: Inflation is coming for middle-class households as higher prices hit big-box stores. Will they cut back on discretionary purchases?

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Middle-income consumers are finally starting to feel the squeeze from rising grocery prices.

In fact, for the first time in the past year, middle-income consumers — with a yearly income of $40,000 to $80,000 — recently overtook low-income shoppers as the group most affected by rising grocery prices, according to a report by consumer insights and data company Numerator.

Suburban consumers have also seen higher increases in groceries than urban and rural consumers.

With the rate of inflation rising over the past year, low-income consumers were among those feeling the most impact on their day-to-day grocery budget. Soaring inflation has hit working-class families particularly hard, in part because they spend more of their budgets on food, energy, and housing costs.

But the gap between income groups closed up in the week of May 8 and middle-income consumers started to become more affected than lower income groups in the week of May 15, seeing a 13.3% increase in the average price of their grocery expenditure compared to last year.

“‘Prices in today’s economy can represent real challenges to middle-class households.’”

— Darren Seifer, food and beverage industry analyst at The NPD Group

“Prices in today’s economy can represent real challenges to middle-class households,” said Darren Seifer, food and beverage industry analyst at The NPD Group. “Their income levels could be too low to afford discretionary purchases, while also too high to qualify for assistance programs like SNAP or WIC.”

“Since food and beverage purchases are a top priority, they might have to make tough decisions about what’s appropriate for their budgets,” he added. “They’ll likely cut back restaurant usage, and while shopping in grocery stores, we could see more of them look for items on sale, purchase less expensive cuts of meat, or look to store brands to manage their food expenditures.”

A CNBC poll released in April said persistent inflation would encourage more Americans with middle incomes — versus those with on lower and higher incomes — to cut back on dining out, cut back on driving and/or cancel a vacation and a monthly subscription. (Lower-income households were defined as those earning below $50,000 a year, middle income between $50,000 and $99,000 a year, and higher incomes those earnings $100,000 and over.)

Higher prices hit big-box stores

The Numerator report, released Wednesday, crunched purchase data gathered by Numerator’s mobile-receipt app, Receipt Hog. Analyzing its users’ voluntarily-provided receipts on the app, Numerator looked at the average spend per product across all households and compared data for different demographics.

Middle-income shoppers likely saw higher grocery price increases due to recent price hikes at big-box stores including Target
TGT,
-2.31%

and Walmart
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-1.20%
,
as well as dollar stores, a Numerator spokesperson told MarketWatch.

“New research showed that middle-income shoppers spend more than other groups on groceries at big-box retailers and dollar stores.”

Target and Walmart both reported significant declines in earnings in the first quarter of 2022, in part because of rising costs on everything from wages to transportation to inventory storage. Walmart said on its earnings call that it would likely pass on more of these costs to consumers, and would raise food prices but reduce prices on general merchandise to compensate.

The Numerator purchase data showed that middle-income shoppers spend more than other income groups on groceries at big-box retailers and dollar stores such as Dollar General
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+0.80%

and Family Dollar.

Target, Dollar General and Family Dollar did not respond immediately to requests for comment.

Grocery prices are up by 13.2% on average in 2022 compared to last year, according to the Numerator report.

However, price increases vary by shopping outlet.

Among shopping venues, the “online channel” — which includes online retailers such as Amazon
AMZN,
-1.43%

and Instacart — and the “dollar channel” — which comprises dollar stores — have seen the highest increases in grocery prices compared to last year, with 21.5% and 19.2% respectively, according to Numerator.

The “club channel,” which Numerator defined as warehouse club chains such as Costco
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-0.15%

and Sam’s Club, continued to see the lowest price increases in groceries among all of the channels, at 7.3% compared to last year.

Higher prices can lead lower-income consumers to “trade down,” analysts say, as they make changes to their shopping lists such as as buying chicken instead of beef.

Walmart CEO Douglas McMillon said on the company’s earnings call in May that consumers were changing their spending habits by cutting back on premium brands. He said consumers were choosing cheaper versions of deli meats, dairy and bacon.

Related: ‘You only live once, man. I think it’s time to really embrace what we have’: Americans get ready for a summer of red-hot inflation

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