UNFI Says CPG Brands Will Need to Step Up Deals to Get Customers Back

As grocery inflation normalizes, United Natural Foods, Inc. (UNFI) expects brands to start offering more deals and discounts, which the company sees as a necessary step to bring consumers back into the fold.

The grocery wholesaler, which delivers products to more than 30,000 stores, eCommerce providers and food service venues, shared on a call with analysts Tuesday (Sept. 26) discussing its fourth-quarter Fiscal 2023 financial results how the promotional environment has been shifting throughout this inflationary period.

“We saw a decline in promotions while prices were going way up,” UNFI CEO Sandy Douglas explained. “What we expect to happen is that as price increase events decline, we expect promotions to come back, although they’ve done so very slowly.”

Indeed, inflation has taken a toll on basket sizes and brand loyalty. PYMNTS Intelligence, in the study “Consumer Inflation Sentiment Report: Consumers Cut Back by Trading Down,” for which we surveyed more than 2,000 U.S. consumers in April, revealed that 57% of consumers reported having cut down on nonessential grocery spending. Plus, the same study found that 36% of grocery shoppers had begun purchasing cheaper alternatives of their typical go-to products, such as switching to private-label brands.

In order to bring consumers back, Douglas contended, name-brand consumer-packaged goods (CPG) companies and other brands will have to draw them in with enticing deals and offers.

“As we look forward, and we see units continuing to be soft, the consumer to be stressed, and inflation now returning to lower levels, we definitely expect consumer products companies to start promoting more. They’ll need to in order to drive sales,” Douglas said.

Certainly, many grocery shoppers are motivated by deals. In the report “Consumer Inflation Sentiment: The False Appeal of Deal-Chasing Consumers,” for which we surveyed more than 2,100 U.S. consumers, PYMNTS Intelligence revealed that 44% of grocery shoppers are deal chasers, willing to go wherever they will get the best price.

Plus, PYMNTS’ study “Big Retail’s Innovation Mandate: Convenience and Personalization,” created in collaboration with ACI Worldwide, which drew from a survey of 300 retailers across the United States and the United Kingdom, found that 74% of grocers think that consumers would be very or extremely likely to switch merchants if digital coupons and rewards were not provided.

Grocers are seeing this demand for deals and offers. Kroger, the United States’ leading pure-play grocer, shared in a presentation accompanying its earnings call earlier this month that it saw a 29% increase in digital coupon downloads last quarter. Plus, on the call, Chairman and CEO Rodney McMullen noted that shoppers have “clipped more than 2 billion” digital coupons year to date.

In fact, while UNFI notes that brands have been relatively slow to roll out promotions, the company is seeing that grocers have not.

“From a supplier perspective, we’re seeing it slowly increase but it’s still below pre pandemic levels,” Douglas said. “From a retailer perspective, we’re seeing promotions accelerate, as retailers look to drive their price positioning — particularly those that are priced-positioned.”