Private Label Trade-Down Slows as Grocery Inflation Decelerates, McCormick Says

As year-over-year grocery inflation normalizes, lapping last year’s spikes, consumers continue to cut back where possible, spices and seasonings giant McCormick observes, but many grocery shoppers are beginning to relax.

On a call with analysts Thursday (June 29) discussing the company’s second quarter 2023 financial results, McCormick & Company President and Chief Operating Officer (and soon-to-be CEO, beginning in September) Brendan Foley spoke to consumers’ desire to return to name brands.

“We … continue to see consumers trade up from private label,” Foley said. “As our proprietary research indicates, consumers still prefer brands, even when under economic pressure.”

This may be true. PYMNTS data from late last year revealed that, even at the height of grocery inflation, consumers were loath to trade down from their favorite products. The study “Consumer Inflation Sentiment: Consumers Buckle Down on Belt-Tightening,” for which we surveyed more than 2,600 consumers last September, revealed that just 37% of grocery shoppers reported purchasing lower quality products to reduce their expenses amid inflation.

Since then, Foley notes, trade-down has continued, but not to the same extent.

“We’re not seeing as many signs of trade down right now as we saw during the height of this inflationary period that we’ve been going through, … but, we [do] typically see [trade-down] happen during inflationary or recessionary times, and private label certainly appears to gain share,” Foley said.

Notably, PYMNTS research reveals that many consumers, even if they will not trade down on products, are willing to make compromises when it comes to the merchants they purchase groceries from. Findings from our May survey, “Consumer Inflation Sentiment Report: Consumers Cut Back by Trading Down,” which drew from an April survey of more than 2,000 U.S. consumers, revealed that 47% of all shoppers have switched to a less expensive merchant for at least one grocery product.

Plus, even when consumers remain loyal to their favorite brands for their must-have grocery purchases, many are cutting out unneeded items altogether. The study revealed that 57% of consumers have cut back on nonessential grocery purchasing.

One place where consumers do seem to be cutting back their food spending is in shifting from dining out to eating at home. Foley noted that the spices giant’s “Super Deal” large-sized herbs and spices saw 11% consumption growth year over year “as consumers continue to cook more at home.”

Research from PYMNTS’ study last year, “The 2022 Restaurant Digital Divide: Restaurant Customers React To Rising Costs, Declining Service,” for which we surveyed more than 2,300 restaurant customers in November, revealed that one in three have been purchasing from restaurants less often amid inflation.

Plus, this figure has likely increased as restaurant inflation has surpassed grocery, making eating at home all the more appealing. In November, at the time of the survey, restaurant inflation stood at 8.5% year over year and grocery inflation at a whopping 12%. As of last month, restaurant inflation is at 6.7% while grocery inflation has fallen all the way down to 5.8%, such that consumers are feeling the relative impacts of restaurant price increases more acutely.