Consumer spending signals are flashing yellow, not green. In a recent conversation, Chad Lusk, Partner and Managing Director at A&M Consumer and Retail Group, pulled back the curtain on their latest biannual consumer sentiment survey, and the findings reveal a retail landscape that’s more complex than simple spending increases might suggest.
The Optimism Paradox: More Spending, Less Confidence
At first glance, the data looks encouraging. Consumers indicated an intent to spend more money in the upcoming six-month period, with an 800 basis point jump, the largest cycle-to-cycle increase since spring 2023. But before retailers start celebrating, Lusk warns against using the word “optimism” to describe this trend.
The reality is far more nuanced. This spending increase is heavily concentrated among higher household income earners, while households earning under $100,000 still show a negative net intent to spend more. Even more telling, food and beverage is the only category showing positive net spending intent across all consumers, with shoppers planning to spend less in every other category.
The culprit? Inflation expectations. Nearly 60% of consumers believe tariffs have contributed to double-digit price increases on food, with over 20% citing price increases of 30% or more. When consumers say they’ll spend more, they’re not planning to buy more. They’re simply expecting everything to cost more.
The Trade-Down Revolution: Cheaper Brands, Different Stores
The real story in consumer behavior isn’t about spending more. It’s about spending smarter through systematic trade-down strategies. Consumers are deploying three primary tactics to stretch their wallets: switching to cheaper brands, shopping at lower-price stores, and simply buying less.
The numbers are striking. Across beauty and personal care categories, about 40% of consumers planning to spend less say they’re switching to cheaper brands. For grocery, that figure jumps above 50%, skewing even higher among upper-income households. Perhaps most surprisingly, over 80% of higher income earners report buying private label products somewhat or very often.
The shift to lower-price stores represents an even more fundamental change in shopping behavior. About 30% of consumers planning to reduce category spending are doing so by switching to lower-price stores across beauty, personal care, and grocery, potentially disrupting their entire ingrained shopping routines. Even more dramatically, 58% of respondents reported increasing trips to lower-price stores somewhat or more often in just the past cycle alone, with this behavior over-indexing among higher income earners.
Private Label’s Quality Revolution
One of the most significant developments Lusk highlighted is the transformation of private label from a generic alternative to a legitimate competitor that stands for strength and quality. The consumer perception data reveals just how much the landscape has shifted.
When comparing store brands against national brands in food and beverage, the results are eye-opening. While private label’s affordability advantage is expected, consumers now recognize quality parity: 68% said store brands offer quality that is as good or better than national brands. Additionally, 60% said private label provides unique and preferable flavors and offerings, while 66% said these products meet their dietary or lifestyle needs.
These are more than price-driven decisions. They’re the same reasons consumers switch brands: to save money, to experiment with something unique, and because of ingredient considerations. The quality gap has closed, meaning consumers no longer feel they’re making sacrifices when choosing store brands.
What This Means for Brands and Retailers
The implications are clear for both retailers and CPG companies. Brands succeeding in this environment fall into two camps: those offering tremendous value at opening price points, and those providing tangible benefits that justify premium pricing. It’s the vast middle tier that’s getting squeezed as consumers polarize toward extreme value or demonstrable quality.
For retailers who can invest behind private label programs, this represents a massive opportunity. For CPG brands, it’s a wake-up call to strengthen positioning and defend against the private label threat or risk permanent market share erosion.
Holiday Outlook: Flat Is the New Up
Looking toward the holiday season, Lusk’s data suggests consumers are planning for spending roughly flat compared to last year, a notable shift from the 3-4% increases seen in recent years. Retail sales are tracking about 4% up year-over-year, translating to flat to 1% real growth when adjusted for the latest 3% inflation report.
Interestingly, holiday spending has become part of the “routinely budgeted essentials” category in many households, i.e. necessary spending for kids, partners, and family that consumers want to keep reasonable. While shoppers say they’ll spend a bit less on holiday decorations and entertainment, the impulse nature of holiday shopping could still drive some upside, particularly in self-gifting.
The Bottom Line
The consumer landscape has fundamentally shifted. What looks like spending growth is actually inflation expectation, and what seems like trading down for budget reasons may be becoming permanent behavior change as lower-price retailers prove themselves “good enough” to alter consumer habits for the long term. Retailers and brands that recognize this new reality and adapt their strategies accordinglywill be positioned to win in an increasingly value-conscious marketplace.
Listen to the full interview with Chad wherever you enjoy your podcasts:
Apple Podcasts | Spotify | Soundcloud | Amazon Music
Be careful out there,
– Chris, Anne, and the Omni Talk team
Be careful out there,
– Chris, Anne, and the Omni Talk team
P.S. To see our full lineup of past 5 Insightful Minute conversations, head here.
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Omni Talk® is the retail blog for retailers, written by retailers. Chris Walton and Anne Mezzenga founded Omni Talk® in 2017 and have quickly turned it into one of the fastest growing blogs in retail.