What should brands focus on during the cost-of-living crisis?
An Hodgson and María Mascaraque unpack what brands should focus on during the cost-of-living crisis
11 Oct 2023
After decades of low inflation, consumers worldwide are struggling to cope with the rising cost of living. Euromonitor International forecasts that in 2023, global inflation will reach 6.9%, while the global disposable income per household is expected to grow at a mere 2.9%, failing to keep up with inflation. Cash-strapped consumers are adopting frugal habits, habits that show no signs of disappearing any time soon. In response, businesses must adapt to this new consumer reality, one where affordability, value, and the cost of living are primary concerns.
Navigating the new consumer reality
Faced with high and rising operating costs, businesses might be tempted to resort to tactics such as raising prices, reducing pack sizes (shrinkflation), or reformulating ingredients and compromising on quality (a phenomenon known as skimpflation). However, there are far more effective strategies to compete and flourish in this new consumer reality, where consumers are cost-conscious yet remain discerning.
To stay relevant, businesses need to find innovative ways to offer affordability and value to consumers. Importantly, value is not merely synonymous with a low price tag; it extends to encompass quality, convenience, consumer experience, novelty, nostalgia, authenticity, sustainability, and more. As consumers grapple with rising living costs, businesses that deliver comprehensive value have a better chance of gaining loyalty.
According to Euromonitor’s Voice of the Industry: Innovation and Lifestyles Survey 2023, only 1 in 10 businesses (11.6%) see lower-priced products as their most important new product. In contrast, a significantly higher proportion of businesses consider experiential offerings (24.0%), sustainable packaging (19.4%), and premium products (19.4%) as their most important launches. This indicates that businesses recognise the importance of delivering affordability and value by focusing on various aspects beyond price alone.
Dairy industry players must navigate the challenges of inflation by implementing a multifaceted approach. If there is a need to implement pricing strategies, including necessary price adjustments that may need to be passed on to consumers, it is vital to maintain competitiveness simultaneously. In such instances, emphasising the added value, such as sustainability, functionality, and ideally multifunctionality (e.g., promoting both gut health and increased energy), becomes imperative. Conversely, offering value-for-money options must be thoughtfully explored to meet the diverse demands of customers.
Consumers always want to be valued, appreciated, and supported, especially during difficult times as they struggle with the cost-of-living crisis. In this context, the key to business success is for companies to put consumer needs at the heart of everything they do and align with consumer values, rather than putting profitability first. In doing so, companies build a partnership with their consumers, help improve consumers’ lives amidst the cost-of-living crisis, and foster loyalty and trust, which will ultimately translate into profitability and competitiveness.
Where do opportunities lie?
As the cost of living soars, consumers have become more conscious and selective in their spending. They are cutting down on unnecessary items that do not affect their lifestyles or standard of living, trading down to cheaper brands and private labels, and frequenting discount stores. An interesting example of this can be observed in the UAE. In 2022, global inflation led to price hikes by leading dairy brands in the country. Families, particularly those with children, rely on fresh dairy as a daily nutritional staple; however, the price increase strained the budgets of some families. To maintain consumer demand, major retailers like Carrefour, Lulu, and Spinneys struck private label agreements with key dairy players and as a result, many consumers have shifted towards private label options.
Another interesting example was seen in Argentina. Amidst inflation and reduced consumer income, Mastellone, the top dairy company in the country, rebranded its Casanto line in 2022, tapping into nostalgia, especially among consumers aged 40+. Casanto succeeded with products like shelf-stable milk, fresh milk, flavoured condensed milk, and butter, recalling its 1980s popularity. This relaunch coincided with the government's Precios Justos programme, an initiative to provide cost-effective dairy options, among other food staples. In 2023, Casanto's affordability, at least 20% cheaper than other Mastellone brands, is expected to maintain its overall value share, potentially expanding into cheese and yoghurt.
However, many consumers look for added value and still give themselves permission to indulge. In 2023, 2 in 3 consumers buy small indulgences for themselves because they make them feel good (according to Euromonitor’s Voice of the Consumer: Lifestyles Survey). Consumers do not evaluate purchases simply in terms of value for money, but also in terms of overall quality of life, health and wellbeing, new experiences, and sheer joy. Herein lies a wealth of opportunities for the dairy industry, with flavoured milk, ice creams, frozen yoghurt, and other dairy-based delights serving as perfect indulgences. For example, ice cream is projected to deliver USD 11.5 bn of absolute growth between 2023 and 2028 globally. Flavoured milk drinks are a smaller category globally, but they are still set to deliver a healthy USD 2.2bn absolute growth in the same time period1. This offers opportunities around creating value through indulgence, leaning on the overall desire for comfort through food in the face of stress and burnout.
In this context, Connoisseur’s Laneway Sweets ice cream is a great example. The brand launched a new range in Australia in September 2023 - Golden Blondie stick and Jam Doughnut tub – both combining rich textures and flavours. The Golden Blondie stick features white chocolate ice cream swirled with caramelised white chocolate syrup and blondie chunks, encased in caramel-flavoured ice cream. While the Jam Doughnut tub offers a blend of cinnamon-infused ice cream, doughnut-flavoured pieces, sweet vanilla ice cream, and a raspberry syrup swirl. These indulgent ice cream innovations promise an immersive sensory experience that is very valued by consumers in times of high stress.
Consumers can seek added value in the dairy category in multiple ways, primarily driven by their desire for improved nutrition and enhanced functionality, including added protein and gut health benefits, among others. Furthermore, packaging innovations, such as single-serve milk cartons, can cater to the convenience and freshness needs of consumers, simultaneously contributing to waste reduction. The latter not only aligns with consumer demands but also ensures that the price per unit is affordable, putting the satisfaction of consumers at the forefront.
The best opportunities benefit all stakeholders by creating avenues for growth, innovation, and value creation. Businesses gain new revenue streams, driving profitability and competitiveness, while consumers benefit from improved products, services, and choices. It is worth noting that affordability will remain paramount for budget-conscious consumers so brands must acknowledge the financial strain consumers face and the allure of private label items and discount outlets. Nevertheless, concentrating on expanding affordable product lines, introducing nostalgia-driven innovations, diversifying packaging options, and emphasising added value and enhanced quality will assist dairy companies in maintaining their customer loyalty.
Global Industry Manager - Food and Nutrition, Euromonitor International
María is a Global Industry Manager at Euromonitor International with a focus on Food and Nutrition. Based in London, she has more than 10 years of experience in the industry.
María drives the content and quality of Euromonitor’s global food industry research, provides global expertise and forward-thinking insights and identifies latest product developments and key market trends.
María advises clients on food and nutrition trends and has a special interest in the dairy industry, plant-based eating and health and wellness trends.
She holds a PhD in Nutrition from Complutense University, Spain.
Head of Practice – Consumers, Euromonitor International
An spearheads Euromonitor's consumer research agenda, advising clients across industries on economic and consumer trends.
Her expertise has been showcased at numerous prestigious business events and she has also been quoted in leading publications such as the Financial Times, Bloomberg, and CNBC.
Prior to her career at Euromonitor, An worked at the BBC in London, and was a post-doctoral research fellow at Lund University in Sweden.
The views expressed above are the opinion of the author, not those of Fonterra, and Fonterra is not responsible for any decisions taken in reliance on the same.
- 1. Euromonitor International from trade sources/national statistics