As we enter 2025, food inflation continues to reshape consumer behavior and industry dynamics. Although the U.S. annual inflation rate eased to 2.9% in December 20241, food prices remain a critical concern. Categories such as eggs and breakfast staples (ex. cereals and bakery products) have seen sharp price increases, exacerbating pressures on household budgets. While overall inflation trends are softening, many retailers have yet to adjust prices to reflect this decline. This disparity underscores the persistent financial strain on consumers and the evolving strategies of manufacturers and retailers. Let’s delve into how these economic shifts are influencing budgets, reshaping consumer preferences, and driving changes across the food industry.
Monthly 12-month inflation rate in the United States from November 2020 to November 2024
Food Inflation at a Glance:
In December 2024, food prices rose by 0.3%1, continuing a challenging trend for households. Key categories impacted include:
Eggs: In the most recent four weeks, across SPINS channels, the average retail price (ARP) for regular fresh (RF) eggs reached $5.96, reflecting a 57% increase compared to the previous year. This increase is partly due to the recent outbreak of avian flu, impacting production. Price trends varied by egg type, with premium options experiencing smaller increases. For instance, labeled pasture-raised eggs had an ARP of $8.50, up 8% year-over-year, while labeled cage-free eggs, priced more modestly at $5.70, saw a steeper 16% increase.
Breakfast Staples: Prices for frozen breakfast items have risen in the past four weeks, with frozen pancakes up 9%, frozen French toast, crepes, and blintzes up 5%, and frozen waffles up 3%. Refrigerated breakfast options also saw increases, including breakfast sausage and meats up 5% and bacon up 3%.
Across all edible departments, certain average retail price (ARP) increases stood out. In the grocery category, baking and cooking-related segments saw the steepest hikes, with Shelf-stable (SS) Baking Chips & Cacao products rising 25% and SS Olive Oil up 21% in the past four weeks. In the refrigerated and frozen department, meat and meat alternatives ranked among the top subcategories for price increases.
Source: SPINS Natural Channel, SPINS Conventional Channel (powered by Circana) data 4 Weeks Ending 12.29.24
Optimism Rebounds, but Spending Caution Remains
Consumer optimism in the U.S. surged six percentage points in Q4, reaching 47%. Positive economic data and a stock market rally post-election likely fueled this sentiment. However, intent to spend remained flat or declined across most categories. The overall trend shows a cautious approach to discretionary spending.
Perspective varies by generation and gender:
Despite increased optimism, 74% of U.S. consumers continued trading down—choosing lower-priced goods or delaying purchases. This behavior was consistent across income groups, with private-label products gaining popularity for their perceived value. Interestingly, even higher-income groups are embracing these habits, balancing optimism with practicality.
The Rise of Private Label Products:
Private Label (PVL) products continue to gain traction across all income levels, driving additional momentum in the market. The private label cross-channel market now exceeds $200 billion in annual sales, up 11% compared to two years ago. While growth has slowed over the past year, PL items have maintained their upward trajectory, capturing an additional 1% market share from branded competitors compared to 2022.
Private label products, known for their comparable quality at lower prices, have become a top choice for budget-conscious shoppers. This shift is evident in the department sales growth of private label items, which are outperforming branded products in many categories. Notable gains include alcohol (+13%), refrigerated (+8%), grocery (+5%), and vitamins and supplements (+4%).
Source: SPINS Natural Channel, SPINS Conventional Channel (powered by Circana) data 52 Weeks Ending 12.29.24 : PVL = Private Label + Private Label Organic
Retailers who are expanding their private label offerings, focusing on quality and value to meet the needs of increasingly budget-conscious consumers are finding success. While this may be a winning strategy for most/all retailers, recent foot traffic reports (via Placer.ai) highlight one retailer in particular that is gaining visits at a strong rate. Aldi, known low prices and high quality, with 90%3 of their products being private label, have increased their average foot traffic by 17% in the past year. Retailers that expand their private label offerings with a focus on quality and value are finding success in meeting the needs of budget-conscious consumers. This strategy has proven effective across the board, but one standout is Aldi. Known for its combination of low prices and high-quality products (90% of which are private labels), Aldi has seen a 17% increase in average foot traffic over the past year, according to recent reports from Placer.ai.
Manufacturers’ Response: Shrinkflation Takes Center Stage
In addition to price increases and searching for comparable private label offerings, Americans are facing a hidden challenge to their finances: shrinkflation. This subtle trend involves reducing product sizes while maintaining prices— to manage rising production costs without overtly increasing retail prices leaving consumers paying same, or more, for less. Although shrinkflation isn’t new — it gained prominence after the pandemic as companies dealt with rising manufacturing costs — it has intensified in recent years. According to a study, roughly one-third of 100 common consumer products have downsized since the pandemic, with household paper products like toilet paper and paper towels being the most affected4.
Shrinkflation’s reach goes beyond paper goods. Breakfast foods, snacks, and candy are also affected, with items like family-sized cereal boxes and party-size snack bags now offering fewer ounces. The per-unit cost of these products has increased, straining household budgets further. While some consumers notice these changes, shrinkflation can be hard to spot without older product packaging for comparison. Compounding the issue, a related trend called “skimpflation” sees the quality of products or services decline, such as switching to cheaper ingredients, creating additional challenges for consumers trying to manage their expenses.
Budgeting becomes even more complicated when these subtle price hikes are not immediately apparent. To navigate this landscape, consumers are encouraged to pay close attention to package sizes and unit pricing to ensure they get the best value for their money.
Looking Ahead
Both consumers and manufacturers are navigating these changes with adaptability. Shoppers are increasingly budget-savvy, turning to promotions, coupons, and private labels, while producers balance cost pressures with innovative strategies. Legislative efforts like the Shrinkflation Prevention Act of 2024 5 are also gaining traction, aiming to increase transparency and protect consumers. As we monitor these evolving trends, one thing remains clear: flexibility and value will continue to drive decision-making on both sides of the checkout counter.
Sources:
https://www.bls.gov/news.release/cpi.nr0.htm 1
https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/the-state-of-the-us-consumer 2
https://www.aldi.us/about-us/faqs/about-aldi/#:~:text=What%20does%20ALDI%20sell%3F,increase%20in%20fresh%20food%20offerings. 3
https://www.cbsnews.com/news/inflation-shrinkflation-skimpflation-toilet-paper-candy-cereal-lendingtree/ 4
https://www.congress.gov/bill/118th-congress/senate-bill/3819/text 5
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