Personalized coffees and prestige skincare: Consumers snap up premium products despite cost-of-living crisis

“As we create more premium beverages, it becomes more difficult for customers to replicate it at home and we think that helps with the concept of trade down,” Starbucks CFO Rachel Ruggeri told CNBC’s “Squawk Box” on Aug. 3.

Consumers seem to be loving the fact that companies like Starbucks, Colgate-Palmolive and others are focusing on premium products.

Consumers are feeling the effects of the biggest inflation shock in decades, so why are companies increasing their prices?

Customer insight is important for consumer businesses as the cost of living squeezes, according to Paul Martin, head of retail for the U.K.

Martin said that consumers are nervous about the economic outlook but still have money to spend and are trading down to premium products.

It's possible to swap out meals for premium ones. The group will look to save money by using value essentials, but they won't be filling the basket solely with them.

‘An offering that’s worth paying for’

In the last quarter, Starbucks reported a record number of customers. Some customers are not trading down or reducing their spending despite the rising cost of living, according to the results.

Starbucks CFO Rachel Ruggeri told CNBC's "Squawk Box" that it's important to design products that are tailored to the needs of customers.

"As we create more premium beverages, that's more difficult for customers to replicate at home and we think that helps with the idea of trade down." We want to make sure that we have reasons for customers to come into the stores and interact with us.

Ruggeri said that giving customers more flexibility helped to sell more expensive products.

Our personalization has allowed us to do that, and what we have seen so far is our demand is strong. She said that it shows us that we have something worth paying for.

Premium products aren't unique to the largest coffee chain in the U.S.

The HEINZ 57 collection will be launched in July. The condiments are designed to add magic to the food.

The company raised prices due to higher transportation, labor and ingredients costs.

According to the company's U.S. president, redesigns of classic products are also included.

The focus is on how to bring in ingredients that are cheaper. How do we make our products better for different consumers so they can get different products at different prices?

Mondelez is a path like that. The company announced in June a deal to acquire Clif Bar & Company, while all of the company's other acquisitions were described as "premium" in its second quarter earnings report.

‘Value faces a boom and so does premium’

Consumers and companies are both dependent on cheaper products.

McDonald's attributed some of its growth in the US to its value products.

Companies are trying to attract both ends of the market by focusing on lower priced products.

The approach has been used before, according to Mark Schneider.

The current situation is similar to previous downturns and economic slowdowns. We look at both premium and affordable products. We are doing well because we cover both ends of the spectrum.

Maintaining and growing profits is dependent on appealing to the widest possible customer base.

Value and premium face booms in this landscape. The discounters are expanding their core value ranges while also increasing their premium proposition. They want to capture and retain all of the trade-down audiences.

Driving desirability and sales

The company is seeing a mixture of customers trading up and down, according to Alan Jope.

He said on July 26 that people are moving to cheaper formats because the premium ranges are doing well.

The luxury arm of the conglomerate was launched in 2014).

The model relies on a certain level of scarcity to drive desirability and sales.

It looks like it has worked so far. According to the company's Q2 2022, Beauty and Personal Care grew 7.5% in the last quarter.

According to the global consumer leader, a focus on premium products can help tackle inflation costs.

Rogers said that companies are looking at how to expand the value of their products because input costs continue to rise.

Premium and added value are the only ways to grow. Rogers said that companies need to give consumers a reason to buy higher priced products.

Increasing the features of their product is what companies are focusing on. Brand building, higher quality products, sustainable products, and health features are some of the features that are included in these features.