How Much Is Too Much?

Dining costs are up 29% since 2019, but consumers keep paying. What corporate leaders can take from this buying behavior’s “new normal.”

As the parents of a star pitcher on a traveling softball team, the Robinsons spend many weekends in chain hotels in unfamiliar towns. Often they’ll grab their meals between games, at local bars and grills or fast-food restaurants. What with their various expenses, like tournament fees and gas, their lifestyle isn’t cheap—but things cost what things cost, right?

Watching inflation drive up the price of so many everyday items makes many consumers feel distraught. But resistance to such hikes appears to be waning. Everyone agrees prices are too high—but everyone, including the Robinsons, keeps paying them. Dining out costs 29% more than it did in 2019, for instance, but the industry is nevertheless on track to set a sales record of $1.1 trillion this year. Retail sales remain strong as well, as do other discretionary spending categories like travel. “It’s a conundrum,” says Torrey Foster, vice chairman and managing partner of Korn Ferry’s Consumer Markets practice in North America. “The sentiment is that the sky is falling, but people aren’t behaving that way.”

None of it has gone unnoticed by the many industries that focus on consumer purchases. To lessen the blow of inflation, many firms would ordinarily offer discounts or other incentives. But in this free-spending environment, firms may feel disinclined to do that, at least for now. “Costs are still going up, but retailers are less willing to absorb them,” says Foster. Firms are under pressure from shareholders to show top-line growth, he says, so “some increases are being pushed through to consumers.”

The macroeconomic picture, which remains strong, may be helping to stabilize consumer confidence. Productivity, employment, and wages are all growing—firms added 303,000 new jobs in March, well above analysts’ expectations. The strong job market, coupled with residual savings from the pandemic, may make people more willing to absorb price increases for things they want. Or, as Christian Hasenoehrl, global account leader for the Consumer and Industrial practices at Korn Ferry, says, “The overall level of consumer spending is strong, but where people spend their money is changing.” On the one hand, Hasenoehrl says, consumers are resisting price increases in everyday areas like groceries and home goods by trading down to private-label and big-box retailers. On the other hand, they are more likely to rationalize spending money on a new outfit for work or dinner out with friends.

The fact that consumers are willing to accept inflationary price increases as the new normal worries some experts. Jamen Graves, global leader of CEO and enterprise leadership development at Korn Ferry, says that some innovation could suffer in the absence of incentives to bring costs down. Firms run the risk of becoming complacent, he says, if they rely on current sales trends at the expense developing new products or services. “The way to capture real value is to reinvest the added revenue flow into innovation,” says Graves.


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