People are eating at home, now more than ever. According to an IRI survey, 82 percent of all meal occasions were at home as of January 2022, the highest number since February 2021. In fact, food and beverage sales reached $67 billion in January 2022, a 5.8 percent increase compared to January 2021. As a result, grocery stores are seeing elevated spending. However, the combination of 40-year high inflation and the reoccurring waves of COVID-19 cases has influenced shoppers to change what and how they buy. Additionally, retailers are feeling the tensions of inflation, with food pricing skyrocketing in the last year.
Food pricing has seen extreme growth as the food industry undergoes several headwinds. With the extreme weather conditions throughout the United States, farmers find it increasingly challenging to sustain prices. Additionally, the shortage of workers, also seen in the agricultural sector, and the elevated oil prices influencing transportation costs have caused food to become more expensive. According to government statistics, consumer prices soared by 5.4 percent from July 2020 to July 2021. The most common food source, wheat, has surged to the highest price level in eight years due to soaring temperatures and droughts. According to the Food and Agriculture Organization of the United Nations, overall world prices have jumped 31 percent in the last year.
In a recent blog post by Tillamook, the ice cream maker stated that the rising costs for ingredients left it no choice but to reduce their carton size from 56 ounces to 48 ounces. Instead of hiking prices, they opted to reduce the size to avoid shocking shoppers. This phenomenon, where customers pay the same price for less, is known as “shrinkflation.” This tactic has been used for decades during times of rising inflation or economic downturns.
These skyrocketing prices for ingredients have put pressure on food producers and grocery stores alike. According to market research firm 210 Analytics, manufacturers and retailers are left with slim choices – either keep prices the same (which translates to lower margins), run fewer promotions, or keep prices the same but reduce weight or amount. With most consumers shopping based on pricing rather than weight or amount, some opt for the latter.
Grocery stores already have thin margins, about one or two pennies on the dollar. According to Roerink data, average grocery prices rose four percent across various consumer packaged goods from March 2021 to May 2021, compared to the same time a year ago. Grocery wholesaler Costco reported changing its paper towels packaging to have fewer sheets per roll after the product shortage during the pandemic. In turn, the discount chain increased the number of units it sells and kept paper towels in stock. However, Costco kept the price-per-sheet the same, with smaller rolls selling for $14.79 a pack and the bigger rolls selling for $16.99, reflecting an $0.88 cost per 100 sheets. As a result, shoppers get fewer paper towels, but they aren’t paying as much for them.
Rising food prices can influence a shopper’s purchase, and grocers and food producers are left to pivot strategies to retain sales. The good news is with inflation comes inflated real estate value. Owners can capitalize on the growing value of their property, whether through a projection to raise money from equity and debt or refinancing an operating building.
