Food Price Inflation Easing More Rapidly Than Sales

Sales gains at the nation's food stores dropped slightly in the first quarter of 2012 from the prior quarter, but food price inflation dropped more, moving food retailers back into positive margin territory according to data from the New Jersey-based Food Institute.

Sales gains at the nation’s food stores dropped slightly in the first quarter of 2012 from the prior quarter, but food price inflation dropped more, moving food retailers back into positive margin territory according to data from the New Jersey-based Food Institute. The 120 basis point difference was the largest since the second quarter of 2011.  And with food price inflation projected to ease even further in coming months, this margin is likely to increase further as retailers have been fairly successful in passing on price increases after hesitating to do during the recession that supposedly ended in late 2010.

The down side for food retailers is that the increases they experienced in their dollar sales earlier as result of sharply higher prices are dwindling. Thus those so-called healthy sales gains in 2011’s second quarter of nearly 7% were largely due to inflation and in the latest quarter just topped just 5%. And with prices trending downward, even that level may be difficult to achieve.

And at the same time, traditional food retailers – independents and chains alike – are facing increased competition from alternative formats like warehouse clubs and mass merchandisers like Target who recently announced they are again increasing their food offerings. Drug stores continue to do the same, and the newest challenge – dollar stores. This retail concept is in a heavy expansion mode, looking to penetrate the western United States as it has the Eastern seaboard…. And at the same time by increasing their offerings of consumables, particularly food – adding more and refrigerated cases and increasing their variety.  Some industry estimates put the number of dollar stores at 33,000 eight years from now. Putting that number in perspective, the Census Bureau counts about 25,000  places in the United States – meaning cities, towns,  villages, etcetera.

And don’t forget to read the Food Institute Report to keep with ongoing developments in our industry.