Grocery Market
The grocery industry faced several challenges in 2023, including inflation, supply chain disruptions, and labor shortages. While there have been improvements in 2024, some issues persist. Despite a decrease in inflation, consumers are still spending more on groceries, changing their buying habits. Increased capital expenditures are squeezing profitability, and labor market challenges continue to trouble grocery retailers. Let’s take a closer look at how these factors are impacting the market…
Inflation Status
The Consumer Price Index for All Urban Consumers (CPI-U) dropped by 0.1% in June, following no change in May, according to the U.S. Bureau of Labor Statistics. Over the past year, the overall index went up by 3.0% before seasonal adjustment. Meanwhile, food prices increased by 0.2% in June, with food away from home rising by 0.4% and food at home increasing by 0.1%.
The CPI results indicate that while overall prices have slightly decreased, purchasing power remains challenged due to a 3.0% annual increase. Food prices continue to rise modestly, with food away from home up by 0.4% (+4.1% annual) and food at home by 0.1% (+1.1% annual) in June.1
Statista2
While the recent decrease in overall inflation rates is a positive development, it is important to recognize that the annual increases are still compounding the already elevated rates from the previous year. This continued high level of inflation means that consumers are likely to adjust their spending habits. They may focus more on purchasing essentials such as food, housing, and healthcare, while cutting back on non-essential items like dining out, entertainment, and luxury goods. This shift in consumer behavior can have a significant impact on overall economic activity, potentially slowing down growth in various sectors of the economy.
Compounding Prices
Within Retail, we are seeing price increases soften. Looking at a cross-channel view, Conventional Multi Outlet (MULO), and the Natural Channel, ARPs have settled down to moderate single-digit increases. However, these increases are on top of last years’ strong growths. Comparing this years’ results versus two years ago, prices remain elevated, reducing overall consumer buying power.
Source: SPINSScan Natural Channel (proprietary), Conventional Multi Outlet (powered by Circana), Trended Aggregates weeks ending 06.16.24 / Average Retail Price % chg. vs YAGO & 2YAGO
On a 52-week comparison basis, retail prices in most departments have increased by double digits. Specifically, comparing the most recent week to 2022 prices, body care and grocery items have both seen a 13% increase, while pet products have risen by 12%. In addition to these significant price hikes, other major departments such as frozen and refrigerated foods, which also rank among the largest based on sales volume, have experienced steady price increases compared to prices two years ago.
Leaning in on Private Label
The rising prices of branded goods are pushing more consumers toward private label items, which are usually less costly. This shift is great news for retailers, as it can boost their sales and profit margins on these in-house products. With shoppers looking for more affordable options, private labels continues to gain traction across channels. Within edible departments, for the most recent week, both dollars (+5%) and units (+3%) increased versus the previous year. The same week compared to 2022 volumes; dollars were up double-digits (+10%).
This could indicate consumer sentiment is edging more towards PVL items being perceived as just as good as name brands, leading to long-term customer loyalty. Within the edible departments, PVL items represent nearly ¼ (23%) of total sales. Private labeled items have captured sales share (+1.2%) over the past 2 years, representing over $21B in increased revenue.
This growing trend towards private labels could ramp up competition between retailers and big-name brands. Brands might have to step up their game with better marketing, promotions, or new products to stay relevant. On the flip side, private label items can help consumers manage inflation by offering cheaper alternatives, making it a bit easier on everyone’s wallets. Retailers can use this opportunity to stand out from the competition and build a strong, loyal customer base.
6-to-1 Shopping
Other methods of saving grocery dollars, while not sacrificing quality, include a viral internet method called 6 to 1 shopping. This approach was introduced by Chef Will Coleman, a TikTok creator. The 6-to-1 grocery shopping method simplifies meal planning and encourages healthier eating by limiting processed foods. By sticking to this formula, shoppers can navigate grocery stores more efficiently and avoid overspending. Shoppers purchase six vegetables (e.g., carrots, peppers, onions), five fruits, four proteins (e.g., chicken, tofu, beef, eggs), three starches (e.g., potatoes, rice), two spreads or sauces, and one fun thing for yourself4. Many adopters have reported success with this method, noting that it has made their meal planning easier and their diets healthier. The method is particularly beneficial for those new to grocery shopping who need a structured approach to manage their budgets effectively.
Buyer Baskets
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 $210 U.S. dollars as of January 2024, increasing by nearly +9% from the previous year, and 12% over the past two years. 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
Market Disruption and Implications
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. Due to these disturbances, consumers today are still feeling the impact. So much so, US regulators are urging Congress to investigate grocery profits.
The investigation was initiated by the U.S. Federal Trade Commission (FTC) in 2021 due to concerns about the supply chain crisis during the pandemic, which contributed to significant price increases on household necessities. The FTC ordered major retailers (ex. Walmart, Kroger), as well as grocery wholesalers, to provide detailed information related to these supply chain issues. The pandemic had caused disruptions, leading big-box and chain stores to secure limited resources, thereby disadvantaging smaller independent grocers. This situation raised questions about potential antitrust violations and market dominance, prompting the FTC to further examine the elevated profits and promotional practices of these large grocery operators.5 Regardless of current/future regulatory interventions, in the short-term, some retailer and CPG manufacturers continue to post healthy profit growth, at the expense of their consumer base.
Sources:
https://www.bls.gov/news.release/cpi.nr0.htm 1
https://www.statista.com/statistics/273418/unadjusted-monthly-inflation-rate-in-the-us/ 2
https://finance.yahoo.com/news/frugal-people-love-6-1-150044971.html 4
https://www.reuters.com/markets/us/us-regulators-urge-congress-look-into-grocery-profits-2024-03-21/ 5
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Looking for more information? Please contact the SPINS Account Manager for PRESENCE, Mike Murphy at mmurphy@spins.com.
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