Feeling the pinch, groceries become a 'splurge' for millennials and Gen Z

• Younger generations spend more on groceries than other categories, a McKinsey report says.
• But all generations are feeling the pinch of inflation at the grocery store.
• The average household spends $445 more a month on goods and services than last year, Moodys says.

Splurging once meant spending money on buzzy restaurants, expensive vacations, and designer clothing. These days, what's considered splurge-worthy falls into a more humble category.

Groceries are shaping up to be a top spending priority for younger generations, according to a report from McKinsey & Company.

The firm asked over 4,000 people, from baby boomers to Gen Zers, about the categories they intend to splurge on this year. Groceries ranked highest for millennials and Gen Zers, outpacing restaurants, bars, travel, beauty and personal care, apparel, and fitness.

Millennials are also becoming parents, which means they spend more on themselves, their partners, and their children. It's a notable shift from 2018 when older generations like baby boomers and Gen Xers still spent more on groceries than millennials.

Gen Z, meanwhile, said they often choose high-quality snacks and beverages, which makes for expensive grocery bills.

One 23-year-old Gen Zer told Business Insider by text that he spends about $130 on groceries for a week and a half. "Fancy sodas and drinks" and "random snacks at Trader Joe's" account for the bulk of the bill. He also said he spends about $35 on protein bars.

The success of the canned water brand Liquid Death is an example of young people's willingness to spend on flashy food and beverages. The brand shot up to a valuation of $1.4 billion thanks to a recent round of funding, Forbes reported. Peter Pham, an investor in Liquid Death, previously told Business Insider that part of the brand's success comes from its appeal to younger generations.

"The healthy food-and-beverage space has historically been a stale category filled with boring brands," Pham told BI. "This creates a lightning-in-a-bottle moment for disruptive brands who know how to tap into culture and talk to Gen Z and digital natives."

All generations are feeling the pinch of inflation at grocery stores and for goods and services in general. The typical American household would need to spend $445 more a month to purchase the same goods and services as a year ago, a report from Moody's found.

Correction: April 8, 2024 — An earlier version of this story misstated the age groups surveyed in the McKinsey report. It surveyed baby boomers to Gen Zers, not baby boomers to Gen Xers. The story also misstated the findings in the Moody's report, which said the typical American household would need to spend $445 more a month this year on goods and services, not just groceries.