Inflation is caused by multiple factors and rising inflation is creating a deep dissatisfaction across different regions of the world. The major causes are high energy cost, supply chain disruptions, heightened consumer demand etc.
Different Inflation rates across the globe
Varying inflation numbers are being reported from different countries and inflation is a problem across every country in Europe. Latest data shows UK at 5.5% , Germany at 4.9% , Poland at 9.4%
Canada has reported close to 5% inflation whereas US is showing 7.8% inflation as per latest reports.
Asia – Pacific we see Australia at 3.5%, India is trending over 7% inflation, Japan is somewhat sorted however all other major economies are impacted by inflation primarily caused by high fuel /energy costs due to Ukraine war.
How consumers are being impacted
During covid many of the high earning consumers restricted their spends by restricting discretionary spend like travel, eating out, night life and other entertainment.
Inflation however is exerting what we call a slow squeeze which reduces power of money impacting purchasing power of consumers and some of these consumers are in very different positions coming out of the pandemic. Specially those which were working in retail and hospitality industry, the lockdown period was often disastrous. Low earners are already on the edge and price increases are causing their ability to even afford essentials.
Impact Across different categories
Ecommerce & Retail
According to Diana Smith, Associate Director of Retail and eCommerce at Mintel Reports US, the retail industry hasn’t yet experienced the impact of consumer shopping shifts: “Consumers are aware of it and concerned about it but haven’t necessarily adjusted the way they shop. That’s all about to shift though in short order as consumers realize that high costs are here to stay.”
What this is doing is causing consumers to spend less on discretionary spends particularly apparel, beauty and technology companies are impacted. Private labels are more in demand, low cost retailers shopping is up, less commuting, restaurants with takeaways etc.
Travel Industry
The travel industry is facing higher operational costs due to inflation, but there’s still good news for the sector. “Affluent consumers are far more likely to take holidays, and this group is not only less affected by inflation, but also more likely to have increased savings during the pandemic, and with two years’ worth of missed holidays, there is still huge pent-up demand for travel,” according to Marloes de Vries, Associate Director of Travel at Mintel Reports UK.
To rationalize price increases to the consumer, travel companies will need to communicate the value and benefits they offer. In addition, wellness and sustainability have become key priorities for consumers. “Companies that promote experiences around these themes are in a better position to manage price increases,” de Vries stated.
Personal Care & Cosmetics
“During difficult economic times, trading down behaviors are amplified,” according to Roshida Khanom, Category Director at Mintel Beauty and Personal Care. “Perceptions of value have changed, and private-label beauty offerings are much more sophisticated since the last economic downturn. Consumers just have more choice.”
In order to boost demand and bring in more customer loyalty flash discounts, savings on shopping communication is being adopted by many players.
Transparency is the key if the prices are going up explain the consumer reason and rationale behind increase in pricing. Transparency can really drive trust in a brand.
Also adapting conscious consumerism brands can promote sustainability, ethical sourcing and fair play which can increase appeal of these brands to people.
Travel & Tourism
The travel industry is facing higher operational costs due to inflation, but there’s still good news for the sector. “Affluent consumers are far more likely to take holidays, and this group is not only less affected by inflation, but also more likely to have increased savings during the pandemic, and with two years’ worth of missed holidays, there is still huge pent-up demand for travel,” according to Marloes de Vries, Associate Director of Travel at Mintel Reports UK.
In order to attract tourism back governments should create opportunities for the sector by announcing various schemes, Industry can offer discounts on specific days on stays if the occupancy level of hotels needs to be increased.
Food Business
“This is a really challenging situation for brands coming at a time when household finances are under growing pressure from all quarters,” said Kiti Soininen, Category Director of Food and Drink at Mintel Reports UK.
Brands that can demonstrate how their products can be part of an affordable meal can attract consumers. For example, sharing a recipe to swap beef for beans or lentils is not only healthy and sustainable, but also budget friendly. This is a positive way to help people save money without making them feel like they will lose out.