Food Stores Make Gains Despite Deflation In Food Prices

Articles
January 28, 2010

If 2009 was a roller coaster ride for the economy, it was a steep decline as far as food prices were concerned according to The Food Institute.

If 2009 was a roller coaster ride for the economy, it was a steep decline as far as food prices were concerned according to The Food Institute. Prices for food-at-home as reflected here definitely nose dived last year and moved in deflationary territory for the first time in decades. Of course the fact that prices for grocery products as reflected in the Consumer price Index for food-at-home  in mid-2008 had been running 7% higher than a year earlier back in 2008, made it highly plausible to think that prices had no place else to go but down, barring some natural or man-made disaster. In prior years, food prices had advanced only 2% to 3% annually.

But despite the lower prices, which means more physical product has to be sold to counter that decline, sales at the nation’s food stores, mainly supermarkets, performed pretty well in 2009 and even rebounded  at the end of the year as we noted last week. And when looking at sales on a quarterly basis, the sales growth has been pretty impressive although not stellar by any means.  All this indicates that supermarket operators in particular managed to be pretty profitable last year and managed to stay in positive territory most of time, although sales did dip under prior year levels during the first quarter of the year. Many supermarket chains responded quickly to the downturn in the economy and the surge in food prices in 2008 and the attention they focused on their private label lines and budget conscious consumers apparently paid off.  In addition, they have become somewhat safe havens for consumers who shifted a good portion of their food spending back to supermarkets from eating away from home.

Even foodservice operators however managed to keep their overall sales above year earlier levels on a quarterly basis during the year. Although one quarter does not make a trend, it appears that foodservice sales as represented by the lighter line here may have bottomed in 2009s third quarter and managed to eke a little higher in the fourth quarter.  And while that shift down in food prices also helped foodservice operators to some extent but likely had a less positive impact due to the various other costs these operations incur, such as labor.

The Food Institute will be following food sales, and food prices, again in 2010 to see how both retailers and foodservice operators fare, so stay tuned here and via The Food Institute report.