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📂 Category: Economic News,News
💡 Here’s what you’ll learn:
Key takeaways
- Middle-income shoppers are showing some of the signs of stress that lower-income families have been experiencing for some time, according to supermarket giant Kroger.
- Consumers are stretching their budgets by making smaller, more frequent purchases and buying fewer discretionary items, the company said.
A trip to the store is no longer as fruitful as it used to be.
Many consumers are not able to purchase as many items as they can while shopping, and are taking multiple, smaller shopping trips, according to supermarket operator Kroger (KR). Middle-income households are stretching their budget across multiple visits, while pressure is mounting on lower-income households that have been behaving this way for months, Interim CEO Ronald Sargent said Thursday during a conference call with investors after quarterly results were released.
“Middle-income customers are feeling increasing pressure,” Sargent said, according to a transcript made available by AlphaSense. “They are making smaller, more frequent trips to manage budgets, and are cutting back on discretionary purchases.”
Fewer people bought meat, as inflation was particularly severe, as well as discretionary items such as snacks and alcohol, Sargent said.
He said consumers are reacting to a number of concerns, including a slowing labor market, government shutdowns, the interruption of Supplemental Nutrition Assistance Program benefits, and inflation. Retailers said the pressure was more acute for low-income families.
Low-priced products are critical for low-income shoppers, who are focused on keeping their overall spending low, rather than focusing on value or price per unit, Dollar General (DG) CEO Todd Vassos said on a conference call Thursday. Sales in Dollar General’s $1 departments rose 7.6% year over year last quarter, while same-store sales rose 2.5%, Vassos said.
“The consumer still needs to feed her family” while SNAP was discontinued and she used cash, Vassos said, according to the transcript. “As those benefits flowed, we also got SNAP benefits in the second part of the month. So, quite frankly, [that] It’s been a net positive for us.
Why is this news important?
Retailers are working through tariffs and higher costs, and in many cases they are raising at least some of their prices. But raising prices too much can be a problem during a time when wealthy people shop even at discount stores.
Dollar Tree (DLTR) saw traffic decline amid “sticker shock” in the back-to-school shopping season, when the chain raised prices in response to inflation, CEO Michael Creedon Jr. said on a conference call this week. Customers have since returned, he said. But all of the chain’s 4.2% year-over-year growth in comparable store sales last quarter came from more expensive purchases, given lower traffic.
“Consumers feel much more uncertain than they have in a very long time,” said Elizabeth LaFontaine, director of research at Placer.ai, which tracks retail movement.
Kroger, Walmart (WMT) and Target (TGT) are all trying to calm shoppers by announcing price declines. However, basic goods are looking expensive for many after several years of above-target inflation.
Price reductions are also part of competition among wealthy Americans, who have become increasingly price sensitive but still spend enough to be the driving force behind most of our economic growth. Wealthy people frequently buy from dollar stores and value businesses.
The K-shaped economy — where wealthy people feel comfortable spending, but others don’t — deepens the difference between trends at Walmart in affluent areas and those in lower-income communities, CFO John David Rennie said at a conference this week.
“The disparity in wage growth between those income groups is as large as it has been in nearly a decade,” Rennie said, according to the transcript. “We see that in our customer base.”
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