Home » Food and Drink » Grocery Shopping and Inflation, Part One: Impact on Grocers

Grocery Shopping and Inflation, Part One: Impact on Grocers

December 16, 2021

supplu-chain

One of the least welcome consequences of supply chain snarls and labor shortages is rising inflation — and the food industry has been impacted like every other economic sector. Food prices have been on the rise for months. Back in April 2021, journalist Ben Popken (@bpopken) wrote, “Shoppers had better start budgeting more for their groceries, according to the latest consumer price index [CPI], which shows prices are increasing — and they’re likely to keep going up.”[1] His prediction proved accurate. In November, the U.S. Department of Agriculture (USDA) reported, “The food-at-home (grocery store or supermarket food purchases) CPI increased 1.1 percent from September 2021 to October 2021 and was 5.4 percent higher than October 2020.”[2] The USDA went on to predict, “In 2022, food-at-home prices are expected to increase between 1.5 and 2.5 percent.” At the moment, that prediction appears optimistic. Unlike some product categories, rising food prices affect everyone. Consumers understand inflation is bad news for them; however, it is also bad news for grocers.

 

Inflation’s Impact on Grocers

 

Retail and grocery reporter Nathaniel Meyersohn (@nmeyersohn) agrees with the USDA prediction about increasing food prices in 2022. He writes, “Expect to keep paying more for groceries in 2022.”[3] He notes, “Grocery prices stagnated from 2015 through 2019, but have increased during the pandemic. In 2020, grocery prices increased 3.7% from the year prior.” But, as the USDA pointed out, the rate of inflation is increasing. According to Meyersohn, “Food manufacturers and grocers have faced higher costs for commodities, labor, transportation and other expenses during the pandemic. Those costs have escalated in recent months, leading manufacturers to pass off some of these costs to their retail customers, who in turn have passed on a portion to consumers. … Persistent supply chain pressures mean higher prices at the grocery store will likely stick around for a bit.”

 

Grocers understand that rising food prices can stir strong emotions in consumers. In an effort to walk the fine line between operating a profitable business and angering consumers, grocers are using numerous tactics. Retail food journalist Jaewon Kang (@_jaewonkang) reports, “Supermarkets are stocking up on everything from sugar to frozen meat before they get more pricey, girding for what some executives anticipate will be some of the highest price increases in recent memory. Some supermarkets said they are buying and storing supplies to keep their shelves full amid stronger demand.”[4] For some necessities in high demand, grocers have placed a limit on the number of items consumers can purchase at any one time.

 

If you’re wondering why grocers don’t pass all of their increased costs on to consumers, journalist Carol Ryan explains, “Once supermarket prices rise more than 5%, consumer buying habits may start to change.”[5] That fact places both consumer packaged goods (CPG) manufacturers and grocers between the proverbial “rock and a hard place.” Ryan reports, “Inflation is now so hot that staples companies feel they have no option but to pass it on.” At the same time, they are watching how increased prices are changing consumer behavior. To do that, they are turning to data. Business and technology journalist Angus Loten (@angusloten) reports, “Supermarkets … are putting software to work in efforts to lessen the impact of rising prices, with a growing number of stores adopting artificial-intelligence tools designed to manage price increases in a way that won’t chase shoppers away.”[6]

 

Loten notes, “The tools include a range of emerging AI systems trained on large amounts of sales, pricing and customer data, which aim to provide a level of online and in-store intelligence unimaginable a decade ago, retailers, software makers and market analysts say.” Cognitive technology solutions, like the Enterra Global Insights and Decision Superiority System™, are capable of taking into account myriad variables that can influence a company’s bottom line. Loten reports, “What AI brings to the process is speed, along with an ability to improve performance over time as outcomes are rolled back into the system.”

 

According to Ryan, “Staples companies have ways to shield shoppers from the full impact of rising commodity costs, by running their factories more efficiently, for example. Consumers have also accumulated savings during the pandemic so [they] may be willing for now to pay more than they usually would. But bosses at consumer goods manufacturers expect more inflation in their cost base next year. Shoppers’ brand loyalty will be tested.” Some CPG manufacturers are trying to address inflationary pressures by keeping costs stable, but reducing the size of the products they sell. Trust me, consumers will notice.

 

Concluding Thoughts

 

If worries about inflation are not enough to keep grocery executives awake at night, the continuing emergence of coronavirus variants, the impact of climate change on crops, on-going labor shortages, and boorish consumer behavior certainly must be. Journalist Hillary Hoffower (@hillary_tweets) reports, “Of all the goods and services that have experienced inflation this year, people have noticed price hikes for groceries the most. In a recent Bank of America Research note, a team led by Robert F. Ohmes surveyed over 1,000 Americans and found nearly 600 noticed the most dramatic price increases at grocery stores.”[7] If there is any good news on the grocery front, it is that prices for restaurant food is increasing even faster than for store-bought food. That trend might keep consumers cooking at home; nevertheless, consumers will still be looking for the best prices they can find.

 

Back in 2004, food writer Jon Springer (@_JonSpringer) reported, “Supermarkets have traditionally done well during periods of food inflation.”[8] But those could be considered halcyon days. Recently, many grocery workers have been assaulted while doing their jobs. Incivility and boorish behavior are intruding into everyday life — including grocery shopping. Inflation is not going to help improve the behavior of unruly shoppers. Unsnarling the supply chain will help bring inflation under control; however, addressing labor shortages and the impacts of climate change on agriculture are longer-term challenges that still must be addressed.

 

Footnotes
[1] Ben Popken, “Get ready for higher grocery bills for the rest of the year,” NBC News, 13 April 2021.
[2] Staff, “Summary Findings: Food Price Outlook, 2021,” U.S. Department of Agriculture, November 2021.
[3] Nathaniel Meyersohn, “Here’s why groceries keep getting more expensive,” CNN Business, 10 November 2021.
[4] Jaewon Kang, “Supermarkets Are Stockpiling Inventory as Food Costs Rise,” The Wall Street Journal, 6 July 2021.
[5] Carol Ryan, “Inflation Is Approaching a Tipping Point at the Grocery Store,” The Wall Street Journal, 20 October 2021.
[6] Angus Loten, “Retailers Lean on Software to Combat Rising Costs,” The Wall Street Journal, 28 July 2021.
[7] Hillary Hoffower, “Americans are pissed off they’re paying more for groceries these days,” Business Insider, 9 November 2021.
[8] Jon Springer, “Inflation Preparation,” Supermarket News, 17 May 2004.

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