What: Premium food products are driving supermarket sales growth as consumers seek affordable indulgences during economic uncertainty.

Why it is important: Rising interest in upmarket grocery products is prompting both retailers and suppliers to innovate and compete for margin growth.

Supermarkets are experiencing a notable boost in sales from premium food products as consumers, facing economic pressures, increasingly turn to small, upmarket treats for comfort. This shift, often described as the “lipstick effect,” is evident in the strong performance of premium private label ranges such as Sainsbury’s Taste the Difference and Tesco Finest, which have significantly outpaced overall fresh food sales. The appeal of affordable indulgences is not limited to higher-income households; research indicates that over half of lower-income families also regularly purchase premium items. Health concerns are further influencing buying patterns, with shoppers opting for higher-quality, less processed foods. While premium products still represent a modest share of total supermarket sales, their impact is substantial enough to drive supplier margin expansion, as seen with companies like Cranswick and Greencore. However, suppliers remain vulnerable to retailer bargaining power, making brand ownership and innovation increasingly important. As this trend continues, the competitive landscape is evolving, with both retailers and suppliers striving to capture value from consumers’ desire for quality and small luxuries.

IADS Notes: Recent shifts in consumer behaviour across global markets reveal that the “lipstick effect” is not only boosting demand for premium beauty and food products but is also reshaping the strategies of both retailers and suppliers. In March 2025, Inside Retail reported that South Korean department stores saw luxury beauty sales surge by up to 24%, as consumers gravitated toward smaller, high-quality indulgences during economic uncertainty, prompting retailers to revamp experiential offerings. This trend is mirrored in the US, where The Economist (December 2025) highlighted robust spending on affordable luxuries and premium items, with fragrance sales rising 17% year-on-year despite low consumer sentiment. The Financial Times (October 2025) documented the rise of the “eat-at-home” economy, with supermarkets and brands launching high-end ready meals to capture demand for premium experiences at home. Meanwhile, The Economist (May 2025) and BCG (September 2025) emphasised the growing power of major retailers in supplier negotiations, particularly in premium and private label categories, as advanced analytics and GenAI enable more effective margin management and assortment strategies. Collectively, these developments illustrate how premiumization and affordable indulgence are driving both retail innovation and evolving supplier relationships.

The ‘lipstick effect’ now has a counterpart in the cake aisle