The US Bureau of Labor Statistics, which tracks consumer prices, reported that in April, the average price of a 2-liter bottle of soda was $2.27, compared to $1.53 five years ago during the same month. The average price of a pound of white bread last month was $2, compared to $1.29 in April 2019.
According to a report released at the end of last month by The Conference Board, a global business group, US consumer confidence has been declining for the third consecutive month due to concerns about short-term financial conditions.
Consumers are now more inclined towards purchasing online where they can find cost-effective deals. This has led to intense competition for brick-and-mortar retailers, as major retailers are increasing discounts to attract shoppers to open their wallets.
Large retailers such as Walmart, Macy’s, Ralph Lauren, as well as McDonald’s, Starbucks, and home improvement retailer Home Depot, all noted that while consumers have not disappeared from physical stores, they have become more price-conscious and selective, resulting in an overall decline in sales for businesses.
A study by Revenue Management Solutions in January found that about 25% of people with incomes below $50,000 are reducing their consumption of fast food, indicating that pricing is a significant concern.
Neil Saunders, Managing Director of consulting and data analysis firm GlobalData, noted that retailers are finding it challenging to retain customers unless they adjust their pricing strategies. Consumers are increasingly fed up with inflation and are beginning to take action regarding where and how they shop and the quantities they purchase.
Chris Kempczinski, CEO of McDonald’s, acknowledged the impact of inflation during a financial earnings call last month, stating that rising everyday expenses put pressure on consumers, affecting the industry as a whole. He emphasized the importance of considering customers’ affordability.
Saunders observed a decline in major home renovations, such as bathroom and kitchen projects, leading to lackluster sales performance in the first quarter for Home Depot, the largest home improvement retailer in the US.
As of April 28, Home Depot’s sales decreased by 2.3%, totaling $36.42 billion, slightly lower than the analyst expectation of $36.65 billion by investment research firm Zacks Investment Research. This marks the third consecutive quarter of declining sales for Home Depot, despite a surge in sales during the pandemic.
Saunders stated that as inflation has been escalating in recent years, retailers are now engaging in a large-scale “price war” marked by substantial price cuts.
Earlier this month, Walmart, the largest retailer in the US, increased discounted products to 7,000 grocery items, with discounts of up to 45%. Items like a 28 oz. can of Bush’s Baked Beans have been reduced from $2.48 to $2.22 and a 24-pack of 12 oz. cans of Diet Coke from $14.28 to $12.78.
Senior executives at Walmart stated that evidence suggests more people are cooking at home rather than eating out. Walmart believes that discount strategies will help boost performance this year.
Doug McMillon, CEO of Walmart, told analysts earlier this month, “We will maintain a leadership position on price. We will manage margin, we won’t forget what Walmart stands for.”
In response to competition, Target reduced prices on 1,500 items last week and plans to increase discounted items to 3,500 this summer. Products primarily discounted include food, beverages, and essential home goods. For example, Clorox scented disinfecting wipes, previously priced at $5.79, are now $4.99 and Huggies baby wipes, originally at $1.19, are now 99 cents.
Target also announced significant price cuts on 5,000 different items, including fruits, milk, meats, peanut butter, pet food, and paper towels.
Aldi, a low-cost supermarket chain, stated earlier this month that its promotions will continue through Labor Day, with 250 products on discount, including popular items for barbeques and picnics.
McDonald’s plans to launch a $5 meal deal promotion in the US next month, while Burger King recently announced its own $5 value promotion ahead of McDonald’s.
Other fast-food chains offering promotions include Wendy’s, which recently introduced a new breakfast combo of potato and egg sandwich for $3.
Arko Corp., a major operator of convenience stores in rural and small-town areas, announced its most value-oriented promotion in 20 years. Arko Corp. President Arie Kotler revealed that customers who purchase two 12-pack sets of Pepsi-Cola will receive a free pizza. The promotion started on May 15 and is expected to end on September 3.
Kotler noted the rising gasoline prices and overall inflation, leading to fewer consumers compared to a year ago. As a result, he is focusing on essential items that are crucial for household budgets.
In the non-food category, Michaels, an arts and crafts retailer with over 1,300 stores in the US, has also begun reducing prices and promotions. Michaels lowered prices on paints, markers, and canvases last month, with discounts ranging from 15% to 40%, bringing some prices back to 2019 levels.
Regarding the pricing goals, Michaels stated, “The goal is to provide value to the customer… We see this as an investment in customer loyalty.”