The Supply Side: Value remains a top consumer amid inflation

Value continues to matter to consumers when shopping for consumables and discretionary items, and it’s also changing how retailers operate, according to a new report from McKinsey & Co.

Value is becoming more deliberate, targeted and experiential, according to the report. Retailers can no longer use tools like price cuts, promotions or loyalty points to drive unit sales. Consumer behavior has also shifted because of inflation toward more focused shopping.

McKinsey surveyed 5,000 shoppers and more than 40 grocery executives for the report and analyzed consumer, market and capital market data.

Shoppers in the survey said higher prices are reshaping how often and where they shop. Growth in the grocery segment is being driven more by purchase frequency, which increased by 5% year over year. More products purchased per trip, also known as “basket expansion,” reflected a move toward smaller, more frequent and more mission-based shopping patterns.

Walmart Chief Financial Officer John David Rainey said earlier this year that the retail giant was witnessing the shift in shopping patterns for multiple quarters. In May, Walmart announced 7,200 price rollbacks in its first quarter of this year, which was 20% higher than the previous quarter. He said consumers are being more purposeful and deliberate in their purchases and also noted that they do show up for holidays and special events.

McKinsey reports the response to inflation has evolved into shoppers more often making deliberate trade-offs in what they buy and how they shop, reshaping how demand is distributed across trips and formats. The report found 51% were reducing impulse purchases, 47% were trading into private labels, 43% were relying more on promotions and were also comparing prices more carefully. One in three said they were delaying purchases, 34% were buying in bulk to save, and 22% were trading down from fresh and premium items.

“These behaviors are translating into a measurable shift in growth drivers as increased shopping frequency offsets declines in basket size,” according to the report. “Segment performance further reflects this shift, with formats such as gas and convenience and club benefiting from more mission-based shopping patterns.”

Grocery sales increased 1.2% last year, driven by price increases of 2.2% while volume declined 1%, McKinsey reports.

While grocery spending remains resilient despite the persistent inflation, resilience is not being rewarded equally. According to McKinsey, the grocery sector delivered a 12.2% average total sales return, but the performance varied by format. Traditional formats hold the largest share at 43%, while mass formats garnered a 28% share. Warehouse and clubs remained stable with a 13% share, and discount and specialty formats each saw modest growth to reach 7% and 6%, respectively.

McKinsey reports that consumers are no longer shopping one way for all needs but splitting trips across value stock-ups, fresh and prepared-food occasions, convenience-led delivery, wellness-driven baskets, and fill-in missions. National players like Walmart continue to benefit from scale, value, innovation and digital capabilities, while regional players remain powerful where they have distinctive fresh, prepared and in-store propositions, the report notes.

Most grocers have some version of strong prices, a loyalty program, private brands, fresh departments, e-commerce, retail media or AI.

McKinsey said value also depends on the connection between pricing, key value items, promotions, loyalty, personalization and private brands. Store differentiation depends on the connection between fresh, prepared foods, labor, digital tools and consistent execution. E-commerce depends on the connection between customer missions, fulfillment models, service tiers, loyalty and profitability.

Consumers are also placing greater emphasis on simplicity and consistency, the report noted. Good value has become more important for 60% of consumers, while 71% prefer lower, more consistent everyday pricing over frequent promotions with higher base prices. This reflects a shift in how value is evaluated. Consumers are not rejecting savings, but they are moving away from complexity and variability toward simpler, more transparent pricing, the report noted.

A small set of products, particularly protein and dairy items, has become increasingly influential in determining whether consumers believe a retailer offers good value, the report stated.

Under the leadership of CEO Greg Foran, former CEO at Walmart U.S., Kroger recently announced it had lowered prices on more than 3.500 items while simplifying promotions. Target’s new leadership has also refocused recent price reductions on everyday essentials.

McKinsey said promotions are being rebuilt as a targeted, data-driven system rather than a series of events. While 35% of grocers report promotions are fully personalized, they expect that number to jump to 55% in two to three years. This marks a significant shift toward more digital, loyalty-enabled and targeted promotion.

Value is not a lever but has become a system by which grocery retailers are operating, McKinsey noted. These shifts point to a structural redefinition of value and how competition is won, with consumers continuously managing how much they spend per trip and balancing trade-offs across price, quality and convenience. In response, grocers are moving toward more integrated approaches that connect pricing, promotions, loyalty and experience.

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.