Rising prices: Consumers rely on special offers, private labels and discounters
04 April, 2022
PwC analysis: price increases are burdening households with up to almost EUR 3,000 per year / Around 25 percent of households can barely compensate for the additional costs / One in four is taking an “I’ll do without” approach / Discounters are gaining popularity again and regaining market share
Düsseldorf, 4th April 2022
Since the invasion of Russian troops in Ukraine at the end of February, prices for petrol, electricity, gas and heating oil – which were already high – have risen sharply. Groceries such as grain, meat or vegetable oil are also becoming more expensive. The additional costs for an average German household amount to up to EUR 242 per month, according to scenario calculations by the auditing and consultancy company PwC Germany based on current figures from the Federal Statistical Office and the Ifo Institute.
Consumers are reacting to price hikes by increasingly resorting to special offers (58 percent) and choosing cheaper private labels (39 percent). A good one in four (27 percent) go to the discounter for certain products. Almost as many (24 percent) are taking an “I’ll do without” approach – and are buying less of certain products, such as meat and sausage. These are the results of a survey conducted by PwC Germany in cooperation with the crowdsourcing market research company POSpulse, in which 1,001 people aged 18 and over in Germany took part. The survey took place in January 2022, before the Russian invasion began. The accelerated rate of inflation since then is likely to reinforce the changes in consumer behaviour.
Cuts go beyond food
“In the current situation, consumers are once again looking at the price tag: they are reaching for special offers and low-priced private labels, while dispensable luxury foods and expensive organic foods are increasingly staying on the shelves.”
The impact of rising food prices is also affecting other areas of consumption, explains Andreas Späne, Partner Retail & Consumer Practice at Strategy&, PwC’s global strategy consulting business: “Households will cut back elsewhere in favour of food purchases and drastically reduce their spending on fashion, restaurants and travel, for example. Thus, these market segments are in danger of missing out on a possible upswing that could have been expected with the withdrawal of the Corona measures.”
EUR 2,904 in additional costs for an average household
According to the Federal Statistical Office, the price increase for food in February 2022 was already over five percent compared to February of the previous year. The ifo Institute expects food prices to increase by a total of seven percent in 2022 compared to the previous year. The PwC experts anticipate significantly higher price increases in certain product groups. Prices for meat and meat products, for example, could rise by up to 50 percent in the worst-case scenario, for instance due to higher prices for animal feed (for example, maize), transport and refrigeration. For an average German household, the price increases mean additional monthly costs totalling around EUR 242 – that is EUR 2,904 a year. Food accounts for EUR 65 of this amount. EUR 89 result from rising household energy costs such as electricity, gas and heating oil. EUR 40 will be due for increasing transport expenditure. The other additional costs result from the effects of the overall increase in inflation on the other commodity groups.
Low-income households particularly affected
Unfortunately, people with low incomes are particularly affected by the current situation: households with a net income of less than EUR 1,300 – that is roughly 14 percent of all German households – must reckon with an additional monthly burden of EUR 115. Those who have between EUR 1,300 and EUR 1,700 per month at their disposal – just under ten percent of all German households – have to anticipate EUR 151 in additional costs.
“Almost a quarter of all German households have to get by on less than EUR 1,700 net and hardly have a buffer to cope with the additional costs. People with low incomes are, therefore, hit particularly hard by the price increases – even if the government provides partial relief with the recently adopted package of measures. Ultimately, it is also about social peace.”
Price increases change consumer behaviour
Consumers will (have to) adapt their shopping behaviour. When grocery prices are rising, consumers are particularly interested in special offers (58 percent). 39 percent buy own brands more often to compensate for the rising costs of purchasing. The crisis is also seeing discounters step into the breach: A good quarter of consumers (27 percent) say they are more likely to buy certain products from discounters.
“While many consumers sought out the full-range retailer for a one-stop shopping experience during the Corona pandemic, the turnaround is now upon us. Due to rising prices, discounters will regain market shares of around 1 to 2 percent”, is the forecast by PwC expert Christian Wulff.
Almost a quarter adopt the “I’ll do without” approach
Around one in four consumers are reacting to the price spiral by cutting back on food and buying fewer products. In particular, foods that can be dispensed with, such as meat and sausages or sweets, are less likely to end up in the shopping basket. In the case of foods that many people can less easily do without – such as milk and dairy products – shoppers are increasingly turning to cheaper private labels and special offers to save money.
Savings strategies do not work equally well for everyone
“However, these savings strategies do not work equally well for everyone: households that already had little money available before the price increases, have long since relied on discounters, cheap private labels and special offers when buying food and can hardly save any further. Households that have more budget available and have so far regularly bought more expensive branded and organic products can save money by using cheaper substitutes.”
Against this background, the PwC expert recommends that companies in the sector strengthen their own brands and bind customers with attractive offers: “In the current situation, special retail offers are highly relevant for consumers – as are own brands as a substitute for classic manufacturer brands”, he concludes.
Methodology:
The calculations on the additional burdens on households are based on figures of the “Consumption Expenditure of Private Households in 2020 (German: Konsumausgaben privater Haushalte in 2020)” by the Federal Statistical Office (Destatis), as well as current forecasts of the ifo Institute on inflation and economic activity. By means of a scenario analysis, a “worst case” with an inflation rate of 6.1 percent and a “base case” with an inflation rate of 3.3 percent were created. The concrete values for the additional burdens correspond to the difference between the two scenarios.
The “average household” corresponds to a weighted average of German households and thus also takes income into account. Conversely, this does not mean a two-person household, which is the average if only the household size / number of persons is considered.
The information on changes in consumer behaviour when buying food is based on a survey conducted by PwC Germany in cooperation with the crowdsourcing market research company POSpulse, in which a total of 1,001 people aged 18 and over in Germany took part in January 2022.
About PwC:
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 156 countries with over 295,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.
PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.
About Strategy&:
Strategy& is a global strategy consulting business uniquely positioned to help deliver your best future. As part of PwC, every day we’re building the winning systems that are at the heart of growth. We combine our powerful foresight with this tangible know-how, technology, and scale to help you create a better, more transformative strategy from day one. As the only at-scale strategy business that’s part of a global professional services network, we embed our strategy capabilities with frontline teams across PwC to show you where you need to go, the choices you’ll need to make to get there, and how to get it right. It’s the strategy that gets an organization through the changes of today and drives results that redefine tomorrow. It’s the strategy that turns vision into reality. It’s strategy, made real.
Contact us
