The Cost-of-living Crisis and its impact on Retailers and their Customers

Source: Office for National Statistics

A few weeks ago, I posted a Q&A session I had done with The Conversation on the cost-of-living crisis. At the time I was working on a longer piece for the Economics Observatory. We wanted to wait for various data updates to appear in the w/c 18th July and now these are out my piece “How is the cost-of-living crisis affecting retailers and their customers?” has been published.

It ended up slightly longer than I had anticipated so I will not post it up here in full. Instead, like others of my Economics Observatory pieces you can find the links here, or for this piece you can go directly to their post using this link.

I will though make a few points about the subject:

All the evidence is pointing to the crisis now beginning to impact consumers, consumer spending and retailers. This is of course not uniform but there is compelling evidence of the impacts being particularly acute for lower income segments of the population. Disparities are being exacerbated rapidly, both amongst consumers and for demographic, transport and structural reasons, amongst communities, places and towns.

There is limited evidence that the pressures on inflation will decline quickly. Despite recent petrol price reductions, energy prices (and not just petrol) remain a concern and production costs are spiking worryingly across sectors. This has medium term consequences for consumers, producers and retailers, the beginnings of which are being seen in shops already.

Source: Andersons Agflation Index

Consumer reactions to these issues include reducing and switching spending within and amongst retailers as well as stopping buying. Retailers’ management of their operations will thus be even more critical at this time of 40-year high inflation, Brexit consequentials and record low consumer confidence, leading to these altered behaviours. Being alert to the pressures and the opportunities will be essential, as will acting quickly.

Source: GfK Consumer Confidence Barometer

We can also expect to see more public disagreements between producers and retailers, along the lines of the recent Kraft Heinz/Tesco spat. These will see products reformulated, reduced in size (shrinkflation) and a tougher battle between retailer and manufacturer brands. In non-food retailing there will be similar concerns, sometimes exacerbated by long supply chains and lead times.

Source: Shrinkflation in action on the Tesco home shopping app (9% cut in size; 8% rise in price)

The full post on the Economics Observatory site provides some wider context, support/sources for these observations and a broader discussion. Please take a look if the subject is of interest.

About Leigh Sparks

I am Professor of Retail Studies at the Institute for Retail Studies, University of Stirling, where I research and teach aspects of retailing and retail supply chains, alongside various colleagues. I am Chair of Scotland's Towns Partnership. I am also a Deputy Principal of the University, with responsibility for Education and Students.
This entry was posted in Brands, Brexit, Consumer Confidence, Consumers, Cost of Living, Costs, Economics Observatory, Inflation, Producers, Product Sizes, Retail brands, Retail Economy, Retailers, Shrinkflation and tagged , , , , , , , , , . Bookmark the permalink.

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