6 minute read 26 Jul 2022

Consumers expect disruption. Here’s how retailers can create stability in an unstable environment

Kathy Gramling
By Kathy Gramling

EY Americas Consumer Industry Markets Leader

25-year consumer products and retail veteran. Integration and teaming advocate. Passionate mentor and transformative leader. Wine enthusiast.

6 minute read 26 Jul 2022
Related topics Consumer products and retail FutureConsumer.Now COVID-19 Customer Transforming retail
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The 10th edition of the EY US Future Consumer Index finds consumers are normalizing to disruption.

In brief  

  • As consumers tighten their belts in some areas to pay for others, what does this mean for brand loyalty?
  • What can retailers and brands do to predict inventory levels when both product availability and consumer desires are highly unpredictable?
  • How can companies be prepared for purchasing behaviors that are continuously evolving?

Just when consumers thought prices could not get any higher, inflation reaches an all-time high. In the 10th edition of the EY US Future Consumer Index, we find that consumers are normalizing to disruption and learning to rapidly adjust their buying habits. This further reinforces agility as a business imperative.

The data in July’s EY US Future Consumer Index reflect consumer responses before the federal government raised interest rates and the consumer price index took another hit. Even so, we discovered that whatever happens — from COVID-19 shutdowns, supply chain disruption, labor shortages, and international conflicts to inflation — consumers adapt and quickly. We find consumers have settled down on issues that previously caused tension, such as finding a job and job security, and have returned to living life, in spite of concerns around the increased cost of living.

Consumers have developed new habits, so brands will need to shift to meet the new demands. In a previous issue of the EY US Future Consumer Index, we discussed the challenges companies face dealing with pricing issues. The data finds that pricing and pricing strategies still matter, but there’s much more to the story.

Consumer priorities have changed

Consumers made sacrifices during the pandemic, which has created a surge of pent-up demand and desire to do things. At the same time, all segments of the population are concerned about rising prices. For the first time, all five of our consumer segments: Affordability First, Experience First, Health First, Planet First, and Society First are focused on affordability and are adjusting spending.

How EY can help

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How can consumers simultaneously save money and enjoy a much-needed experience? The pragmatic answer is to shift spending.

60%

of consumers are concerned about rising living costs.

46%

are excited to spend money on the things they haven’t been able to do.

67%

are at least somewhat concerned or concerned about not being able to enjoy life to the fullest.

42%

are excited about spending money on things that will improve their lifestyle.

Does this mark a shift to private label? It depends

The disruptions of the last two years created fickle consumers. Brand — or label — importance in overall purchase decisions dropped from 24% in February to 17% in June. In fact, the importance of brand in purchasing decisions fell out of the top five most important purchase decisions between February and June and was replaced with sustainability. The biggest reason? The price increases most major brands took over the last few months to offset rising energy and transportation costs. Fifty-seven percent of consumers said the price of a product drives their decision. In addition to increasing price sensitivity, the move away from tried-and-true brands can be tied to:

  • The stigma attached to shopping at discount stores and/or purchasing off-brand products has dissipated.
  • Consumers purchased different products when their favorite brands were out-of-stock due to supply chain issues.
  • A larger percentage of consumers shifted to reduce, reuse and recycle. The number of consumers likely to fix something vs. replace it jumped from 53% in February to 69% in June — the single biggest jump we have seen in two years.

Brand still matters in certain areas. Consumers are holding true to their brand commitments in beverages — alcoholic and non-alcoholic — as well as in beauty. Yet, 63% of consumers will purchase private label fresh food and 60% will purchase private label packaged food. Of course, if food safety becomes an issue, consumers could return to major brands because they trust the product.

In spite of the cost-cutting, nearly half of consumers say they will spend more on experiences while 55% are evaluating how they spend time on the things they value most in the long term.

How EY can help

Strategy consulting

EY-Parthenon professionals recognize that CEOs and business leaders are tasked with achieving maximum value for their organizations’ stakeholders in this transformative age. We challenge assumptions to design and deliver strategies that help improve profitability and long-term value.

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If consumers are making fewer purchases, how do you motivate them to choose one over another? Ask yourself: Does your brand stand for something consumers care about? Instead of relying on brands, companies need to make a more meaningful connection with consumers to activate loyalty.

Rethink what inspires a purchase

Since February, as consumers became concerned about rising living expenses, they have reduced their spending on beauty products, new fashions and the latest gadgets and technology. Consumers no longer desire to make purchases based on status or keeping up appearances. 

What does this mean for retailers and consumer products? Pay attention to what sets you apart. Think about your customer service and the overall brand experience you deliver. Understand what motivates a consumer and use technology that provides customer insights to establish a relationship that goes beyond the purchase.

Imagine the future

The pandemic has accelerated endless changes in the world. The good news for retailers and brands is that now is a perfect time to experiment with technology to create agility.

Be innovative. With brand eminence decreasing, once a consumer is engaged with your product, how will you keep their interest? How do you provide them the information they want to allow them to create their own experience with you? One solution would be to use a QR code so a consumer can scan for instant access about a product’s ingredients or material sourcing. This could influence their future purchasing decisions, create engagement and help increase loyalty. 

If it’s harder to connect with consumers through traditional channels, it’s worth exploring new avenues, like the metaverse, to meet consumers where they are. Retailers know the importance of having an omnichannel strategy.

Now is the time to rethink the omnichannel as the “metachannel.” A metachannel strategy  enables retailers to think about the physical and the online store from a holistic perspective. It integrates the two environments by using consumer data to increase engagement through unique, coordinated and blended experiences.

Technology offers endless ways to engage with consumers, which makes this an exciting time for retailers and brands.

Change demand planning for uncertainty

Luckily, product shortages are nowhere near the levels they were previously. We still face shortages due to a lack of raw materials. This starts a cycle of out-of-stocks, from finished goods to goods on shelves. These shorter demand cycles and ongoing disruptions mean the algorithms used for demand planning aren’t going to be good enough for future scenarios.

In the short term, the focus must be on the first mile not the last. This is where real-time data shines. The priority must shift to inputs such as global markets, availability of raw materials and energy costs. Here are a few key considerations for short-term solutions for retailers:

  • Data is your friend. Creating forecasts based on prior sales history results in a disconnect between consumer wants and current inventory. Instead, tap into real-time data to create an accurate demand forecast based on current issues.
  • Pre-orders is the new demand sensing. This prevents a retailer from having the wrong items in stock. First, see the consumer demand, then place an order once specific quantities are known. This is especially true for apparel.
  • Less is more. Streamlining your inventory by narrowing the SKUs in a product portfolio can simplify your supply chain.

Consumers are learning to flex with uncertainty creating a constantly evolving consumer. 

Summary

Consumers are showing us they won’t stop living life and investing in the products and experiences that create value for them. And we are seeing consumers quickly shift priorities given any new disruptions. This has created a fluidity that makes old processes obsolete. Companies can stay one step ahead of consumers by shifting the focus from the last mile to the first and use demand sensing instead of demand planning. It’s essential to use real-time data to make all stages of the supply chain visible. Stay in sync with consumer demands by using technology to experiment, innovate and increase agility. 

About this article

Kathy Gramling
By Kathy Gramling

EY Americas Consumer Industry Markets Leader

25-year consumer products and retail veteran. Integration and teaming advocate. Passionate mentor and transformative leader. Wine enthusiast.

Related topics Consumer products and retail FutureConsumer.Now COVID-19 Customer Transforming retail
Upvote