Sean Connolly, CEO of Conagra Brands, has observed a “likely temporary” change in consumers’ shopping habits in recent months. Some consumers are “hunkering down” and “buying fewer items overall,” rather than “trading down” to a less priced brand, he said on Conagra’s earnings call for the fourth quarter. Connolly suggested that consumers were “hunkering down” because they were trying to stretch their limited funds further.
This article delves deeper into the phenomenon, examining the possible causes and impacts of this pattern in grocery purchases.
Economic Indicators
The increase in food prices has been a major factor in the shift in consumer behavior. According to the Bureau of Labor Statistics, the price of food at home has gone up 4.7% year-over-year. Furthermore, the price of food overall has experienced a 5.7% increase over the past 12 months. This rise in prices has led consumers to re-think their grocery shopping habits, as they try to make their budgets stretch further.
Reasons for the Shift
Consumers may be acting differently because this summer has more vacation time than the summer of 2022. AAA predicted record-breaking travel volumes for the two summer holiday weekends surrounding Memorial Day and the Fourth of July, with over 45 million and about 50.7 million, respectively. It’s possible that people’s decreased grocery expenditure is a result of all the more traveling they’ve been doing.
Another reason for the shift in behavior could be the ongoing pandemic, which has affected people’s finances. Many consumers may be trying to save money due to the uncertainty of the economy and their job security.
Impacts on the Food Industry
The food sector has been profoundly affected by the “hunkering down” mentality. For the fiscal year 2024, Conagra Brands predicted an organic net sales rise of about 1% over the previous year. In spite of these initial elasticity effects brought about by pricing changes, Connolly observed that volume recovery is progressing more slowly than he had hoped.
As a result of the shift in consumer behavior, certain brands have experienced deflation, necessitating price reductions. Additional negatives for the year include lower pension income and payments from joint venture Ardent Mills.
Future Outlook
Despite the current challenges, Connolly remains optimistic about the future outlook for Conagra Brands. The company expects fiscal 2024 to mark a “transition toward a more normalized operating environment.” Earnings per share will land somewhere in the $2.70-2.75 range, it also predicted.
Conclusion
The “hunkering down” pattern in grocery purchases is a temporary but significant shift in consumer behavior. The rise in food prices and increased travel may have led consumers to reduce their overall grocery spending. However, this shift has had a significant impact on the food industry, with some brands experiencing deflation and requiring price adjustments. Despite the challenges, Conagra Brands remains optimistic about the future outlook and expects a transition toward a more normalized operating environment.
FAQ
Q: What is the “hunkering down” pattern in grocery purchases?
A: The “hunkering down” pattern refers to consumers buying fewer items overall instead of “trading down” to a less-expensive brand.
Q: What is causing the shift in consumer behavior?
A: The increase in food prices and increased travel may be leading consumers to reduce their overall grocery spending.
Q: What is the impact of the “hunkering down” behavior on the food industry?
A: Some brands have seen deflation due to the shift in consumer behavior, necessitating pricing revisions. Another headwind for the year will come from the decreased pension income and contributions from the Ardent Mills joint venture.
Q: What is the future outlook for Conagra Brands?
A: Despite the current challenges, Conagra Brands remains optimistic about the future outlook and expects a transition toward a more normalized operating environment. Earnings per share will land somewhere in the $2.70-2.75 range, it also predicted.
