Consumers: Spending more to buy less

Despite a relatively strong economy and low unemployment, consumers are buying fewer items—and spending more to do so. The volume declines in consumer packaged goods (CPG) are dramatic, especially considering the growth that occurred in the early days of the COVID-19 pandemic.

The volume decline is pervasive across categories, from grocery to personal care and household products. US CPG volume declined 2 to 4 percent on average, with larger subcategories such as vitamins and supplements suffering 5 percent declines compared with 2022 figures.¹ Even the holiday season wasn’t enough to open a proverbial parachute: grocery volume declined 2 percent in November and December 2023, compared with the same period the year before.

This is happening even as consumers increase their shopping frequency across most channels and categories, creating a confusing set of circumstances for CPG brands to navigate.

In this article, we dive into the specifics of the recent CPG volume declines, examine McKinsey research to understand why consumer behaviors are shifting, and explore what this means for US CPG businesses in 2024.

Consumers are shifting their behavior in small but meaningful ways

Are GLP-1s affecting consumer spending?

By now, you may have heard about glucagon-like peptide 1 (GLP-1) drugs, which began making headlines in late 2023. These drugs were first introduced to treat diabetes and weight loss, and they have been on the market for more than a decade. Sales of these drugs have accelerated in the past year: quarterly US sales of three key GLP-1 agonist brands have grown to more than $4 billion.¹

Given the attention and popularity that GLP-1s have garnered, it’s reasonable to wonder whether their use could affect food consumption volumes. So far, their impact on the grocery market has been small. Based on 2023 GLP-1 adoption rates, GLP-1s have had a less than a 0.4 percent estimated effect on the food market.² When reporting their reasons for making fewer purchases in 2023, consumers ranked “medical reasons” as a less important consideration. Instead, prices and the ability to afford food items were the top considerations for making fewer purchases.³

That said, there appears to be real impact on calorie consumption for those who have used GLP-1s. One clinical study found that patients on GLP-1s reduced the calories they consumed during meals by about 30 percent.⁴ This study demonstrates that GLP-1s affect consumer food habits, and there is recent evidence that GLP-1 users are also beginning to shift their purchasing behavior (through both product selection and volumes) because of the medication.

Based on data from market research firm Numerator,⁵ households with at least one GLP-1 patient decreased food spending three times faster than households without GLP-1 patients. The findings were more pronounced when GLP-1 patients explicitly used the drugs for weight loss: these households decreased food spending six times faster than households without GLP-1 patients.

These shifts affect some food and beverage categories more than others. Spend and volume of grocery items such as hot sauce, sugar substitutes, canned fruit, and dried fruit or fruit snacks were all higher in households with GLP-1 users in 2023, compared with 2022. Spend and volume of packaged sweet bakery goods, cold cuts, chips, and packaged cookies were lower. Within beverages, households with GLP-1 users shifted to sports and energy drinks and away from soft drinks.

While GLP-1 use may increase in the near term, both the magnitude and stickiness of its use, and its long-term effects on the food market, remain uncertain. Consumer-packaged-goods players should continue to watch this space moving forward.

We have identified two primary ways that consumer behavior has shifted. First, consumer purchase occasions² occurred at the same—and in some cases, at a higher—frequency than in 2022, but consumers purchased fewer items on each trip (Exhibit 1). Units per trip declined by 3 to 5 percent across the grocery, health and beauty, and household categories, outweighing the growth in frequency of purchase occasions (up by no more than 3 percent) in the same categories.³ (For more on how grocery volumes could shift, see sidebar, “Are GLP-1s affecting consumer spending?”)

Consumers are shopping as frequently—if not more often—as they were a year ago, but they are buying fewer items.

But among the volume declines, there were green shoots: Gen Z consumer purchase occasions for grocery and health and beauty products increased 10 percent in 2023, compared with 2022 (although with slightly fewer units purchased on each occasion). That means Gen Zers, on average, went grocery shopping one to two additional times per month and shopped for health and beauty products one additional time every other month in 2023.

Analyzing five consumer goods categories across five sales channels, we see that consumers shifted their spend away from traditional brick-and-mortar channels and toward online and value channels (Exhibit 2). Still, the volume losses in brick-and-mortar outweighed the volume gains made in online and select value channels.

Consumers are shifting spend from traditional brick-and-mortar to online and value channels.

Among the channels analyzed, grocery items sold through food channels and all categories sold through mass channels represent the largest volumes in consumer goods—and suffered the biggest declines in 2023, along with drug stores. Comparatively, four out of five categories of CPG found volume growth online. The dollar channel demonstrated mixed results, with increases in grocery and pet segments but decreases in household and baby units.

Amid the general downturn, however, there were pockets of resilience. Online unit sales, for example, consistently grew by more than 4 percent. Among Gen Z consumers, this shift is even more pronounced: online unit sales from these consumers increased at nearly two times the rate of increases in online unit volume for other generations. Gen Z also helped cushion volume declines in mass and dollar store channels.

Consumers are feeling the effect of higher prices

There’s plenty of speculation about what’s fueling consumer goods volume declines. When we asked consumers why their shopping behaviors changed last year, one thing was clear: prices weighed on their decision making. Consumers cited product price hikes and their ability to afford something (whether for personal or economic reasons) as the key drivers behind purchasing fewer items across categories (Exhibit 3).

Consumers cited price as the top reason for reducing the number of grocery items they purchased.

In addition to price concerns, consumers said they stocked up on personal-care items before 2023, which led them to make fewer personal-care purchases that year.

Consumers said they waited for items to go on sale before making household purchases, which contributed to volume declines in this category.

Consumers reported needing fewer pet-related items, contributing to volume loss in this category, as frequently as they cited price increases as a reason to reduce their purchase volume.

Consumers reported needing fewer baby products in 2023 as a main reason to reduce these purchases, rather than cutting down due to price increases in this category.

The top three reasons that consumers give for reducing purchase volume all relate to price or affordability. (1 of 5)

The top three reasons that consumers give for reducing purchase volume all relate to price or affordability. (2 of 5)

The top three reasons that consumers give for reducing purchase volume all relate to price or affordability. (3 of 5)

The top three reasons that consumers give for reducing purchase volume all relate to price or affordability. (4 of 5)

The top three reasons that consumers give for reducing purchase volume all relate to price or affordability. (5 of 5)

Increased prices were the number-one reason consumers reported purchasing fewer items in grocery, personal care, and household products. This also appeared to be the case across subcategories such as beverages, snacks, dairy products, cereals, and fresh and prepared foods.

Consumers said they also reduced the number of items they purchased because they were waiting for them to go on sale. Among shoppers we surveyed who said they anticipate reducing the number of purchases they make in the next six months, roughly 40 percent cited affordability constraints due to “economic reasons.”

Although it accounted for a smaller share of responses than price or affordability, stocking up on goods in 2022 meant consumers made fewer purchases in personal-care and household categories in 2023 (this was particularly evident among baby boomers). Meanwhile, consumers said they bought fewer discretionary items, sticking to essential purchases instead. This echoes the findings in our earlier ConsumerWise research, in which consumers—often led by Gen Xers—said they also planned to spend less money on discretionary items in the coming months. (By comparison, Gen Zers reported a higher intent to spend than the average consumer across most categories our research tracked.)

Five strategies can help CPG players combat volume declines

As long as above-average inflation, geopolitical risks, and uncertainty regarding interest rates persist, consumers are likely to continue to purchase fewer goods. In the meantime, there are five actions CPG executives can take to hedge against what the next two to three quarters may hold:

Evaluate the portfolio to identify pockets of headroom. As consumers become choosier, it’s important to reevaluate product assortment and portfolio investment. It may be time to exit parts of the portfolio that don’t fit current consumer demand, or in other cases, double down on areas where consumers are expressing a need. This may include expanding offerings across a certain price point or in-demand categories, such as health and wellness.
Accelerate growing channels. Companies should ensure products are available across value and online channels, where there is more momentum compared with mass, food, or drug channels. In some cases, companies could consider unique product offerings (where size or packaging may differ from in-store offerings). Consumer businesses could also invest in the “digital shelf,” or the online environment where products appear.
Reconsider pricing and promotion strategies. Most consumers still express concerns about price and are shopping based on promotional strategies. Input costs remain high, and price increases may be necessary to maintain margins. That said, consumer businesses may want to reevaluate price pack architectures (that is, finding ways to offer consumers the goods they want at prices they are willing to pay). Consumer brands could also offer value promotions that create “reasons to buy” during the more-frequent shopping trips consumers are making.
Continue to invest in brand loyalty. While it may be tempting to step back from wide-ranging brand marketing to focus solely on performance marketing, where sales impact is often directly measurable, consumer goods companies should still invest in consumer acquisition and loyalty. Building “brand love” may be the best way to entice cautious consumers to add items to their physical and digital shopping carts.
Calibrate supply chain to demand. To ensure products were stocked during the COVID-19 pandemic, consumer goods businesses may have created redundancies within their supply chains. But with decreased demand today, consumer companies should consider using AI and analytics to reevaluate their supply chains and create flexibility to adapt to changing volumes.

As uncertainty over the economy lessens and a clearer forecast emerges, consumers may once again increase the number of purchases they make. But CPG players that wait around for that moment—without finding ways to recapture the consumer today—stand to miss out for good.