We are hearing a lot about supply chains, inflation and labor. These market conditions will undoubtedly affect how we shop and what we buy in the near future. This month’s EY US Future Consumer Index shows how much of an impact the market has on consumers, long term.
In the eighth edition of the US Future Consumer Index, we take a hard look at the short- and long-term importance of price and availability.
We’ve come to believe that changes in consumer behavior force companies to shift and respond, but is that entirely true? Is the consumer driving the change? Or is the market driving change in consumers that then forces companies to adapt?
Nature or nurture? Chicken or the egg?
Take the current environment. All we hear right now is supply chain, inflation and labor. These market dynamics certainly have an impact on how we shop and what we buy in the near-term. This month’s EY US Future Consumer Index gives a glimpse into just how big of an impact the market has on our long-term priorities.
Since May, purchase criteria around price, product availability and quality of service have increased significantly in importance – likely resulting from the market dynamics that consumers find themselves in now with supply chain disruption, pricing increases from inflation, and labor shortages that cause companies to run short-staffed and scale back hours and services offered.
By all accounts, these macro challenges are transient, but what are the consequences? Have they created permanent shifts in the consumer? In the long term, price, product availability and quality of service remain among the top five priorities when shopping.
We expected the pandemic to be temporary. We expected to “return to normal” as consumers, but we didn’t. These permanent changes were the impetus for us to begin this research in the first place.
We now buy our groceries online and, aside from picking out which specific produce item we want, we’re comfortable with it. What this points to is that consumers are more adaptable than we think. They can adjust quickly to short-term impacts, but those impacts can also leave a lasting impression, turning what may not have mattered before into a top priority that companies are required to now address.
A different mentality on finance
We’ve established that both in the near term and long term, price reigns king as a key purchase criterion. Of the five future consumer segments, Affordability First (25%) remains the largest. Between the financial troubles many faced as a result of the pandemic and the current inflationary pressures, consumers have adopted a new way of thinking about their wallet. They own less, buy private label and generally are more concerned about their saving and spending than they were before the pandemic.
With inflation and the saving and value mentality that’s grown in the past two years, how long will consumers be willing to pay a premium for availability, especially when supply chain issues finally level out?
Tighter purse strings spell challenges for companies trying to win the consumer amid pricing pressures of their own:
- Price considerations mean a tighter review of SKUs. As brands take price, ensuring that products are on the shelf will be critical to shoppers.
- Pricing strategies should include a pivot in mid- to long-term raw material procurement strategies. This will be critical for energy use and certain commodities over the next 12 months.
- Pricing will also have to be directly connected to direct-to-consumer service levels. The Index continues to reinforce that consumers no longer will tolerate slow or missed delivery window expectations.
The supply chain takes center stage
The supply chain has become dinner time fodder at tables across the country. Pre-pandemic, the consumer didn’t care how their product got to them, just that it got there on time. But now, what was once something that few understood — the supply chain — is a household term.
Retail and technology giants built a world where instant gratification and overnight delivery became the norm, so consumers came to expect it. Then, between the pandemic, energy shortages, demand outpacing production capacity and a transportation industry in distress, the perfect storm in the supply chain disrupted that on-demand model. And what happened? Consumers noticeably started to care more about availability and convenience.
The supply chain crisis is real, and it’s tested the boundaries of brand loyalty. Consumers will not wait for retailers and brands to overcome it. They’ll shop wherever they can find the product they want.
Companies must manage this disruption and become more responsive to bottlenecks. The top factors companies should consider in creating a resilient supply chain are:
- Digital technology to enable real-time visibility of inventory, last-mile channel visibility and manufacturing line flexibility.
- Weekly sales and operations planning informed by integrated demand sensing.
- Supply chain network optimization and near-real-time scenario analysis.
- Supplier diversity and sourcing agility with regional and local suppliers.
Significant macro events will always have an impact on consumers, but just how much or how little is at the core of what retailers and brands must try to uncover and respond to in this environment? The last two years have created scenarios like never before, forcing the consumer to not only adapt, but permanently adopt a mindset that companies were perhaps unprepared to respond to. So, with the impact of today’s volatility in mind, what’s the change driver that matters most – the market or the consumer? Perhaps it’s not that simple; perhaps the answer is always changing. Now and in the future, it will be about the push and pull between the market, the consumer and brands.
This article originally appeared at https://www.ey.com/en_us/consumer-products-retail/us-future-consumer-index-8 and is republished with permission.