FMI: Shoppers ‘not out of the woods yet’ with grocery price inflation

Despite recently relaxed inflation, high food pricing is likely to linger throughout 2023, an expert panel said in an FMI-The Food Industry Association press call.

The food-at-home Consumer Price Index (CPI) rose 0.3% in February, the smallest monthly gain—along with the 0.4% uptick for January—since December 2021 (0.4%), the U.S. Bureau of Labor Statistics reported. Year over year, the food-at-home CPI was up 10.2%, down from 11.3% in January and continuing a steady decline since August.

However, a recent FMI grocery shopper trends poll found that 48% of consumers are extremely concerned about high grocery pricing, up from 40% in October. Likewise, 43% of shoppers said they’re concerned about having enough money to pay for food (versus 35% in October), and 76% are concerned about climbing prices for preferred foods (versus 61% in October). The average weekly grocery shopper spend came in at $151 for February, up from $148 in October.

“The latest CPI data illustrates that inflationary pricing increases are not resetting as quickly or as uniformly as consumers would like after a really tough 2022,” Andy Harig, vice president of tax, trade and sustainability at FMI, said last week in the “Impact of Inflation on Grocery Shopper Buying Habits: Looking Inside Inflation’s Black Box” video call. “We anticipate that there could be further volatility in terms of inflation rising and falling in the coming months, and it’s likely that food prices will remain elevated in the short term.”

Shoppers seem to agree. An FMI survey revealed that consumers perceive grocery price inflation at 23.3% versus an actual level of 12%.  

“There are positive signs in play that make us cautiously optimistic that, hopefully, the worst of food price inflation is behind us,” Harig said. “But it’s clear we aren’t out of the woods yet.”

Source: FMI-The Food Industry Association

Instability in commodity pricing

Price indicators for food commodities are trending positive but remain unstable. In 2023, the ongoing impact of the avian flu stands to keep consumer egg pricing well above normal, at an estimated 37.8% increase versus upticks of 32.2% in 2022 and 4.5% in 2021, according to FMI. Field corn is projected to decline from a commodity price of $6.80 per bushel in 2022-23 to $5.70 in 2023-24 and $4.30 in 2026-27. Also, 2023 consumer pricing is expected to rise just 1.3% for meat (versus 8.2% in 2022 and 7.7% in 2021) and only 2.9% for fruit and vegetables (versus 8.5% in 2022 and 3.2% in 2021).

“As everybody knows, we’re coming out of a period of historical inflation. In 2022, we saw the highest year-over-year food price inflation since the 1970s, and everybody’s waiting for it to come down. It is coming down, but it’s coming down very slowly,” said Dr. Ricky Volpe, professor of agribusiness at California Polytechnic State University. “It's coming down slower than a lot of us thought. As a result, if you look at the USDA food price outlook for the year, they’re still projecting significantly higher food price inflation than average.”

The USDA’s range of grocery inflation forecasts for 2023 has a midpoint of over 8% but goes as low at 5.5%, according to Volpe.

“And I will say that, based on my own current outlook and the trends that I’m watching, I think that’s probably closer to the mark, barring more surprises,” he said. “The reason I’m kind of optimistic for inflation to fall rather than increase as the year goes on is because if you look at most upstream big-picture indicators, we’re looking at relative normalcy.”

Pricing for core commodities like corn, soybeans, rice and barley are largely flat or coming down, Volpe noted. “Commodity-level food price pressure is abetting, but if the pressure valve comes off at the very start of the food supply chain, that really takes time to transmit through the supply chain and onto the retail shelf.”

Uncertainties such as weather, climate change and the war in Ukraine, as well as structural issues in transportation and labor, also are impacting the food supply chain, he added.

“The cost of doing business has gone up, and it’s another reason why inflation and prices aren’t really coming down in a meaningful way,” Volpe said. “So we’re really hoping for some relief in those regards for food companies of all stripes, from producers to manufacturers to retailers.”

Source: FMI-The Food Industry Association

Shoppers adjust to fresh food pricing

The videoconference panel looked at some fresh food categories to illustrate how consumers have responded to elevated pricing. FMI’s research showed that about 25% of shoppers are buying less expensive produce because of inflation. In 2022, produce sales rose 4.8% while unit sales fell 4.2%.

“Customers were cutting back slightly, but the category still remained strong,” said Rick Stein, vice president of fresh foods at FMI. “If we dig a little deeper into the data, we see some diverging trends as far as where consumers spent their money during these tight economic times. One area that took a hit in the last year was organic produce. Several years of aggressive growth and organic volume decreased in 2022, with shoppers turning towards more conventional canned and even frozen fruits and vegetables rather than the more expensive organic varieties. One quarter of the shoppers indicated that they are purchasing cheaper fresh produce in light of inflation, which may pressure organic sales in 2023.”

Inflation had a more pronounced effect on the seafood category. Stein reported that seafood sales decreased 3.8% for 2022, following two years of seafood department sales gains during the pandemic.

“Inflationary cost increases caused shoppers to turn more towards affordable proteins rather than the fresher frozen seafood. However, seafood sales were still higher in 2022 than they were pre-pandemic in 2019, illustrating the customers who experimented with and became more comfortable cooking seafood at home during the pandemic continue to appreciate the health benefits of doing so,” Stein explained. “Given shoppers increasing interest in health and well-being, adding more variety to their diet and eating more sustainable foods in general, we expect the seafood category to rebound once inflationary pressures ease,” he added.

Meat sales climbed 5.7% in 2022, while pounds dipped 2.5%. But FMI’s poll indicated that shoppers adapted to increased prices. For example, 78% adjusted the amount of meat and poultry they bought, 76% changed the type of meat they purchased and 74% chose different cuts of meat. Nine in 10 home-prepared dinners contain a meat or poultry portion and, price being equal 33% of respondents prefer beef versus 32% for chicken and 25% for seafood.

“Retail meat department engagement continues to trend above pre-pandemic levels, resulting in higher units and volume versus 2019, while household penetration averaged over 97%,” according to Stein. “This remains a case even as American shoppers are acutely aware of inflationary price increases throughout the store. Seventy-nine percent of meat eaters perceive that grocery prices are up this year compared to last, while 67% perceive that meat prices are higher. As a result, Americans have adjusted their shopping habits.”

Source: FMI-The Food Industry Association

Private brands win over more consumers

Private-label products, too, have received more attention from customers looking save amid high grocery prices.

“There has been a significant spike in consumer interest in private/store brands as shoppers look for ways to stretch their grocery dollar further,” FMI’s Harig said.

In an FMI survey, 41% of shoppers said they’ve purchased more private brands since 2020, with 30% citing higher grocery prices as the reason for doing so. And while 55% of consumers said they buy store brands because they’re less expensive, 63% reported that these products offer good value.

“This momentum is expected to continue in 2023, as nearly 77% of consumers who are already purchasing private/store brands say that they expect to purchase even more in the future,” Harig said.

Looking ahead, Harig expects current conditions to abate on the food inflation scene yet continue at least in the near term, if not most of the year.

“Even as inflation plateaus, the elevated cost of the black-box inputs that caused food prices to increase in the first place will take time to recalibrate and work their way through the supply chain. So this means that food prices will likely remain higher in the short term,” he said. “We’re still facing headwinds, so we’re not out of the woods completely. And uncertainties will continue to impact food prices most likely throughout a decent chunk of 2023.”