Decades-High Inflation Is Changing Shopping Habits

Major companies see a shift in consumer behavior, and most are cutting expected profit revenue.

July 27, 2022

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ALEXANDRIA, Va.—Major companies are navigating the fragile state of the economy and attempting to project U.S. consumer spending habits, reports the New York Times. Walmart, Unilever, Coca-Cola and McDonald’s have each warned investors in some way that profits could shrink as rising prices force shoppers to buy less or trade down to less expensive products.

Coca-Cola reported revenue growth in the second quarter that was better than the company had predicted due to a double-digit percentage rise in prices. It also reported growth in volume, meaning that customers are choosing their favorite Coca-Cola brands despite higher prices.

James Quincey, Coca-Cola’s CEO, said that consumers’ willingness to pay higher prices has “largely held up better than expected.”

“We are watching closely for signs of changing consumer behavior as the year goes on and as the average cost of the consumer basket continues to go up,” he said on a call with analysts. Coca-Cola raised its revenue forecast for the year.

However, prices are rising faster than volumes, and when combined with increased supply chain costs, profits are taking a hit. Coca-Cola reported a 28% fall in profit for the second quarter, compared with the same period last year.

A similar story is taking place at Unilever, which has raised prices on its products so that they are now 11% higher than in the same quarter last year, offsetting a 2% decline in purchase volume. It was the fourth consecutive quarter in which prices outpaced volume growth at the company.

Although Unilever did lift its revenue forecast for the year, it indicated that profits will be on the lower end of the expected range amid higher supply chain costs.

Unilever CEO Alan Jope believes that “peak cost inflation” is going to happen in the second half of the year. Sales volumes may fall more in the second half than the first, Jope said on a call with analysts, “as the full impact of pricing lands.”

One bright spot for Unilever was ice cream, with the company reporting volume growth in the second quarter—one of its few product categories to do so.

The Times reports that Unilever’s second-quarter results show that higher prices for consumers are resulting in them buying less or purchasing cheaper store brands. Walmart’s recent financial reports also suggest this trend.

Walmart is cutting prices on clothing and bigger-ticket items, as consumers pull back on buying discretionary items, reports CNN.

"The increasing levels of food and fuel inflation are affecting how customers spend," Walmart CEO Doug McMillon said in a news release. "Apparel in Walmart U.S. is requiring more markdown dollars."

Walmart expects customers to slow their spending on general merchandise in the second half of the year, and the company downgraded its projected profit revenue for the second quarter and the rest of the year.

At McDonald’s, the company is finding that while most of its customers are accepting higher menu prices, it’s seeing lower-income customers trading down to cheaper items, such as its value items, or choosing fewer combo meal deals. However, revenue for the company grew nearly 10% due to “strategic menu price increases,” the company said.

Inflation hit a four-decade high in June at 9.1%, and groceries were up 15.1% since the beginning of the year. AAA reports that most Americans are making significant changes to cope with record pump prices, with almost two-thirds (64%) of U.S. adults indicating they have changed their driving habits or lifestyle since March.