The grocery industry is no longer reacting to inflation. It’s adapting to a permanent restructuring of the American consumer.
For the better part of three years, economists have described the United States as operating in a K-shaped economy – one where higher-income households prospered while lower-income consumers struggled to regain their footing.
It was an effective description of the post-pandemic recovery.
Today, however, the grocery aisle suggests something more complicated is taking place. Increasingly, I believe we’re operating in an E-shaped economy, where three distinct consumer classes are moving in very different directions, often shopping under the same roof.
Rather than two distinct groups moving in opposite directions, three consumer classes are emerging with markedly different spending behaviors. Affluent households continue to spend with remarkable resilience. These consumers still purchase premium proteins, prepared meals, organic produce and convenience. Inflation has become more of an irritation than a limitation.
The middle tier has quietly become America’s most fascinating consumer. These households are generally employed, paying their bills and maintaining discretionary spending – but they have fundamentally changed how they define value. They’re shopping multiple stores, stacking digital coupons, timing purchases around promotions, mixing national brands with private label and delaying purchases until prices align with expectations.
Today’s middle-income household behaves less like the traditional American consumer and more like a procurement department. They compare prices across retailers before leaving home. They build shopping lists around digital offers. They postpone purchases until promotions appear. They understand unit pricing, loyalty rewards and personalized offers with a sophistication that would have been uncommon just a decade ago.
Lower-income households, meanwhile, are reducing discretionary purchases altogether as inflation, housing costs and debt servicing consume a growing share of their budgets. For these households, grocery shopping has shifted from optimization to necessity. History suggests consumers rarely abandon habits that consistently save money.
Those behavioral changes aren’t merely anecdotal. We can see them in the industry’s operating metrics. If consumers are becoming more disciplined, more promotion-focused and more value-oriented… then retailers should expect to see it reflected in what ultimately matters most: product leaving the shelf.
Unit Sales are Down Even As Inflation Creeps Up
Food prices today remain roughly one-third higher than they were in 2019. While grocery inflation has slowed to roughly 3% annually, consumers aren’t shopping against last year’s prices – they’re shopping against a permanently higher cost structure that has fundamentally altered household budgets.
According to the Urban Institute, roughly one in five working-age Americans has tapped into savings simply to pay for food. Others increasingly rely on credit cards or short-term borrowing to bridge the gap between paychecks. Food affordability now ranks among the nation’s top economic concerns, trailing only gasoline for many households.
Consumers continue spending more, but they’re taking fewer items home. That’s because dollars can rise while consumer confidence quietly erodes. Retailers have responded by dramatically increasing promotional activity – not because prices aren’t working, but because traffic and basket size have become the new battleground.
For decades, retailers measured inflation primarily through dollars. Increasingly, they are watching units. Across much of the industry, unit sales have softened even as total sales dollars remain positive, helped by inflation and price increases. Manufacturers are seeing the same phenomenon.
Companies like PepsiCo have acknowledged slowing volume growth as consumers migrate toward private label products or simply wait for promotions before purchasing familiar brands. Premium pricing strategies or ‘shrinkflation’ shenanigans that worked during the height of inflation have become more difficult to sustain as shoppers become increasingly disciplined.
A Big Fat “F-Shaped” Economy
Some might argue the economy has moved beyond even an E-shape and into something closer to an F-shaped economy, where the lowest-income consumers have become increasingly disconnected from broader spending trends. I’m not prepared to go that far…yet.
In grocery, every customer still matters. But the fact that the argument can even be made speaks to how dramatically consumer behavior has diverged. Recent changes to SNAP funding and eligibility, combined with years of elevated food prices, have further strained already-stretched household budgets.
Nimble retailers are already beginning to adapt to this reality. Rather than choosing between premium and value, they’re experimenting with formats designed to serve multiple consumer groups simultaneously.
Redner’s Markets, based in central Pennsylvania, is bifurcating itself into two new distinct brands. One one side their Redner’s Fresh Markets appeal to the higher end consumer, while their Cost Boss model looks to compete with discounters like Aldi. It’s rare to see this in one company, and we’re excited to see how it unfolds.
A K-shaped economy suggests two strategies. An E- or F-shaped economy demands far more precise merchandising, pricing and assortment decisions aimed at multiple consumer realities existing simultaneously within the same marketplace.
The grocery industry has become the country’s most revealing economic laboratory because it is one of the few places where every income level shops every week.
On any given Saturday afternoon, one customer may purchase USDA Prime steaks, chef-prepared meals and imported cheeses without looking at the price tag. Another may carefully combine digital coupons with loyalty rewards while choosing between national brands and private label. A third may decide that beef has simply become unaffordable and substitute chicken, or skip the purchase altogether.
All three consumers stand in the same checkout line.
The next decade may not be defined simply by the battle between premium and value. It will be marked by retailers that successfully serve all three consumers simultaneously – without losing their identity. Stores will need premium assortments for customers seeking quality and convenience, compelling private-label programs for households managing budgets, and promotional strategies that create genuine value rather than simply temporary price reductions.