Despite a marginal decline since March 2023, food inflation continues to exert a substantial influence on the food and beverage sector. Its persistent high level at 17.4% (ONS, 2023) has ongoing effects on pricing, consumer preference, and overall market dynamics. Food and beverage companies face challenges in retaining and attracting consumers, whilst ensuring profitability is not negatively impacted. Using key insights from the 4C 2023 Food & Beverage Survey, this blog explores the effects of inflation on consumer product preferences, as well as considering possible strategies that food and beverage companies can adopt to navigate this changing and challenging landscape. 

Cost-Conscious Consumers 

Cost is now the most prominent factor consumers take into consideration, due to a faster rise of inflation over wage increases, with 72.3% of respondents determining this to be the major factor of influence in their buying habits in our Survey. Baby boomers have shown to be the most sensitive to cost change, with 75% determining cost to be the most influential factor for their buying preferences whilst millennials rate the lowest at 64% who show greater preference for convenience than other generations.

Consumer Product Preferences

The  survey also highlights that products with specific health or sustainability-related characteristics are particularly important to consumers. Most favourable characteristics are low calorie and high protein. Nevertheless, as consumers become increasingly cost-conscious, they are more reluctant to pay premium prices, notably 77% are not willing to pay more than a 5% premium for products listed as sustainable or healthy. 

This comes as no surprise, with high inflation rates and low wage growth the major contributing factor to the cost-of-living crisis, consumers are looking to save money wherever they can. With this said, consumers still want and expect products with premium characteristics, but are not willing to pay premium prices, meaning that to meet consumer expectations, food and beverage companies must make available the products that consumers desire, but at almost price parity to the standard alternatives – this is a major challenge.

In 2023, Low Carbon Emissions have rocketed through the ranks in what consumers view as the most influential sustainability claim, moving up four places when compared to 4C’s 2022 Survey.  Although now viewed as the most important sustainability characteristic to consumers, Low Carbon Emissions are still something that 82% of consumers are not willing to pay greater than a 5% premium for. 

What Does This Mean for Food & Beverage Brands?
Increased Price Elasticity of Demand Requires a Laser Focus On Cost

As consumer food and beverage buying is becoming increasingly price elastic, combined with the expectation of purchasing non-standard products at a very similar price point to standard alternatives, there is a greater need for Food and Beverage companies to offer products at a competitive price level. To do this effectively, companies should have a laser focus on cost – finding ways to reduce their input and overheads to ensure margins can be maintained. 

To reduce cost, one focus area should be sourcing and procurement. Strategic sourcing of raw materials and ingredients is fundamental to this. Teams should explore ways to simplify and harmonise specifications through value engineering approaches to enable consolidation of the supply base, creating greater leverage for negotiation as well as cost reduction through efficiencies.

Improved supply chain management is another way that food and beverage companies could reduce costs. This can be done by developing planning and forecasting processes to ensure goods are made available at the optimal time for efficiencies and by optimising inventory management to avoid wastage through overstocking as well as the risk of stockout. Reviewing the logistics network and partners to identify opportunities to improve can also help to reduce cost, by optimising the network structure, transportation routes and negotiating more favourable freight rates and charges.

Companies Must Invest in Omnichannel to Maintain Brand Loyalty

With consumers becoming more price sensitive in their buying habits as a consequence of inflation, traditional brand loyalty is dwindling. To capture brand loyalty in this new age of consumer preferences, food and beverage companies must make smart investments to develop their omnichannel capability. 

Direct-to-consumer (D2C) channel presents an opportunity for brands to build better relationships with customers by engaging directly. It also provides greater control over the end-to-end customer experience by taking control of marketing, sales, and the distribution process. Through D2C, brands have the flexibility to offer loyalty programs to attract and retain customers during periods of inflation, providing an added incentive for consumers to choose their products. Establishing omnichannel is no small task and will require considerable effort to design and implement the supply chain and other mechanics to support, but it is essential for brands to future-proof their customer proposition.

The cost of inflation has a substantial influence on food and beverage buying in the UK. Price elasticity, demand for non-standard products at price parity are some of the key effects. Food and beverage companies must adapt to these changing dynamics by finding innovative solutions to reduce costs and investing in omnichannel to meet evolving consumer preferences and maintain their market position.  

To understand how 4C can help you to mitigate inflation and improve your business resilience through process improvement, strategic sourcing and cost optimisation, please reach out to Head of Consumer Products at 4C Associates, Katy Gallagher (