Competition & Inflation Will Impact Food Industry Through Next Decade, Says Food Institute

The Department of Agriculture recently released its annual long term projection report, with this latest one looking all way through 2021. The Food Institute notes that USDA sees expenditures for food growing almost 40% between 2012 and 2021 to nearly 1.9 trillion – yes trillion – dollars. At the same time, USDA estimates food prices will climb about 22% – more on that later.

The Department of Agriculture recently released its annual long term projection report, with this latest one looking all way through 2021. The Food Institute notes that USDA sees expenditures for food growing almost 40% between 2012 and 2021 to nearly 1.9 trillion – yes trillion – dollars. At the same time, USDA estimates food prices will climb about 22% – more on that later.

Not only that, they may be dealing with widely fluctuating prices for the food products they sell. The Food Institute did some research on what has actually happened to food-at-home prices in the past nine years compared to what USDA projected and as it notes in its weekly report, “These projections provide a starting point for discussion of alternative outcomes for the sector,” which is exactly what the Food Institute would like to do.

The Food Institute reports that over the past decade actual food price inflation at retail exceeded USDA’s long-term projections by 35%. It should be noted however that actual food inflation during the period was just 2.87% on an annualized basis compared to 2.13% projected by USDA. And as the accompanying graph shows, that actual number includes some pretty significant spikes over the prior years. And for the record, retail food price inflation for the 10 years ended in 2004 averaged about 2.7% each year but ranged only from a low of 1.9% to a high of 3.8%. And while these are only projections and long term ones as that, all this indicates is that food retailers and foodservice operators will be fighting over about $23.9 billion in “real”  or “deflated” sales increases each year through 2012

So looking at these numbers, The Food Institutes projects that “real” or “food price inflation adjusted” growth in food retailing will be about 18% through 2021 or about 2% each year on an annualized basis. Not bad based on current economic conditions but when considering that the U.S. population has been increasing at slightly less than 1% a year, that 2% annual average is far from stellar. And with more and more competition from non-traditional retailers, traditional grocers will likely not have an easy time of it over the next decade holding on to their current positions.

That means the the most successful food retailers will likely be those that are most up to the challenge of reaching new younger consumers, holding onto the baby boomers as they move more and more into senior citizen territory, and be able to compete with increased competition from alternative channels such as drug stores, dollar stores, warehouse clubs, and online retailers.

And one resource to use when looking to track not only the government data regarding prices, sales and inflation but what how food retailers and foodservice operators are constantly evolving is The Food Institute Report and the trade association’s website at www.foodinstitutute.com.