Coffee, Nike Air Max: it's COVID consumer economy
Instant coffee, ketchup, Lululemon yoga pants and Nike Air Max sneakers are all in. Bottled water, pricey diapers and Burberry luxury trench coats are out. Welcome to America's pandemic consumer economy. And it's like nothing we've seen before.
"Everything we knew about supply and demand, we can essentially throw out the window because consumer behavior has changed completely," said Piotr Dworczak, assistant professor of economics at Northwestern University. A Reuters analysis of a varied basket of goods shows how the COVID-19 crisis has upturned a decades-old consumer model for everything from clothing to food. This has given some companies surprising power to raise prices or withdraw discounts. Many of the new trends can be attributed to one factor, according to retail specialists: working from home.
Almost overnight, a consumer-driven economy with clearly delineated work and home spending, changed profoundly. Rising demand for certain items, as well as global supply-chain disruptions, has driven up prices. Americans are now shelling out significantly more than a year before for coffee, eggs, sliced ham, ketchup and cheese, for example, according to the Reuters analysis of the latest pricing data from Nielsen Co, the Brewers Association and StyleSage Co.
Yet it's a complex picture, and some of the changes in behavior seem counter-intuitive during a time of deep economic uncertainty.
Demand and prices have also increased for more expensive, or "splurge", items like $106 men's Nike (NKE.N) Air Max sneakers, $105 Lululemon yoga pants and even a $1,500 Louis Vuitton (LVMH.PA) handbag. Economists put this apparent discrepancy in behavior down to the fact that many people, unable to spend outside, have more cash in hand. Even many workers on furlough are receiving jobless benefits that match their wages under a federal stimulus plan.
"If I were to consider the consumer situation right now, in a strange way, they may have more disposable income, if they kept their job," said Nirupama Rao, an assistant professor of business economics and public policy at the University of Michigan. "Of course we're facing mass layoffs, but the bulk of people have maintained their wages and earnings."
Shoppers paid roughly 8% more on average for JM Smucker's (SJM.N) instant coffees, including Folger's and Dunkin', at bricks-andmortar stores in the four weeks to Aug. 8 versus a year before, according to Nielsen data analyzed by Bernstein. They shelled out nearly 10% more for Kraft Heinz (KHC.O) sauces and about 5% extra for Tyson Foods' (TSN.N) sliced hams. Such inflation might make commercial sense, given the bump in demand for home staples. But some consumer experts complain retailers and big brands are cutting back on promotions and using their power to shore up profits during a health crisis that has led to millions losing their livelihoods.
"Brand manufacturers have been fattening their pockets with profits while putting unprecedented pressure on the consumer who has to pay those higher prices," said Burt Flickinger, retail consultant at Strategic Resource Group.
JM Smucker said it did not raise prices of its instant coffees in the four weeks to Aug. 8, but did cut back on some promotions for in-demand products. Kraft Heinz declined to comment, but said during earnings in July that second-quarter prices went up as it pulled some offers and discounts for scarce products.