The Supply Side: Recent consumer shopping trends signal economic downturn

According to data from market research firm IRI, consumer behaviors have shifted in the past few weeks amid COVID-19 (coronavirus). Consumers are buying more private brands than usual, making more trips to dollar stores and frequenting convenience stores less.

The IRI report indicates the latest shopping trends seem to signal an economic downturn consistent with other periods of recession. Analysts at IRI predict as the COVID-19 crisis drags on, retailers will likely see more recessionary behaviors emerge.

Doug McMillon, Walmart president and CEO, also recently signaled a change in shopping behaviors since the start of the COVID-19 crisis. He said that in the early weeks of the pandemic, customers stockpiled food, toilet paper and other consumables and sanitizing products for sheltering at home.

As more consumers began to work from home and schools closed, home office supplies and snack foods sales rose. McMillon said that trend created larger baskets per trip and fewer trips overall.

Dollar stores such as Dollar Tree and Dollar General tend to offer the lowest price points on many items helping those with thin weekly budgets buy essentials like washing detergent and consumables for $1 each. Dollar Stores are also smaller and less crowded than big box stores. Analysts said the small footprint appealed to consumers seeking minimal contact during the height of the health crisis.

IRI reports that consumers also adjusted their expectations for how long the crisis will continue. While 15% believe the crisis will last longer than six months, 65% said the economic impact related to COVID-19 would stick around well into the third quarter of 2020. From late March to mid-April, consumers extended their timelines for the effect as the number of U.S. cases rose.

The federal stimulus money was initially met with consumer optimism, but as more people became unemployed, the exuberance has dissipated, the report notes. IRI looked at several shopper behaviors within prior recessions and said some of those are starting to reappear.

Top of the list is cutting spending on non-essentials. That was the case with almost 70% of consumers during the recession of 2008, and it’s also been evident during COVID-19. Some of that relates to store closures, as evidenced by April retail sales down 16.2% from the prior month and off 16% from a year ago. Apparel sales were dismal, with clothing stores reporting an 89.3% downturn from a year ago. Electronic sales were down 65%, and home furnishing sales were off 67% from a year ago.

Even grocery store sales took a hit, falling 13.2% from the prior month as consumer stockpiling cooled. With many restaurants still closed or only doing takeout, grocery sales were up 13% from a year ago.

Other shopping behaviors from 2008 that are re-emerging include consumers purchasing more private brand items. It’s important to note that some of this could relate to product availability as stores struggled to keep shelves stocked for several weeks during the panic buying as families began to shelter at home. IRI said private label sales comprise about 16% of the dollar share of the market so far this year.

Laura McCullough, Nielsen’s executive vice president of U.S. manufacturer client success, said the private label trend “has accelerated during the timeframe when COVID-19 has impacted consumer spending.”

“As the economic downturn continues, private label has a significant opportunity, particularly within lower price tiers,” she said.

IRI said consumers are looking to see if they need to spend more on premium brands. The report states consumers will try and stretch their grocery dollars further in recessionary times, and that could be a challenge for organic sales and higher-tier products that have been favored in recent years over the value play.

When consumers make shifts in spending, they often stick around when the economy improves. IRI said 22% of the consumers surveyed would return to their old spending habits when the economy improves, compared with 27% of optimists in the survey.

Consumer sentiment tanked in March and April as the COVID-19 crisis unfolded across the U.S. But in May, following the two-month free fall, sentiment edged up slightly to a reading of 73.7, according to the University of Michigan.

While there is a slight improvement in sentiment, most are still less optimistic about the next six months. The portion of the survey that examines how Americans view the present rose to 83 points from 74.3. Another metric that gauges attitudes for the next six months slipped again to 67.7 from 70.1.

“While these shifts were quite small, they indicate the growing costs of social isolation and its potential to shift opinions about reopening the economy,” said Richard Curtin, the sentiment survey chief economist.

He said that while consumers want to believe the economy will bounce back, the reality of a longer recovery is starting to sink in as more workers face unemployment and corporate losses mount.

IRI found convenience stores and gas stations continue to take a hit as the vast majority of people are working from home and traveling less. Convenience stores closed soda fountains and coffee bars, which negatively impacted overall sales. Snack foods that are an impulse buy at convenience stores also plummeted.

Convenience stores did report an uptick in items such as toilet paper, eggs, milk and breakfast cereal as consumers either couldn’t find those items during a grocery trip or opted for the smaller, less crowded format to make the purchase. IRI reported during the peak four-week period of the COVID-19 outbreak, convenience stores reported a 185% uptick in non-edible grocery, 125% increase in baby care products and 115% increase in paper, plastic and foil products. Toothpaste and cocktail mix sales rose 54% and 42%, respectively, during the four-weeks ending April 17.

“As this drags on, you are going to see a lot more recessionary behavior coming up,” said Krishnakumar Davey, president of strategic analytics at IRI. “We just see the beginnings of it. There will be a lot more hunkering down and spending only on what you need.”

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.