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From the bakery aisle to the dairy case, and the meat counter to the ice cream freezer, surging inflation for groceries has brought about an unexpected reality: Americans are buying less food at the store.
Shoppers have put billions fewer items in their grocery carts in the past few years compared with pre-pandemic levels, resorting instead to a combination of online purchases, bulk buying — and simply consuming less, especially in lower-income households. They are doing so in response to prices that have jumped for food, but also other essentials such as housing and insurance that have taken a bite out of their wallets.
Producers of consumer packaged goods were able to boost revenue by raising prices during the run of high inflation in recent years. But now, even as prices have moderated, retailers and producers are rushing to reinvigorate sales volumes with markdowns and promotions.
“Increased prices mean smaller basket sizes, and more consumers seeking to eliminate products they deem non-essential,” research firm NielsenIQ said in a recent analysis of sales of perishable goods.
Customers were well aware of food inflation at a Key Foods grocery in Brooklyn, New York, visited by the Financial Times this week. Shelves of products, including tomato sauce, pasta and frozen shrimp, bore labels advertising price deals.
“It’s more expensive than it used to be,” said Mezjine Dorvil, a shopper at the store.
The US discards as much as 40 per cent of its food supply each year, more than any other country, according to Feeding America, a nationwide food bank network. The purchase of fewer items — two bags of tortilla chips instead of three, one pint of ice cream instead of two — could modestly reduce that waste.
Adjusted for inflation, Americans on average spent 3.1 per cent less on food at home in 2023 than in 2022, according to Wilson Sinclair, an economist at the US Department of Agriculture. Checkout terminals at US stores scanned 248bn items in the past 12 months, down 3bn from the prior year and 20bn fewer than the year leading up to June 2020, according to NielsenIQ data.
The declines have put pressure on retailers and their vendors to offer discounts. While customers are visiting stores more often, they are purchasing fewer items per trip, analysts say.
Target, with nearly 2,000 US stores, announced price cuts on 5,000 items in June, including groceries such as milk, meat, bread, coffee and fruits and vegetables. Christina Hennington, Target’s chief growth officer, told analysts on an earnings call last month that the company was cutting prices to get shoppers back in the stores and drive sales volumes back up.
Kroger, the largest US supermarket operator by revenue, this week said its staff aimed to return to unit volume sales growth. Suppliers were offering more money for in-store promotions and discounts than in the past, chief executive Rodney McMullen told analysts after the company reported weak same-store sales growth of 0.5 per cent.
Walmart has said it is offering so-called rollbacks on prices for about 7,000 products, 50 per cent more than a year ago in the grocery category. “We think that we’re appropriately investing in this area of our business to help drive unit volume,” John Rainey, chief financial officer, said at an industry conference this month.
A government price index for food eaten at home was 1 per cent higher in May from a year before, less than a third of the headline inflation rate of 3.3 per cent. But in 2022, food prices were galloping ahead at an average annual rate of more than 10 per cent, while the news was full of stories of “shrinkflation”: smaller packages sold at the same or higher prices.
The surge in food inflation early in President Joe Biden’s term has been attacked by Donald Trump in this year’s election campaign. This week, Biden’s Council of Economic Advisers published a blog post saying that while prices are higher, consumer purchasing power has also increased.
“Because wage growth has outpaced grocery price growth, it takes slightly less work to purchase a bag of groceries relative to a year ago,” the council said.
Though some food purchases have shifted to other venues, they do not fully account for the decline in food sales at stores.
Spending at restaurants is at the lowest level in seven months, and customer visits have been declining for 13 consecutive months, according to the National Restaurant Association. Though online grocers and discount stores have made gains, they were outweighed by the volume declines at traditional food stores, McKinsey found. The consultancy also concluded the boom in weight-loss pharmaceuticals has had limited impact on food retailers.
More than three-quarters of consumers cited prices as the top reason they are purchasing fewer grocery items, according to a McKinsey survey published earlier this year.
“You can’t keep raising prices . . . and not expect an impact,” said Nick Fereday, a food analyst at Rabobank.
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