Retailer Food Costs Keeping Pace With Wholesale

Articles
February 27, 2012

Retailer Food Costs Keeping Pace With Wholesale

After seven months of wholesale food price advances outpacing those at retail, for the past two months (December and January) it is difficult to tell which is which, according to The Food Institute. The underlying data from the trade organization’s analysis of Bureau of Labor Statistics data puts retail prices (also known as food-at-home prices in the Consumer Price Index) 5.3% above a year earlier during February, while wholesale food prices reflected by the Producer Price Index for finished consumer foods was up 5.1%.

After seven months of wholesale food price advances outpacing those at retail, for the past two months (December and January) it is difficult to tell which is which, according to The Food Institute. The underlying data from the trade organization’s analysis of Bureau of Labor Statistics data puts retail prices (also known as  food-at-home prices in the Consumer Price Index) 5.3% above a year earlier during February, while wholesale food prices reflected by the Producer Price Index for finished consumer foods was up 5.1%. Thus January marked the first time in seven months the increase for food at retail exceeded the wholesale index, albeit only a very slight advantage. And the past two month period marks the closest both indices have been aligned during any two-month period since the beginning of 2004.

Apparently, food retailers have been mostly successful in passing along higher costs they have been burdened with since late 2009. Retailers have made it know that they have been hesitant to pass along increases they were incurring to budget-conscious consumers who have learned to shop a variety of formats to find lower prices, well beyond traditional supermarkets and warehouse clubs, to drug stores and dollar stores. And while dollar stores still take only a relatively small price of the retail food business, they are clearly seeking to expand further in the supemarket’s territory. Just last week, for example, the 4,000 plus unit Dollar Tree chain announced it will install freezers and coolers at 325 more stores this year. The dollar chain currently offers perishables and frozen foods at 2,220 stores, about half of its total and in a call to equity analysts stated that food, snacks and beverages were among the company's top performing segments in its fourth quarter.

And while food prices in January were up 5.3% at retail, gasoline prices were up 9.7%, eating into consumers’ buying power. It should also be noted that retail and wholesale prices for center-of-the-plate beef & veal was running well above that 5% level. Indeed, retail beef prices during January were up 10.2% from a year ago. Pork and poultry prices are not seen rising nearly that much and this could mean consumers will switch to the lower priced proteins when seeking to put more products in their shopping carts.

The Department of Agriculture is projecting retail food prices overall in 2012 will increase as much as 3.5% this year based on current conditions and that consumers will spend a total of $1.36 trillion on food eaten at home and away from home. But the latter, food-at-home, will continue to be where consumers spend the most – estimated at just under $712 billion this year compared to $648 billion away from home. Not long ago those numbers looked like they were going to be about evenly split but currently USDA does not project away from home spending to exceed at hom, spending for at least another decade, reports The Food Institute.

For more on the food price outlook go to http://www.foodinstitute.com/outlook.cfm