Shoppers are buying less and switching to store brands, Kroger says

By Nathaniel Meyersohn, CNN Business

    (CNN) -- Decades-high inflation is changing US consumers' grocery habits.

Kroger, the nation's largest grocery store chain, said Thursday that budget-constrained shoppers were buying fewer items in stores, favoring Kroger's cheaper store brands instead of name brands, and switching from beef to pork.

"Rising inflation has consumers rethinking their shopping and eating habits," Kroger CEO Rodney McMullen said on a call with analysts. "We are seeing different shopping behaviors based on how individual customers are experiencing the current inflationary environment."

Kroger is the latest major chain to highlight consumer shifts in response to rising prices for food, gas, rent and other goods and services.

Record gas prices drove inflation to 8.6% for the 12 months ending in May, according to the latest Consumer Price Index, the government's main inflation measure. Prices for food purchased to eat at home rose 11.9%, the largest 12-month increase since 1979, with eggs up 32.2%, milk up 15.9% and poultry up 16.6%.

The typical US household is spending about $460 more every month than they did last year to purchase the same basket of goods and services, said Mark Zandi, chief economist with Moody's Analytics.

Walmart, the largest retailer in the United States, said some consumers were switching from buying gallons of milk to half-gallons. Walmart customers are also increasingly buying store brands.

Dollar General, the largest US dollar store chain, is seeing its core customers — those with household incomes under $40,000 a year — "start to shop more intentionally," CEO Todd Vasos said on an earnings call last month.

Gas prices at $5 a gallon are leading some customers to focus on driving to stores located closest to their homes, Vasos added. This is an advantage for Dollar General, which has around 19,000 stores and is often the only retailer in some rural towns.

Dollar General plans to add more $1 items as well as lower-priced, private-label brands to its shelves, the better to appeal to cash-strapped shoppers.

Other discount chains also say they're attracting new customers seeking cheaper alternatives.

"Consumers are clearly feeling pinched by inflation and looking to stretch their grocery dollar," R.J. Sheedy, president of Grocery Outlet, said last month. "We have seen more new customers shopping us."

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