Several challenges faced the grocery industry in 2023, including inflation, supply-chain disruptions, and labor shortages. Despite a decrease in inflation, consumers are still spending significantly more on groceries, leading to a shift in buyer approach. Rising capital expenditures have put pressure on profitability, and the labor market continues to be a challenge for grocery retailers. Let’s assess the impact to the market…
Leading into the Fall of 2023, inflation rates continue to soften. Rates have been on a steady decline since 40-year highs seen mid-year 2022. U.S. Bureau of Labor Statistics reports the consumer price index for All Urban Consumers increased 0.4% in September, on a seasonally adjusted basis, after rising 0.6% in August. Over the last 12 months, all items increased 3.7% before seasonal adjustment1. Rate increases resemble what was seen back in April 2021.
Inflation is noticed by everyone, whether it’s with groceries, gasoline, vehicles, or home utility bills, they feel the pressure. While the softening in total inflation provides some relief, prices overall are still elevated. As a result, consumers continue to prioritize spending when and where they can.
Grocery and Channel Impact
We are also seeing retail price increases soften from annual highs, across all departments. Looking at a cross-channel view of Conventional Multi Outlet (MULO), and the Natural Channel, ARPs increases have reduced from 52-week highs, settling down to single-digit increases in the most recent week.
Source: SPINSScan Natural Channel (proprietary), Conventional Multi Outlet (powered by Circana), Trended Aggregates weeks ending 09.10.23 / Average Retail Price % chg. vs YAGO
Grocery, frozen and refrigerated represent the three largest departments, based on sales volume, were the driving forces behind changes in total channel ARP. Double-digit 52 weeks ARP increases seen within frozen and grocery reduced by approximately 50% for the most recent week ending 9.10.23. The refrigerated department, which saw +10% 52-week ARP increase, returned to year ago prices for the most recent week.
Comparing channel-level results, Conventional (MULO) saw total store average retail price (ARP) increases of +10.7% for the most recent 52 weeks but fell by half (+4.8%) for the most recent 4 weeks. In the natural channel, we saw a similar trend, reducing ARP increases of +7.6% (52 weeks) to +3.7% (4 weeks).
Changing Private Label Engagement
The drop in ARPs is changing PVL engagement. During times (6/22-3/23) of steep ARP increases, we saw a shift to PVL items to stretch consumer dollars further across the store. While retail price increases have slowed in more recent time periods, increasing buying power in some cases, we now see a shift back to premium and branded items. This shift occurred during the summer, when NPI-TPL item growth outpaced PVL dollar performance.
Source: SPINSScan Natural Channel (proprietary), Conventional Multi Outlet (powered by Circana), Trended Quads 4wk ending 08.13.23 / % chg. vs YAGO; Private Label vs NPI – Natural Product Industry
Over the past 52 weeks, PVL sales growth posted double-digit increases of +10.3% versus the previous year. However, in more recent timeframes, growth has slowed drastically, hitting a modest 2.0% increase for the most recent 4 weeks ending 9.10.2023. While not all buyers are shifting dollars away from PVL branded items, there seems to be interest among part of the consumer base in pivoting from PVL and reverting to buying branded items purchased in the past.
This change in approach could be influenced, in part, by the increase in promotional activity across items. Within edible departments, we see a recent uptick in dollars captured by promotions. While this is positive, the change versus the prior year is more telling when it comes to in-store spending. We see a 4-point share shift in promotional dollars for the most recent 4 weeks, compared to last year, signaling a bit more buying power than what was previously seen in 2022.
While buyers continue to seek promotions, target lower-priced products, all while trying not to compromise the overall quality of the foods, their cart totals remain elevated. The average price of a basic food basket in the United States amounted to just over $193 U.S. dollars as of January 2023, increasing by nearly +15% from the previous year. Back in 2019, the average value of a food basket was around $156.5 U.S. dollars.3
The basket consists of 8 groups of products: bread, milk, eggs, rice, cheese, meat, fruits, and vegetables. A limited list consisting of products, which, in the given amounts, are enough to meet the minimum nutrient requirement for an average adult. Statista3
Cost Implications & Timing
The pricing/basket totals in grocery stores are influenced by a variety of factors, and both retailers and manufacturers play significant roles in determining these prices. Many of those factors (production costs, operating costs, competition, profit margins, etc.), all experienced disruption during and after COVID. Based on those interruptions, manufacturers and retailers pivoted and invested to create efficiencies, while positioning themselves for future success. For instance, to cope with the pandemic’s upheaval, grocers dramatically increased their capital expenditures: from 2020 to 20224. Expenses included exploring areas to meet the needs of their consumers and address trends that are shaping the grocery landscape, which include…
Unfortunately, based on increased costs for brands and grocers alike, this may be the ‘new norm’, or take a while to return to levels we’ve seen in previous years.
Looking for more information?
Please contact the SPINS Account Manager for PRESENCE, Mike Murphy firstname.lastname@example.org