Inflation Concerns Overblown for Cleaner Living
Over the last several months, investors have received a growing number of data points from hard monthly economic data to company comments about the impact of the current inflationary environment on earnings. Companies are contending with rising input and transportation costs and increasingly looking to pass those costs along to their customers in the form of price increases. This in turn has raised questions about consumer spending power but about how inflation resistant certain products are.
Given the consumer focus of our Cleaner Living investment theme, including Cleaner Food & Dining as well as Cleaner Health & Beauty, we’ve been peppered with some of those questions. Fortunately, the National Retail Federation and IBM found that
“purpose-driven consumers seek products and brands that align with their lifestyle and those with health/wellness benefits. They are willing to pay a premium for products and services that align with their values and lifestyle. Purpose-driven consumers are also willing to change their shopping habits to reduce environmental impact and care about issues such as sustainability and recycling.”
According to the NRF and IBM, roughly 40% of all consumers across the globe fit into the Purpose-Driven category, with ~51% of American consumers in that bucket.
Another group, Brand-Driven consumers “want it all” and are willing to pay a premium for products that fit their lifestyle. There is a far smaller cohort, product driven consumers, that are willing to pay a premium for transparency that vouches for product authenticity.
Across the spectrum of those four consumer categories, the NRF and IBM found that over 7 in 10 consumers say it’s at least moderately important that brands offer “clean” products, are sustainable and environmentally responsible, support recycling, or use natural ingredients.
We started off talking about inflation, so let’s get back to that. In a nutshell, over seven in ten consumers were already willing to pay a premium for brands that offer “clean” products, have natural/organic ingredients, support recycling, practice sustainability, and/or are environmentally responsible. That willingness to pay a premium lies among the drivers of purpose-, brand-, and product-driven consumers – the desire for products that fit their lifestyle choices. Arguably, the combination of that want coupled with a product’s perceived value creates a meaningful amount of inelasticity of demand for these products.
