- Starbucks, Kraft Heinz and Mondelez are among the companies focusing on premium products during the cost-of-living crisis.
- By "beefing up their premium proposition" as well as value products, companies can capture and retain trade-down audiences, says Paul Martin, KPMG's head of retail.
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"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.Gary Hershorn / Contributor / Getty Images
Personalized coffees, "prestige" skincare and "elevated" sauces and spreads are just some examples of how companies like Starbucks, Unilever and Kraft Heinz are tilting their focus toward premium products — and consumers appear to be loving it.
But why are companies zooming in on their pricier offerings when consumers are feeling the effects of the biggest inflation shock in decades?
"Customer insight is key for consumer businesses as the cost of living squeeze tightens," Paul Martin, KPMG's U.K. Head of Retail, told CNBC.
"Whilst it's true that some consumers are having to increasingly turn to value products and watch every penny, it is also the case that other consumers are nervous about the economic outlook but still have money to spend and are in essence trading down to premium products," Martin said.
"For example, swapping meals out for premium meals in. Whilst this group will also look to save money via the value essentials, they won't be filling the basket solely with them," he said.
'An offering that's worth paying for'
Starbucks reported record customer counts and sales in the last quarter, beating Wall Street expectations. The results appear to reaffirm the view that some customers aren't trading down or reducing their spending despite the increasing cost of living.
Designing bespoke products is key to upping customer engagement even when money is tight, Starbucks CFO Rachel Ruggeri told CNBC's "Squawk Box" on Aug. 3.
"As we create more premium beverages, that's more difficult for customers to replicate at home and we think that helps with the concept of trade down," Ruggeri said. "It may mean that maybe a customer doesn't come as frequently, but we want to ensure that we have reasons for the customers to come into the stores and interact with us."
Giving customers more flexibility also helped to sell more expensive products and pass on higher costs, Ruggeri said.
"We've been able to do that through our personalization, which is a choice, and what we've seen so far is our demand is strong. And that tells us that we have an offering that's worth paying for," she said.
The focus on premium products isn't unique to the largest coffee chain in the U.S.
Kraft Heinz is getting in on the luxury market with the launch of its HEINZ 57 Collection in July. The "chef-inspired" condiments are "designed to add magic to the culinary experience," according to the company.
This came as the company lifted prices by more than 12% in response to higher transportation, labor and ingredients costs amid rising inflation.