Is There an Increase in Price Sensitivity in Food Consumers?

by | Feb 10, 2022 | Consumer Behavior

Male shopper showing price sensitivity in food shopping by choosing products of the sale shelf

Are you concerned about the increased price sensitivity in food consumers?

recent study showed that 77% of consumers noticed a rise in prices, and 76% of affluent customers are influenced by discounts when they grocery shop. The desire to find deals and sales is the customer’s way of offsetting those higher prices.

However, do these statistics reveal a growing need for more affordable food costs? Here is a deeper look at price sensitivity and how it affects today’s food industry.

Key Takeaways:

  • Price sensitivity is the influence of a product’s price on a consumer’s buying habits.
  • The food industry is seeing a rise in demand for sales, discounts, and coupons.
  • Consumers are willing to pay a higher price if they feel the product’s value matches the cost.

What is Price Sensitivity?

Price sensitivity is how much the cost of a product affects a customer’s buying habits.

This sensitivity to cost is closely related to the price elasticity of demand. While price sensitivity refers to how much price changes influence a customer, price elasticity is the measurement of change economists use to track demand in relation to price changes.

In price elasticity of demand, items are considered either inelastic or elastic. Inelastic means the increase and decrease in price have very little influence on consumers’ purchasing behavior. For example, specialty coffee is inelastic as people choose the drink for its value versus its cost. Therefore, customers often don’t alter their behaviors when the price changes.

However, elastic items see a drastic change in demand when their price fluctuates. For example, grocery store coffee grounds are elastic as people often buy brands on sale or that offer a more significant amount for the price.

A chart showing examples of elastic versus inelastic goods.

Image Source: InvestingAnswers

What Influences Price Sensitivity in the Food Industry?

When food consumers become more price-sensitive, they prefer lower prices and better deals over quality or name-brand items.

Here are a few of the main influences on price sensitivity.

Value of the Product

If a food item is more valuable, people are willing to pay a higher price and are less likely to shop around. Often specialty items have a loyal customer base of consumers who shop by the brand over price. For example, Ben & Jerry’s ice cream has a loyal customer base due to its quality flavor. Therefore, they can charge more without seeing a significant change in buying habits.

However, if your products are generic, customers are more likely to look for alternative items. For example, people usually look for the best price for staple foods like broccoli, flour, or tea.

Restaurants also see changes in price sensitivity due to their value. For example, specialty restaurants have a loyal customer base as well as restaurants that offer food options that meet current food demands. Meanwhile, fast-food burger restaurants will see demand changes as people switch between franchises to find the best deal.

Available Alternatives

Heinz became the most popular ketchup brand in America because it was the only company to initially get the perfect flavor. While there were other ketchup brands, none tasted even remotely similar to Heinz. Because it had the corner in the market, it became a staple. Therefore, many people would purchase Heinz even if the price changed as there weren’t any alternatives that came close. 

Any product that has few alternative options experiences the same inelasticity. Meanwhile, products like butter compete in price against dozens of similar items.

Percentage of Their Income

Consumers will choose products and restaurants based on what they can afford. If they experience changes in their income, they may also become increasingly price sensitive. For example, many consumers felt the impact of COVID-19 on their finances. Therefore, people would be more likely to shop for the best deals to offset their financial loss.

Price of Related Products

Often people purchase food products in groups. For example, a customer might need a list of ingredients for a specific dish. In this instance, the price of other items on the list will influence how sensitive consumers are to each product’s price.

If a person were to buy an expensive quality steak, the price of steak seasoning might not impact them as significantly. However, if they bought all the ingredients for a meal at a low cost except for one expensive product – a consumer might look elsewhere to find that product within the same price range as the other ingredients.

How is Price Sensitivity Impacting Current Consumer Behavior?

There are currently several cost sensitivity influencers present in today’s food industry. Most noticeably is the increase in food prices compared to the average household income.

According to the Bureau of Labor Statistics, food prices rose 5.4% in one year between 2020 and 2021. In addition, they climbed a full percent in October alone. However, incomes did not increase at the same rate. Instead, it decreased from $69,560 in 2019 to $67,521 in 2020. Additionally, the poverty rate rose one percent in 2020.

The increase in food costs combined with the decrease in salaries results in a greater sensitivity to prices while people shop with their budgets in mind.

Additionally, with labor shortages, shipping challenges, and product scarcity, food products aren’t as readily available as previously, and many shoppers will encounter empty shelves. Due to this dilemma, many shoppers rank availability over price in their purchasing decision-making.

Alt-Text: Bar graph showing the most significant influence on shopping post-COVID-19

Image Source: Supermarket News

4 Ways Food Retailers and Restaurants Should Respond to Current Price Sensitivity

Here are four actionable steps you can take to decrease consumer price sensitivity.

1. Avoid Lowering Your Prices

Your first instinct for addressing price sensitivity might be to lower your prices. However, this method will not reliably gain more consumers. If a consumer is shopping for the lowest deal, you will find yourself continually lowering your price to beat the competition. Meanwhile, labor costs and raw materials continue to increase in price, which can hurt your profit.

2. Offer More Value

Instead of lowering your price, offer greater value to your consumers through your products. For example, you can market food for its health benefits, convenience, and flavor to set it apart from your competition.

3. Develop a Reliable Supply Chain

With availability at the forefront of everyone’s mind, you can decrease customer price sensitivity by developing a reliable supply chain and choosing the right distributor that keeps your products consistently on the shelf and in restaurants. Additionally, offering alternate shopping methods like ecommerce or pick-up increases your products’ value.

4. Create Brand Loyalty

Customers are more likely to shop with your brand or eat at your restaurant despite price changes if they feel loyal to your company. You can increase loyalty through promotions, sales, discounts, and memberships.

Increase Your Brand Visibility

If you feel the effects of consumer sensitivity, then start adjusting your marketing strategy to position your product as a quality and valuable commodity. One great place to begin your new plan is at one of our food conventions, where you have the opportunity to network and engage prospects in a meaningful way.

Contact us today to find more information on how you can exhibit your products at our conventions.