SalesTech Star

How Consumer Shopping Behaviors Are Changing Amid Rising Inflation Rates

By: Jeff White, Founder and CEO, Gravy Analytics

According to the U.S. Bureau of Labor Statistics, consumer prices rose by 8.5% in March and 8.3% in April of this year compared to a year ago. As a result, consumers are becoming more mindful of prices and where they spend their money.

While inflation affects overall consumer spending, it can also lead to consumers (even brand loyalists) switching to more cost-effective products or retailers. As inflation continues to play a major role in what consumers purchase, companies need to take action now to understand how their customers are reacting in the current climate.

One way of doing this is to analyze consumer behavior trends by leveraging innovative tools like location intelligence. With location analytics, brands can gain insight into the types of places consumers are choosing to shop, and they can use this insight to better understand the shifts happening in consumer behavior and inform their business strategies accordingly.

So, how has inflation impacted consumer shopping behaviors, and what does that mean for brands moving forward?

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Consumers seek out budget-friendly brands

 As inflation continues to plague the country, consumers are feeling the pinch and looking for ways to cut back on expenses. According to a recent CNBC survey conducted by Momentive, the majority of adults (76%) say they’re worried higher prices will force them to rethink their financial choices in the coming months, and more than half (52%) of adults say they are under more financial stress now than a year ago. During times of high inflation, consumers tend to reserve money for essentials like food and gas and opt for lower-cost brands.

Gravy Analytics recently released a report that used location intelligence to analyze foot traffic data to major brands to see how they performed in the first quarter of 2022, compared to the previous year. This real-world data revealed that budget-friendly retailers and hotels saw higher increases or smaller declines in consumer foot traffic compared to their more expensive competitors, suggesting inflation is playing a major role in where consumers are spending their money. The report found that Walmart only saw a 5% drop in foot traffic in Q1 2022, compared to the first quarter of the previous year, while Kohl’s and Macy’s saw more significant year-over-year declines of 25% and 17%, respectively. Similarly, foot traffic to Ramada Inn was up 66% in Q1 2022, compared to the same timeframe in 2021, as travelers sought out budget-friendly options for their hotel stays.

When consumers are watching prices, they often switch brands and are more likely to choose where they shop, dine, stay, or travel based on cost and what works best for their current financial situation.

Interest in home improvement projects and car shopping wanes

Two places you won’t see hordes of people flocking to as inflation continues to rise? Home improvement stores and car dealerships. Fluctuating supply and demand for lumber has taken a toll on the home improvement and housing industries as many consumers put their DIY home improvement projects on the back burner. Consumers are also putting off buying cars as prices remain high, with used vehicles still up 14% in price from a year ago, according to the Manheim Used Vehicle Value Index from Cox Automotive.

Gravy found that after Q2 2021, there was a sharp decrease in foot traffic to Lowe’s, Ace Hardware, and Home Depot stores, suggesting that consumers may be delaying home improvement projects in order to spend their money on other necessities. By Q1 2022, foot traffic to Home Depot was 34% lower than the first quarter of 2021. Additionally, foot traffic remained relatively flat for major car dealerships including Toyota, General Motors, and Ford between the last quarter of 2021 and first quarter of 2022. Consumers usually purchase cars in the new year, but high interest rates due to inflation, as well as continued supply chain issues and chip shortages, might have caused consumers to avoid visiting car dealerships.

Consumers, especially those in low-income households, are being selective of where and what they are spending money on during this time of elevated inflation. Bigger ticket items like costly home improvement projects and car purchases are ones they are choosing to wait on. 

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Movie theaters rally with strong numbers

Inflation has taken a toll on many types of businesses, but for the movie industry, the impact hasn’t been as costly. Movie theater giant AMC claimed it isn’t worried about losing customers due to rising prices on its latest earnings call, and Gravy’s report found that foot traffic to movie theater chains is revealing the resiliency of the industry. Starting in Q2 2021, foot traffic to Regal Cinemas increased, reaching a peak in Q4 2021. By Q1 2022, Regal Cinemas’ foot traffic was 50% higher, compared to the first quarter of the previous year, while foot traffic to AMC and Alamo Drafthouse was 22% and 75% higher than in Q1 2021, respectively.

Renewed consumer interest in going to see movies could be the exception when it comes to spending money. Following years of pandemic lockdowns and theater shut downs, consumers might be drawn to movie theaters as a means to escape, and this could, in turn, be worth the extra money for them.

To succeed, companies need to understand changing consumer behavior

While inflation is having a big impact on consumer spending habits, it’s not the only factor as the effects of the pandemic, as well as rising rents and home costs across the country, are contributing as well. Consumers are seeking out more budget-friendly options across the board, and it’s important that companies take enterprise-level data like location analytics into consideration when mapping out the future of their businesses and what changes will need to be made to continue understanding and attracting consumers in this ever-evolving market.

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