We outlined the stress of the consumer budget as high-interest rates and higher inflation take hold. You can read about it in this recent Viewpoint. Today, the WSJ talked about one budget workaround, which will continue as the recession takes hold: shopping at “Dollar Stores.” As the consumer budgets tighten, how will they downgrade their food budgets? Even though gasoline prices dropped as the national average hit $4.21, western states such as California and Nevada remain in the $5 range. Sure, some medical expenses can be deferred, but rising rent costs are now a social issue. With food, there are ways to trim the costs, but at what tradeoff?
- With energy costs up 41.6% and groceries 12.2% more expensive than last year, according to June’s Consumer Price Index, many families say that skipping vacations and restaurant meals is no longer enough. They are now finding ways to cut costs on essentials.
- One way they do so is by relying more on dollar and discount stores for groceries. Average spending on grocery products at discount chains increased 71% from October 2021 to June 2022, according to analytics firm InMarket. Over that period, spending on the same items in grocery stores decreased by 5%.
- Many large consumer brands—including Walmart and Unilever—attest that their prices aren’t going down anytime soon.
Less shopping at Kroger, Publix, Whole Foods, and Winn Dixie. Are you moving from fresh products to canned goods? Oh, the sodium!
- Since Mx. Penelope’s dollar store does not sell fresh produce, they add spices and salt to camouflage canned ingredients. “My health and the quality of my life has gone down,” says Mx. Penelope, 26, who relies on their wife’s call-center income. “I’m in a position where I’m having to choose between making meals I can afford and putting my health on the line.”
- Roughly 2,300 Dollar Generals across the country currently stock fresh produce, out of more than 18,000 total locations, according to a Dollar General spokesperson. “While Dollar General isn’t a full-service grocer, we consider ourselves today’s general store by providing nearby and affordable access to daily household essentials, including the components of a nutritious meal,”
Perhaps, we need to start A 2022 version of the Victory Garden, as the Farmer’s Almanac suggests. That will take care of pole beans, herbs, tomatoes, and maybe zucchini, but it will not solve the challenge of finding a good old American hamburger, that is for sure. And dairy products have become much more of a challenge.
The consumer budget has the most impact, which is why credit card delinquency climbed from 1.63% in Q42021 to 1.73% in Q12022. Do not be surprised in 2023 when those rates begin to bump to 3%.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group