In Europe, inflation causes buying habits that consumers had forgotten

The least expected return. The one with rising prices. It is not a fiction, but a reality in the windows of European stores. Some newspapers graph: Help, inflation is back!

The Russian invasion of Ukraine has succeeded in exacerbating the increases in the costs of fuel, electricity, gas and agricultural raw materials, situations already exacerbated by the shortage and logistical impact linked to the pandemic. With this scenario, multiplied in problems, the protagonists of consumption are rediscovering a problem that had disappeared decades ago.

Price hikes are becoming widespread: the CPI soared to 9.8% in March in Spain, the highest record since 1985, 7.9% in Germany, the highest since reunification in 1990 or 4.7% in France, a figure that has not been remembered since the 1980s.

Didier Boudy, the president of the Federation of Bakery Companies of France (FEB), and as reproduced by the newspaper Le Parisien, joked: “In English, we call this 'a perfect storm', a perfect storm.” In business for twenty years, he who is also in charge of Mademoiselle Desserts, the French leader in frozen pastry, explains that “I have never seen this: in just a short time we have to aim for another rise that has already been overcome”.

Last Tuesday, in this country that awaits the first round of the general elections on Sunday, 40 federations representing all forms of commerce, from small fashion boutiques to large hypermarkets, signed an open letter to the French presidential candidates. “In the face of inflation, let us help commercial companies contain energy and transport costs”, asks the text, which is on alert for the forthcoming 4.2% rise in the retail price index predicted by INSEE.

A first vestige. Bags or packages of many products have become one of the symbols of the crisis. For many companies, the business strategy to disguise the cost increase is to reduce the number of products. The phenomenon is called “reduflation” or in English “shrinkflation”, a tactic that, not only is seen when shopping, but is explained in newspapers, as was worth in Spain, an article in the newspaper El País. For many, a new word, “reduflation” is to put less usual amount of product in a container so as not to alter the selling price.

With great difficulty and some perplexity, food producers see prices constantly changing. Some explain that the calculation basis for the cost of products will have to be made on a monthly basis. To all this, everyone is organizing for the new inflationary patterns. In France, as in Germany, many manufacturers are considering adapting some of their recipes, for example by replacing sunflower oil with rapeseed oil.

In all cases, a decrease in the quantity of the product or change in the preparation formulas, the authorities, such as the Directorate General for Competition, Consumption and Fraud Prevention of France or the Spanish Ministry of Consumer Affairs, warn the obligations regarding transparency regarding new ingredients, the presence of allergens, or others, obliges them to clearly communicate the changes. But it is not a solution for manufacturers either: a new weight, another quantity, or a new preparation, means a new “contract” with the consumer. This requires new wrapping, when also the price of paper, to make new labels, has also skyrocketed.

“Until the war in Ukraine, we thought that the price increase would flatten by around 3% and then decrease. This is no longer the case,” explains Emily Mayer, director of Consumer Analytics. In all studies, and although it will depend on the extent of the war in Ukraine, inflationary forecasts will be extended, at least, throughout the first half of the year.

Another phenomenon is the fall, of what they say in France, of premiumisation. That is, consumers move away from leading brands to go towards white goods or low-cost products.

Supermarkets are trying to stay ahead of consumer changes. Brands such as Carrefour, Casino, Leclerc, Auchan, the big ones, bet on the hypermarket with offers and discounts. The question is whether customers will behave like during the last inflation, in 2008. It's just that it's been a long time to believe that the same habits will be repeated.

At that time, after the financial crisis, the super discounts Aldi, EuroSpin or Lidl won the most, convincing with their offers to gain market share. These brands hammer the market with their discounts and promotions. Measurements, as Kantar consultancy does, confirm this trend but also the return to large stores: hypermarkets.

The trend is also to stop buying little and good. What is organic or what he considers to be better paid to the producer, is stagnating. To retain customers, brands are sharpening anti-inflation initiatives. Carrefour organizes roundtables with French customers every Wednesday to find out what products they would like to have on offer.

But it's also about the missing ones. Wheat is a problem. Sunflower oil imported from Ukraine as well. In turn, another family of products, such as olive oil, will be in short supply. And then we have to add the impact of avian influenza. In France, between 7 and 8% of chickens are missing today, says the National Committee for the Promotion of Eggs (CNPO). If the price of shell eggs remains contained, egg products sold to industry (in liquid or powder form) “will have doubled in a month,” he warns.

The strategy of large volumes is among the range of possibilities. Get stock in the face of future price touches. This is fundamentally the strategy of “low price” supermarkets. A 20 kg pack of rice can be 30% cheaper than a standard 500 gram package.

Loyalty, through monthly memberships, that is, offering subscriptions at 10 euros per month that open a 10% discount on the final bill, is another option. Something that was rare among Europeans, is now common at checkouts, paying in 2 or 3 payments the final ticket. In 1, 2 or 3 times?

In “what inflation has already caused on the shelves”, it must be added that other European chains offer 5% to households with low incomes. Intermarche set the threshold at 850 euros per month. Others offer vouchers 10 euros for every 100 euros spent.

As an alternative, there are others that warn the drop in prices of certain products that are close to expiration. Some that reduce the margin of certain products, a soda or fuel to 0, to attract consumers to their stores. Even the authorities, check that they are not below the price to generate unfair trading strategies.

In France, there was a dispute between the Government and the Leclerc supermarkets, over the price of the baguette. Until measuring its size and confirming that it is not at a dumping price, it reached the front pages of newspapers.

“Politicians criticized low prices and blamed the game on competition. The return of inflation shows the usefulness of discount stores”, defended the head of the Leclerc Centers.

“On Mondays the government asks us to pay farmers better, on Tuesdays they ask us to lower the price of school supplies and on Wednesdays the price of feminine hygiene”, ironizes the son of the inventor of the discount to the French company Leclerc, in a phrase published in the newspaper Les Echos.

All this causes tactics to multiply. Initiatives to build customer loyalty will have no limits. The issue of low prices is coming back strongly, while the disadvantaged have left the shopping carts and are already going with the bags. Buy by unit: 4 bananas, 3 apples, it is no longer rare. Now the concern is: This came for how long?

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