Consumers still think grocery stores earn over 30% net profit

A yearlong decline in the Consumer Price Index (CPI) hasn’t shaken food shoppers from their inflationary mindset—including the belief that grocery retailers are clearing fat profits.

Of more than 1,200 consumers polled nationwide in June by The Feedback Group, shoppers on average thought their primary grocery store generated a 35% net profit margin, up from 33% in last year’s “Shopper Price/Inflation Perception and Response” study. The Lake Success, New York-based researcher, citing data from FMI-The Food Industry Association, noted that supermarkets’ actual net profit has averaged closer to 1% historically, rising as high as 3% in 2020, when grocery sales exploded during the pandemic.

When asked respondents if their main grocery store was “on my side when it comes to inflation,” only 48% of survey respondents agreed, The Feedback Group said.

“The combination of shoppers’ grossly inflated perception of supermarket profits, and their dissatisfaction with responsiveness to their inflation concerns, signals a pressing need for stores to employ thoughtful price strategies and reframe their value proposition in order to maintain trusting relationships with shoppers,” Doug Madenberg, chief listening officer at The Feedback Group, said in a statement.

From The Feedback Group, "Shopper Price/Inflation Perception and Response" study, Summer 2023.

The July CPI rose 3.2% (unadjusted) year over year, just above a 3% uptick in June, capping off 12 straight months of annual decreases, the U.S. Bureau of Labor Statistics (BLS) reported earlier this month. For July, the food-at-home index was up 3.6% annually, down from 4.7% in June and continuing a slide from 13.5% in August 2022.

With price growth moderating—but pricing levels remaining elevated—grocery shoppers have stepped up most inflationary-coping strategies over the past year, The Feedback Group’s study revealed.

Behaviors exhibiting the largest increase were comparing prices at multiple stores before buying at item, up 11% to 29% of respondents; making fewer last-minute or impulse purchases, up 11% to 36% of consumers; buying more items on sale, up 9% to 52% of those polled; and using a store’s weekly circular to plan shopping lists, up 8% to 31% of customers surveyed.

Other inflationary-buying practices on the upswing among food shoppers versus a year ago included purchasing food for home that’s less healthy but less expensive, up 7% to 22% of consumers polled; buying more store brands in place of national brands, up 6% to 44% of respondents; cutting costs by purchasing fewer organic items; up 4% to 16% of customers; substituting similar and less expensive foods, up 3% to 27% of shoppers; and buying more bulk-pack items for savings.

From The Feedback Group, "Shopper Price/Inflation Perception and Response" study, Summer 2023.

“Food shoppers continue to adapt to cope with food inflation through a variety of strategies, doing more of nearly all of them versus a year ago,” commented Brian Numainville, a principal for The Feedback Group.

Interestingly, 46% of grocery shoppers reported eating more often at home instead of restaurants to deal with food price inflation—the same percentage as in last year’s survey. Also, just 38% of consumers said they buy more food and groceries at stores with lower prices, down 8% from 2022, indicating that many customers are sticking with their primary store rather than going elsewhere for better pricing. Only 8% of respondents don’t participate in any of the aforementioned inflation-coping strategies, down 1% from last year.

“While the top strategy, not surprisingly, is buying more items on sale, with more than five in 10 shoppers now doing so, more than four out of 10 shoppers are eating more often at home instead of restaurants and buying more store brands instead of national brands, among many other behaviors,” Numainville noted. “As consumers continue to display their resilience in the face of inflation, the findings clearly demonstrate that strategic buying behaviors have become pivotal components of their everyday shopping habits.”

Private label continues to hold a high value perception among grocery store customers. On a 5-point scale, shoppers agreed that store-brand pricing was less than that for brand names at a mean of 4.16, up from 4.06 in the 2022 study. Likewise, consumers rated private-brand quality versus name brands at a mean of 4.18, about the same as 4.20 a year earlier.