The High Cost of Low Income

The High Cost of Low Income
January 7 , 2022  |  By Ryan Sheets, Dinesh Gauri

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January is a hard month for consumers. In addition to recovering from holiday spending, consumers are often paid early to accommodate the holiday break and then have to stretch that paycheck an extra week until they’re paid again in January.  
One thing that will likely make budgets even tighter is food inflation, which Dinesh Gauri, Rupinder Jindal, and Yu Ma discuss in a recent Progressive Grocer article. The increases in commodity prices, labor costs, and transportation costs have been passed along to consumers, and low-income consumers have felt these increases more sharply than mid- or high-income consumers.  
Low-income consumers saw the goods they purchase increase 6.3% in 2020, more than double the 2.7% increase in prices high-income consumers experienced. Low-income consumers’ purchasing power was further reduced because they routinely lack broadband access and thus cannot save money by shopping online. Additionally, low-income shoppers tend to purchase essential items, which are rarely discounted or discounted only if purchased in bulk. Low-income consumers miss out on these discounts because they cannot purchase in bulk, due to limited storage space and because they cannot afford the higher one-time cost of a bulk purchase. This isn’t even accounting for shrinkflation, the decline in product size or quantity without a price reduction, which became more noticeable during the pandemic. 
So, how can Januarys be made less painful for low-income grocery shoppers?  
The bad news is that prices rarely fall at the same pace they increase. The stickiness of price increases will thus create a longer-lasting purchasing power disparity between low-income and higher-income shoppers. The good news is that the Emergency Broadband Benefit program offers one-time discounts for hardware and up to $50/month towards broadband service fees. This program will allow low-income consumers to price shop and order online. Additional programs have been proposed or piloted to bring more grocery shopping options to “food deserts,” have online retailers accept SNAP benefits, and increase public transit funding to give low-income shoppers access to chain stores and supermarkets.  
Many of these efforts, however, are still in early stages or face funding shortfalls. Closing these gaps quickly will require government, industry, and non-profits working together to ease the burdens lower-income consumers routinely face. As Gauri, Jindal, and Ma write, closing these gaps and easing these burdens will not only “benefit brands and retailers by lifting overall sales but deliver greater good as well.” 

Dinesh GauriDinesh Gauri is a professor and the Walmart Professor of Marketing in the Department of Marketing at the Sam M. Walton College of Business at the University of Arkansas. Gauri's research and teaching interests include retailing, pricing, branding, marketing analytics, shopper marketing, e-commerce and revenue management. He served as an assistant and associate professor of marketing at Syracuse University prior to joining the Walton College. His research has been published in journals such as Journal of Marketing, Journal of Marketing Research, Journal of Consumer Research, Journal of Retailing, Marketing Science, Management Science and Journal of Business Research.

Ryan SheetsRyan Sheets serves as the Director of the Business Communication Lab at the University of Arkansas' Sam M. Walton College of Business and is the Editor-in-Chief of Walton Insights. He also teaches business communication classes to undergraduate and graduate students at the Walton College. He previously served as the Assistant Director of the Judith R. Frank Business Communication Center at the University of Iowa's Tippie College of Business. He worked in the oil and gas industry and insurance industries prior to returning to graduate school. He received his B.A. and M.A. from the University of Alabama at Birmingham, and his Ph.D. from the University of Illinois at Urbana-Champaign.