Consumer confidence is rising as inflation slows down
According to a McKinsey study dedicated to food consumption, in 2022 the price race led to a drop in purchases and a contraction in operators’ margins. However, the situation is improving in 2023.
Inflation was by far the most influential factor in the food sector throughout 2022. The race in prices has, on the one hand, put families in difficulty and have reduced purchases; on the other hand, it has put pressure on the margins of operators who have had to deal with declining sales in terms of volumes and more expensive supplies. However, the situation is improving: the drop in inflation has favored a recovery of consumer confidence. Confidence which, however, has not yet returned to pre-Covid levels.
“The inflation rate in Italy went from 2.3% in 2021 to 9.7% in 2022, reaching a peak of 12.5% in October – write the experts of the consulting firm – Inflation was even higher. The economic situation of households has come under significant pressure as expenditures have increased much faster than disposable income and consumers have reacted by cutting back on spending. Overall food sales in Italy thus grew by only 2.6% in 2022 compared to 2021. An increase exclusively due to the price component (+10.3%). In fact, volumes fell by 2.9% and more was lost due to the switch from higher-end products to lower-end products (downtrading).
The latter phenomenon has favored the sales of private labels. In twelve months, Mdd’s market share increased by 1.7 percentage points. However, only 0.8 percentage points are explained by downtrading within the same store.
And the discounters were the real winners of 2022: they gained 1.6% in terms of market share. This performance was driven by the combination of several factors: an aggressive growth in new store openings in recent years, the post-pandemic recovery and consumers’ greater attention to prices. Discounters have thus grown at the expense of other channels.
However, consumer confidence is recovering thanks to the cooling of inflation: there are five continuous months of progress. The February figure was the highest (-20.6) since the beginning of the war in Ukraine.
For the rest of 2023, the key themes will remain rising costs and pressure on margins, downtrading and a greater focus on private labels.