Why Falling Inflation is Not Halting Soaring Grocery Costs
Pricing is more critical than ever, directly impacting a company’s brand, financial stability, and the overall
buying and selling experience. As businesses face challenges like inflation, supply chain issues, and market
volatility, rising grocery prices in the U.S. have pushed consumer frustration to new heights. Food industry
suppliers face enormous challenges as they balance safety standards with affordability. Suppliers must
navigate these responsibilities while dealing with steadily increasing costs, from predicting supply needs to
maintaining proper storage conditions to ensuring public safety protocols.
Regardless of recent claims1 that big retailers are cutting back prices, consumers report feeling the opposite
at the grocery store – for 37% of them, monthly grocery spending has become unaffordable. Our 2024
Consumer Price Index Survey2 of 2,000 Americans uncovered interesting findings about rising prices,
consumers’ understanding of supply and demand, perspectives on dynamic pricing, and views on pricing
transparency and brand loyalty. The results from the survey also indicate how retailers should adapt their
pricing strategies to meet evolving consumer demands, particularly around pricing transparency, to improve
their brand loyalty and customer relationships.
Consumer Sentiment
Consumers are increasingly frustrated from the moment they step into the store to the moment they reach
the register and must shell out hundreds of dollars on a basic basket of food. What was once a mundane
and accessible chore for most households has become a panicky and worrisome task for the everyday
shopper.
In the survey, 61% of consumers have seen their typical grocery prices rise in the last six months. Similarly,
households are spending an average of $61.49 more per month since inflation began dropping. This signals
that although inflation is falling at a steady pace, the prices of groceries are remaining high due to the costs
the grocery stores are incurring.
Despite changes in supply, demand and production costs, only 37% of consumers agreed that adjusting
prices based on supply and demand made sense, and only 15% felt that prices should rise on goods in low
supply but high demand. Interestingly, we found that 33% of consumers are more accepting of price increases when they are linked to rising production costs. This indicates that although consumers may or may not grasp the basics of supply and demand, they do not believe that the market challenges that producers must bear should be passed on to them and that demand should not determine price. This may suggest that when a product is in high demand, consumers might expect increased production and expect prices to remain predictable.
We discovered in our research that many consumers may have misunderstandings about dynamic pricing.
Dynamic pricing can best be described as pricing that responds to changes in supply, demand, competitor
actions, and customer behavior, ensuring prices remain competitive and aligned with the market. In our
findings, 38% of respondents viewed higher prices during times of high demand and low supply as an
impact of dynamic pricing. Since a significant number of consumers surveyed felt that dynamic pricing only
leads to higher prices, it’s clear why they associate it with negative outcomes for them.
Lessons for Retailers
While sentiment around price hikes is generally negative, grocery stores can take steps to better inform
customers and alleviate some of the financial strain. The one consumers appreciate the most is increasing
transparency, which ultimately helps increase customer satisfaction and build trust.
The results revealed that 29% of consumers want more information about the pricing of goods and/or how
it is achieved. Transparency around price changes is crucial for consumers regarding dynamic pricing should
stores decide to implement this strategy. When there is a lack of transparency around price increases, 32%
of respondents responsible for grocery shopping said that was the top reason they might hesitate to shop
at a grocery store that uses dynamic pricing. Grocery stores could help ease concerns around dynamic
pricing by proactively informing shoppers when prices are higher due to high demand, low inventory, or
inflation. Providing clear explanations for price fluctuations could enhance consumer trust and further
strengthen loyalty, especially among shoppers who might otherwise consider switching brands due to rising
prices.
The Importance of Pricing Transparency
For suppliers, the results of this survey help answer the question of how customers feel about pricing in
light of the current market conditions. Food industry suppliers can take away an important lesson:
prioritizing pricing transparency is essential for building stronger connections with customers.
For example, if a typical grocery item like bread or eggs experiences a sudden price increase, suppliers need
to focus on clear communication as to why. Explaining the reasons behind the change can help ease
consumers’ concerns, especially as many are already feeling financial pressure.
These turbulent times are reshaping market dynamics, requiring companies to rethink and transform their
pricing processes. Unfortunately, for many businesses, pricing is often ignored, underfunded, or
underscoped. Companies need to manage their entire pricing lifecycle to ensure they are delivering the right
product at the right price to their customers.
References:
Nassauer, S., & Haddon, H. (2024, October 11). After Years of Increases, Companies Are Rolling
Back Prices. WSJ; The Wall Street Journal.
Zilliant. (2024, November 20). 2024 Consumer Price Index. Zilliant.com
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