Leading into the summer months of 2022, inflation rates continue to heat up. Rates have surpassed what were noted as 30-year highs at the end of 2021, offering little hope of slowing down. This adds to the rocky economic climate and challenges consumers on many fronts. U.S. Bureau of Labor Statistics reports the consumer price index for All Urban Consumers increased 0.3 percent in April, on a seasonally adjusted basis, after rising 1.2 percent in March1. While April offered some relief, the overall impact was minimal. Over the last 12 months, all items increased 8.3 percent before seasonal adjustment1.
Inflation is noticed by everyone, whether it’s with groceries, gasoline, vehicles, or home utility bills, they feel the pressure. As a result of inflation, consumers begin to prioritize spending when and where they can, but the overall impact of these increases are unavoidable.
The driving cause of rising costs of all consumer goods, across the board, include many factors. Notable increases for gasoline continue into 2022, jumping 44% versus the same time last year1. According to the American Automobile Association, the national average for a gallon of gas hit $4.56 mid-May but varies state to state3. Rising costs of fuel remain steep on the west coast, impacting busy cargo docks that supply the U.S.
In addition to increased fuel costs, major ports in China, U.S. and Europe are facing long delays that are adding pressure to the already threatened supply-chains. As of May, China ports have more than 300 ships awaiting unload, up 34% versus the previous month. Currently, shipping something from China to the United States now takes 74 days longer than it has previously4. Compounding issue further, marine refueling stations have also increase fuel cost, in some cases by 60+% over the past year4. As for the Los Angeles based ports, there is a queue of 19 vessels and port level inefficiencies have seen Time of Turnaround jump to 6.9 days from 5 days a month ago, although it is still down from the peak of 8.7 days during last year’s pre-Christmas rush4.
Cost inflation has also been hitting the packaging sector, due to increases in energy, transportation, and labor costs. U.S. corrugated containerboard has seen five price increases since the start of the pandemic, one price increase less than in the past decade. Over the last two years, there have been once-in-a-lifetime increases in plastic packaging pricing because of weather events, infrastructure breakdown, Covid-19, and labor shortages. Prices of major packaging resins, such as PET, were up 48.6%, in 2021. Aluminum has experienced significant price volatility with a price increase of over 40% in the past two years The glass packaging supply chain is energy-intensive and is expected to be heavily impacted by rising energy costs. As the largest importer of glass bottles, U.S. glass bottle supply is more closely linked to the global market, and the impact of the EU energy crisis may be more pronounced5.
The added fuel cost, delivery delays, wage/material increases, and product shortages impacts the bottom-line for everyone. Brands, distribution facilities and retailers, are all feeling the pain, which ultimately is being passed on in-part to the consumer. Food is no exception. While total 12-month inflation is up 8.3%, food at home inflation hit a staggering 10.3%, while food away from home rests at 7.2%. Since everyone must eat, this is an area where everyone notices their higher total at checkout.
Grocery Channel Disruption
While the rising costs impact everyone, not all increases are created equal. Some retail channels, departments, categories, etc. have felt the impact to various degrees. At the channel-level Conventional (MULO) saw total store average retail price (ARP) increases of 10.3% for the most recent 4 weeks. The Natural Channel, on the other hand, saw around a 6% increase for the same timeframe. Looking at a cross-channel view of Conventional Multioutlet (MULO), and the Natural Channel, most edible department ARPs are up double-digits versus the same time last year.
Grocery, Frozen and Refrigerated represent the three largest departments, based on sales volume, and are the driving forces behind total channel ARP increases. As increases become more prevalent across the store, consumers begin to heavily prioritize their spend. Seeking out available promotions, targeting lower priced products, all while trying not to compromise overall quality of the foods.
Private Label Engagement
Noted in the above table, ARP price increases have ramped up in more recent time periods, reducing buying power even less. With these increases, we have seen strong growth across Private Labeled (PL) items. In fact, as the price increases across the store, the growth of PL products also increases.
Over the past 52 weeks, PL sales growth posted a modest 3.8% versus the previous year. However, in more recent timeframes, growth has increased drastically, hitting double-digits for the most recent 4 and 1 weeks ending 4.17.2022. While not all buyers are shifting dollars to PL branded items, there seems to be interested among part of the consumer base in pivoting to PL to stretch money further.
Categories Performance (High ARP) vs Private Label
Looking across a complete list of categories that were exposed to the highest ARP increases, of the top 10, 8 of those categories were outperformed by their Private Label product counterparts. Strong performance was seen across Private Label for SS Functional Beverages (+51%), RF Eggs (+34%) and FZ Appetizers & Snacks (+28%). This speaks to how consumers are going to remain cognizant of these price increases and pivot where it makes sense. Private label may offer a short-term solution, depending on the product. That said, as branded product prices continue to rise, PL pricing will likely increase at potentially similar rate, while keeping space between price points.
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