Food Prices Turning Upward But Still Under 2009 Levels

April 22, 2010

The Food Institute reports on some important economic data that was released from the U.S. government last week regarding supermarket prices and sales.

The Food Institute reports on some important economic data that was released from the U.S. government last week regarding supermarket prices and sales.  The news was extremely good for food retailers, including supermarket operators, but a bit less so for those in the foodservice end of our business.

The deflation in food prices appears to be coming to an end notes the Food Institute, as the Bureau of Labor Statistics food-at-home price index index rose two-tenths of a percent during the month of March, bringing cumulative prices for the first quarter only about 1% under a year ago. That marked the first upward trend in food prices since the third quarter of 2008. This should help lift sales numbers for retailers compared to a year earlier who have faced some significant challenges dealing with deflationary prices since last summer.

Overall, food retailers fared pretty well in the first quarter of 2010 notes the Food Institute which found sales at supermarkets and other food retailing locations were up a significant 3.1%, the best performance since 2008’s third quarter.  And as the graph shows, the first time sales increased for two consecutive quarters since late 2007/early 2008. Efforts by retailers help consumers during the recession appear to have paid off. Their increased focus on providing value via promotions, and private label product offers all contributed to the increase. This has been extremely important to many consumers in this economic downturn, particularly those using food stamps for their purchases. Some supermarket chains have seen the number of customers using food stamps double in the past two years.

Eating and drinking place sales increased as well but not nearly as dramatically as food retailers. The approximately 1% growth in 2010’s first quarter marked  the first upward trend increase since the first quarter of 2007. Consumers are returning more slowly to restaurants despite some reported improvements in the economy but are certainly still watching their budgets carefully. More than likely, an increase in preparing meals at home to save money has paid off for supermarkets to the detriment of foodservice operators. It will be interesting to see how this plays out for the remainder of 2010 however as some restaurant operators reported significant increases in March sales. So look for the battle for that share of stomach between supermarkets and restaurants to intensify this year.

But although supermarket sales are increasing at a more rapid rate than restaurants, both are trending upward notes the Food Institute, which is good news. This marks the first time the trend line for both foodservice and retail sales along with retail food prices have all been moving upward sync since the first quarter of 2008. 

And that earlier downturn was pretty much unprecedented as the Food Institute, which has been tracking economic data for over 80 years could not find a comparable downward trend in similar indexes in its archives but notes that the worst appears to be behind us.

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