MERCHANDISING & MARKETING
Inflation Strategies
Higher Prices and Fewer Deals LOW-INCOME SHOPPERS FACE A DOUBLE WHAMMY, BUT RE TAILERS AND BR ANDS CAN HELP. By Dinesh Gauri
oughly two years after its onset, the COVID-19 pandemic remains a source of disproportionate distress for low-income Americans. Already hit with more cases and deaths than higher-income customers, they again face disparity as inflation surges. This is particularly true with food inflation, which reflects the shortage and rising prices of commodities, lack of available labor, and greater transportation costs. Food companies generally respond to inflation by, among other things, raising consumer prices; however, there are ways to lessen the pain for low-income consumers. We looked at data on sales of groceries in the United States for the past two years, obtained from Information Resources Inc. (IRI). We defined households with annual income below $35,000 as low-income, $35,000 to $70,000 as mid-income, and more than $70,000 as high-income. Our analysis found that low-income shoppers suffered disproportionately for two key reasons:
In an effort to cut costs and streamline their deal structure, retailers may offer deals based on quantity purchased or bulk packaging, which shortchange low-income customers.
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progressivegrocer.com
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Low-income customers paid relatively higher prices. Fears of inflation arose as the economy started opening up amid a national decrease in COVID cases. However, even before the pandemic, low-income customers paid significantly higher prices on items they purchased, compared with prices paid by high-income customers. In April 2020, when the pandemic started spreading widely in the United States, the average price per unit on products purchased was up 3.2% over May 2019 for low-income customers, but just 2.3% for high-income customers. This disproportionate price difference worsened over the next year, with an increase of 6.3% for low-income customers, compared with only 2.7% for high-income buyers. Low-income customers in general pay more for food for various reasons. First, stores in their neighborhoods are relatively smaller and don’t have economies of scale compared with supermarkets and other national chains. Moreover, they face relatively less competition than stores in high-income neighborhoods and, as such, have less incentive to offer lower prices. Second, low-income customers purchase items in small packages due to limited affordability and limited storage space, which implies they pay more per unit. Third, these shoppers are less likely to purchase online, given their relatively poor access to broadband. Also, although more internet retailers have started accepting Supplemental Nutrition Assistance Program (SNAP) benefits, it’s not yet widespread enough to reduce continued dependence on neighborhood stores. The pandemic worsened this situation further. Due to disproportionate financial distress, they’re more likely to purchase essentials, which have less price elasticity of demand. Hence, manufacturers have less incentive to keep prices low. Also, manufacturers have been reducing the size of packages to avoid increasing prices, which may also have contributed to the rise in effective prices for low-income customers. Their access to stores outside of their neighborhoods has been affected, too, because of restrictions in public transport.
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Low-income customers got relatively fewer deals. Demand soared at the beginning of the pandemic, leaving little
