Last year, food inflation at retail and foodservice exceeded levels reached during the Great Recession. Even with inflation currently moderating, higher food prices will continue influencing consumers' spending and eating behaviors this year, reports Circana, formerly IRI and The NPD Group. Food will always be consumers' priority in tough and good economic times, whether eaten at or away from home, according to Circana food and beverage and foodservice industry analysts speaking at the company's Growth Summit, held in Las Vegas, March 20-22. When faced with higher prices, consumers will use multiple tactics to reduce or reallocate at- and away-from-home food spending, like trading down to private label, buying in bulk, using more leftovers or choosing a quick service restaurant over a full service restaurant. 

Of the $2.9 trillion in consumer retail spending Circana tracks, food and foodservice spending represents the largest share, nearly $1.5 trillion. Food inflation for the 12 months ending February 2023 was 10.2% at home and 8.4% away from home. Although the rate of away-from-home inflation isn't as high as at home, foodservice costs are more than four times those of at-home eating occasions, with the absolute dollar gap widening. Higher food costs have had an impact on discretionary spending. David Portalatin, Circana food and foodservice industry advisor, says some of the declines in discretionary retail spending last year were due to the need to fund higher spending on food and beverage.  

At- and away-from-home food and beverage sales grew 8% in 2022, exceeding historical norms. At-home food spending remains a larger portion of the food and beverage sales, 61%, which corresponds with the 86% of annual eating occasions sourced from grocers and other retail outlets, says Cara Loeys, principal, of CPG client engagement at Circana. Retail (at home) food and beverage sales were up 9% and reached $931 billion in the 52 weeks ending December, and direct consumer foodservice spending was up 6% with $606 billion in sales. With higher food costs and a return to many pre-pandemic routines, consumers have shifted their eating and spending behaviors. 

"One of the behaviors consumers have historically used to manage higher food costs is trading down," says Loeys. "Consumers gravitate to larger pack sizes in the grocery store for a lower price per volume. They've also traded from premium to mainstay and value brands to get as much as possible without spending more. These behaviors are a correction from the pandemic when consumers, flushed with cash, purchased premium grocery items."

However, consumers are likely to get "frugal fatigue" and start to acclimate to the current pricing situation, indicating there is no need to race to the bottom of the price ladder. While 2022 was about value pricing to manage budgets, Portalatin explains that 2023 will be about the other attributes that play into value. 

"Price will always be important, but consumers define value differently. For example, consumers who visit a restaurant aren't necessarily looking for the cheapest meal," says Portalatin. "They're looking for the menu items they crave or foodservice outlets that offer quality and variety and enable them to treat themselves." 

Portalatin and Loeys expect consumers to manage high food costs in 2023 with the same behaviors they used last year, like trading down, shifting to value retail channels or from full service to fast casual restaurants. They advise to stay focused on consumer needs. A one-size-fits-all approach won't be practical with the various macroeconomic scenarios that may play out in 2023. Income, household composition, lifestyles, ethnic and generational propensities, etc., all impact consumer needs and wants. Targeted approaches in delivering convenience and value, innovation, and using digital to alter consumer interaction with brands are ways for food manufacturers, retailers and foodservice operators to win in 2023.