Higher Food Prices Lift Food Store Sales

Articles
October 21, 2010

Higher Food Prices Lift Food Store Sales

A bevy of economic data was released by the U.S. government last week that portrays some ongoing trends in the food industry but also indicates that changes are on the horizon, notes The Food Institute this week.

A bevy of economic data was released by the U.S. government last week that portrays some ongoing trends in the food industry but also indicates that changes are on the horizon, notes The Food Institute this week.

It has been a bumpy ride for the food industry during the past year as wholesale increases cut into retailer margins as supermarket operators and even restaurants were hesitant to pass along those increases.

Indeed, with two major indices from the government released week, The Food Institute found that wholesale price advances were now outpacing retail price advances for an entire year as of Oct. 1. And even though the Consumer Price Index for food-at-home showed the largest monthly spike in retail food prices since January  -- four tenths of a percent --, it was still outpaced by a larger 1.3% increase in the Producer Price Index for finished consumer foods. This meant that while wholesale food prices during September were up 5.1% from a year earlier, retail food prices advanced just 1.4%.

Recent increases in corn and soybean prices due to lower than expected crop estimates this month seem to indicate things may change down the road however. Indeed, ConAgra Foods Inc.’s chief executive Gary Rodkin said that rising grain prices were putting pressure on food prices predicting food prices would be heading upward. Perhaps the September increase will mark a turnaround in retail food prices which have been flat to lower than prior year levels since 2009.

Mr. Rodkin expects that food companies would "bump along for a while" adding that the business would "probably be a bit more of a share game" for the time being as retailers remain hesitant to pass along price increases but having little choice on the wake of rising costs.

As for retailers, food store sales during September posted their largest increase over year earlier levels since March according to another government report analyzed by The Food Institute. And the government also sharply revised its August number, by some $385 million, meaning that food store sales during that month increased not by the 0.8% originally estimated, but double that – by 1.6%. At least a portion of the September advance was due to higher food prices, but hopefully business is starting to improve sales wise.