source: Scholdra, T. P., Wichmann, J. R., Eisenbeiss, M., & Reinartz, W. J. (2021). Households Under Economic Change: How Micro-and Macroeconomic Conditions Shape Grocery Shopping Behavior. Journal of Marketing.