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Insight of the Day: Consumer gulf widens as demand for premium and budget foods grows

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Consumer Preferences in the Food Industry: Premium vs. Budget

The dynamics of consumer preferences in the food industry are undergoing a significant shift. From Nestlé to Danone, food companies are witnessing a clear divide: shoppers are increasingly drawn to either premium or budget products, with less interest in items that fall in the middle ground. This trend is particularly pronounced in developed markets like North America12.

Factors Driving the Divide:

  1. Price Pressures: Over the past two years, the packaged goods industry has faced rising costs due to various factors, including the pandemic and geopolitical events like Russia’s invasion of Ukraine. Everything from sunflower oil to freight has become more expensive, impacting global supply chains and putting strain on consumers’ wallets.

  2. Innovation and Premiumization: While costs have risen, companies are innovating to create better products. Some of these innovations cater to wealthier shoppers, who are willing to pay a premium for quality. Brands like Nestlé have seen growth in pricier varieties of products like Purina pet food and Perrier bottled water.

  3. Bargain-Seeking Consumers: Simultaneously, hard-pressed consumers are laser-focused on bargains. Particularly in the United States, where the impact of price increases over the past two years still lingers, shoppers are seeking value for their money. The reduction in the US Supplemental Nutritional Assistance Program (SNAP) food stamp payments has added to the financial strain.

The Bifurcated Consumer: Nestlé CEO Mark Schneider aptly describes this phenomenon as the “bifurcated consumer.” On one hand, there’s significant pressure among lower-income consumers who feel the pinch of rising prices. On the other hand, there’s a thriving segment of premium shoppers who seek a continuous stream of high-quality products1.

Luxury Goods Industry Parallels: Similar trends are observed in other consumer-facing industries, including luxury and fashion. Affluent shoppers gravitate toward the most expensive brands, while budget-conscious consumers hunt for low-priced options. The mid-market, however, faces the squeeze. For Nestlé, this is reflected in the weakness of frozen food sales in North America, where mid-range products have seen a decline1.

In summary, the consumer gulf between premium and budget preferences is widening, prompting food companies to adapt their strategies to cater to both ends of the spectrum.

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