What A Difference a Year Makes In Retail Margins

Articles
March 25, 2010

What A Difference a Year Makes In Retail Margins

Food prices have been a dramatic roller coaster ride since mid-2008, notes The Food Institute in its latest report on wholesale and retail food prices based on two government reports released last week.

Food prices have been a dramatic roller coaster ride since mid-2008, notes The Food Institute in its latest report on wholesale and retail food prices based on two government reports released last week.

Back in February of 2009 as wholesale food prices were headed into deflationary territory, retail prices were still well above prior year levels, giving the latter a positive margin of about 4%, the largest the retail sector had experienced since March of 2007. Margins for retailers remained positive through September of last year, peaking in March of 2009 at 5.6%. Margins of course represent the difference between wholesale prices as represented by the Producer Price Index for finished consumer foods, and Consumer Price Index for food-at-home for retail prices.

Since last fall however, that positive margin has turned negative and for February reached a negative 4.9%, the largest negative margin in at least the six years the Food Institute has been tracking this data as the accompanying graph clearly portrays.

As a result, it is extremely likely that retail prices in future months will likely head higher in an effort to reduce the negative margin based on past experience. And indeed the U.S. government is projecting food-at-home prices will rise as much as 3.5% while some industry sources are looking for price hikes of as much as 5%.

Meanwhile, grocery stores appear to be rebounding, according to the Food Institute, as checkouts at the nation’s grocery stores tallied $41.5 billion in sales during February, 4.2% more than the same month last year and the largest year over year increase posted since January of 2009. This was the second consecutive increase over prior year levels and brought sales for the first two months of 2009 to a cumulative $85.9 billion as reported by the U.S. Census Bureau.

That growth seems to be coming from continued declines in eating and drinking place sales. For the second straight month, sales at foodservice operations in the U.S. posted a decline from 2009 levels. These venues posted sales of just under $35 billion last month – off 0.3% from the same month last year. Tied with a 1% decline in January, sales for the first two months combined were down 0.6%.
Based on Food Institute estimates, a small rise in limited or fast-food restaurant sales was not enough to offset declines in full service and drinking place sales for the Jan. 1-Mar. 1 period.

Another bright spot however has been warehouse club and supercenter operator sale. Sales at these outlets in January (the most recent month Census reported on)  were more than 3% higher than a year earlier and marked the fourth consecutive increase of 3% or higher versus the prior year.  During January these stores recorded sales of $28.7 billion – 3.6% more than last year.

Supermarket and restaurant operators may want to see how their own sales stack up compared to this data, which is reported monthly in The Food Institute Report. And suppliers to those outlets may want to see if their sales to those outlets is following the same train, or hopefully doing better than that. And be sure to find out about the Food Institute at www.foodinstitute.com.