Inflation fears rise… but what’s the exact point at which shoppers will consider a product to be too expensive?

By Oliver Morrison contact

- Last updated on GMT

Image: Getty/PeoplesImages
Image: Getty/PeoplesImages

Related tags: Inflation

Consumers will stop buying a product when its original price has risen by an average of 40%, according to a new survey commissioned by specialist PR agency Ingredient Communications and conducted by SurveyGoo.

Over 1,000 US and UK consumers answered a series of questions designed to reveal just how price-sensitive they really are. As many as 94% of participants said they had noticed their food shopping bills going up in the previous three months, with 79% stating they believed supply chain problems such as driver shortages were to blame.

Respondents were then asked to select the point at which they would stop buying a selection of food, beverage and nutrition products due to price rises, using a scale of +5% to ‘I would buy this product whatever the price’.

Overall, the results indicated that shoppers were more immune to price increases for low-cost staple goods. For example, the category in which consumers were least price sensitive was milk (dairy), which could increase in price by an average of 65% before respondents would stop buying it. This was followed by bread (62%) and fresh vegetables (60%).

Conversely, there was greater resistance to cost increases in nutrition categories, where the base price of products tends to be higher. For instance, respondents said they would stop buying protein powder once the price had risen by an average of 17%. The corresponding pinch point was 23% for probiotics, 26% for dietary supplements, and 28% for Omega 3 fish oil supplements.

High quality ingredients are key

The survey findings also indicate that consumers are happy to shop around in order to offset the impact of upward price pressures. Nearly half of respondents (48%) said they had switched to a cheaper brand in the previous three months as a result of price rises, while 26% said they had changed to a retailer’s own-label version of the same product.

Richard Clarke, Managing Director of Ingredient Communications, said: “For basic goods, even a large percentage price increase might still only be a matter of cents or pennies. By contrast, a small percentage increase in the cost of a premium nutrition product might be measured in dollars or pounds.”

Cost of living at record highs

The survey comes amid rising inflation in Europe, mostly led by high energy prices. In the UK, price rises have just hit a 10-year high as prices for most consumer goods including food have all jumped.

The cost of living as measured by the Consumer Price Index rose 5.1% in the 12 months to November, up from 4.2% the month before, to its highest level since September 2011. Food inflation is at its highest since 2018, driven by more expensive sugar, jam, syrups, chocolate and confectionery, said the Office for National Statistics.

ONS chief economist Grant Fitzner said: "A wide range of price rises contributed to another steep rise in inflation, which now stands at its highest rate for over a decade."

In October, UK Food and Drink Federation boss Ian Wright warned food and drink firms are seeing "terrifying​" price rises. Wright told MPs that inflation is between 14% and 18% for hospitality firms, adding the price rises for food firms' ingredients will lead to consumer price rises.

Last week the FDF’s Q3 2021 Business Confidence Report revealed that business confidence is at its lowest since the height of the pandemic and experienced its biggest drop since the FDF first began reporting in 2018. An overwhelming majority of businesses anticipate continued price rises, with 97% of respondents expecting consumer price inflation to increase in Q4 2021.

“The confection of increasing uncertainty about Omicron, the UK’s changing trading relationships, and the re-ignition of inflation, all threaten to undermine resilience across the sector,”​ said Wright. “Many businesses now expect disruption and reduced service levels to continue right through 2022 and into 2023.”

It’s a similar situation across Europe. Inflation, more or less still for nearly a decade in Europe, last month reached 4.9 percent, a record high for the eurozone, with the cost of everything from gas to food all rising.

The European Central Bank believes these inflationary pressures won’t endure once the global economy reopens, supply-chain bottlenecks ease and energy prices cool. But, in contrast, a deputy German finance minister has warned of “permanent inflation risks”​ over the longer term. Florian Toncar, a deputy to new Finance Minister Christian Lindner, said inflation will likely moderate. But supply shortfalls, rising wages and spending on Germany’s ambitious climate agenda will contribute to price pressures​.

Brands will need to work hard to retain consumer loyalty

In such challenging market conditions, brands will need to work hard to retain consumer loyalty, Clarke added. “An effective way to achieve this is to demonstrate added value by using high quality ingredients that provide clear differentiation and command high levels of trust, whether that’s through proven efficacy, sustainability, strong co-branding, or a combination of these,”​ he said.

“These values, communicated effectively, will tie a consumer to a brand more price increases on purchasing behaviour.”

Related topics: Manufacturers, Markets

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