Will American consumers push back against higher grocery prices?

Discussion
Photo: RetailWire
Apr 19, 2021
Matthew Stern

U.S. grocery shoppers are cautiously anticipating a return to normality as the rollout of COVID-19 vaccines continues. Experts say, however, that consumers may have a long wait before seeing an ease in pandemic-era price hikes.

Prices have undergone a 2.6 percent increase in the past year with a 0.6 percent increase in March alone (the largest in a decade), according to Bureau of Labor Statistics findings reported by NBC News. In grocery, fruit and vegetable prices have increased by two percent and the price of meat, poultry, fish and eggs has increased 0.4 percent since February. Economists believe that prices will continue trending upward as the year continues. Some factors suspected to be responsible for the price increases are:

  • Vendors cutting back on promotions and coupons in the wake of last year’s early-pandemic hoarding;
  • Rising gas and commodity prices;
  • Increased imports by China;
  • Crop damage in the Midwest;
  • Supply chain inefficiencies created by the pandemic.

In other recent times of economic upheaval in the U.S., high prices and low wages pushed customers to dollar stores and budget grocers.

The aftermath of the 2008 economic downturn brought the ascendance of the dollar channel, as a broader swath of shoppers across income levels became more budget conscious and began visiting these stores.

By 2017, Business Insider referred to the ongoing growth of the dollar store segment in the U.S. as representing retailers making a bet on the existence of a permanent underclass in the country.

The relative economic stability of the immediate pre-pandemic years led to changes in the dollar store and discount grocery channels. Budget grocer Aldi, for instance, underwent a revamp, upgrading its fresh/organic offerings and in-store shopping experience. Dollar General has launched two high-end store concepts, most recently introducing one called popshelf that caters to more affluent women.

While the current round of price increases may merely inspire more careful budget management techniques in some demographics, there is a concern that these increases could be significant enough to cause dangerous food insecurity for others, according to NBC News. The increases come at a point when more than nine million people are unemployed, compounding the concern.

DISCUSSION QUESTIONS: How should grocers address higher prices with their customers? What will higher prices mean for competition between the various types of retailers that are vying for grocery sales?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"As long as you remain competitive, you shouldn’t have to address price increases at all. But watch out for lower priced channels – don’t get too far ahead."
"No one in grocery retailing is going to want to give up the gains they made in 2020."
"Grocers still trying to eek out a profit on selling merchandise will be left behind and squeezed."

Join the Discussion!

20 Comments on "Will American consumers push back against higher grocery prices?"


Sort by:   newest | oldest | most voted
Rick Watson
BrainTrust

Grocery is a tough business overall. Primarily what will happen is grocers will move towards areas with higher margins — advertising (retail media), financing and credit products, and increased focus on loyalty (to defray customer acquisition). Being the best at all three will mean you have a business model.

Grocers still trying to eek out a profit on selling merchandise will be left behind and squeezed.

It’s hard to believe, but wages are going up also. There is a labor shortage particularly across the U.S. right now — primarily in service roles! So there is more money in the economy to pay for the convenience factor that is currently driving high prices.

Mark Ryski
BrainTrust

Grocers will address this the way they usually do, by raising prices which are then passed along to consumers. As prices go up, other more aggressive players will try to seize market share by maintaining discounts. We’ve seen this story play out countless times before, and so I don’t think the pandemic has created any new dynamic when it comes to dealing with price increases.

Neil Saunders
BrainTrust

Increases in input costs and overheads all suggest that food prices will continue to increase, albeit at a modest pace. However I don’t think inflation will soar. This is mainly because the grocery market is extremely competitive and most retailers are battling for business and market share. On top of this, the expansion of low-price formats such as the dollar stores and deep discounters (Aldi, Lidl) will help keep a lid on price hikes. Of course, mild inflation can be helpful for retailers from a margin perspective if it encourages consumers to switch more to own brand products.

Michael Terpkosh
BrainTrust

Regardless of higher grocery prices, we are headed for a very competition driven remainder of 2021. As we come out of the pandemic, every type of retailer will be aggressively promoting to get consumers back in the stores to spend. Retailers selling groceries will be no different. Look for more competitive ads, promotion programs, and increased ad spending. No one in grocery retailing is going to want to give up the gains they made in 2020.

Gene Detroyer
BrainTrust

Reaction to increased prices has historically been a blip on a continuing trend. The consumer reacts first by pulling back then goes back to their old standbys if the alternatives don’t measure up.

This is an opportunity for the off-price grocers as my colleagues noted. it is also an opportunity for the non-advertised brands. In both cases, the objective should be to give the consumer great product at lower prices.

Scott Norris
Guest

I don’t see the “community resiliency” trends of increased patronage of farmers’ markets and gardening going away, either. Which also addresses the cost, health benefit, food desert, and disease/contamination buttons as well!

Dr. Stephen Needel
BrainTrust

Business as usual – prices are not increasingly radically and as long as you remain competitive, you shouldn’t have to address price increases at all. But watch out for lower priced channels – don’t get too far ahead.

Suresh Chaganti
BrainTrust

I think the concerns around insecurity are a bit overblown. At the height of the pandemic, I saw a lot of local food banks operating, as well as schools delivering lunches. If the shortages come back, I believe there will be enough social pooling of resources in addition to the government support. The enhanced unemployment is now extended until September.

storewanderer
Guest
19 days 10 hours ago
The Food Banks and school lunch programs operated during the pandemic because they had a different supply chain from the normal grocers. Their efforts to develop a supply chain are what enabled them to operate uninterrupted throughout the pandemic. Their hard work toward addressing food insecurity and establishing supply chains combined with various Government programs to fund the operation of said supply chains. Also the past few years due to the tariffs, and the decisions by certain countries to stop buying certain US farm goods as a result of said tariffs, a huge new amount of that food was being pushed into that supply chain that Food Banks and school lunch programs use that was previously being sold to other countries, such as China. Take that as a positive or a negative depending on your opinions, but however you take it, it is what happened. If the Food Banks were still running under the old get people to throw random stuff they bought at the grocery store that they didn’t want food barrel model of… Read more »
Ricardo Belmar
BrainTrust

Based on costs, grocers will adjust prices as needed as they determine what their customers will accept. Some customers will initially deem the increases too much to bear and will use that as justification to try a new grocer. This is just a natural evolution of the market and presents opportunities for discount brands to grow. As grocers like Aldi and Lidl continue to expand there will be a redistribution of customers. We’ll see grocers revamp their loyalty programs as a way to retain customers and a move to promoting more margin-healthy items, like prepared foods that customers not shopping exclusively on price may gravitate to and therefore increase their spend level. That and other services (which would also carry a price tag) will increase stickiness for the brand and help combat churn. And while some customers may leave a brand to try another, some of those will return if they are not satisfied with the quality level and experience they encounter at alternative brands.

Venky Ramesh
BrainTrust

Everytime a Lidl opens in a neighborhood, the local retailers slash their prices as much as 50 percent, as per a survey conducted by UNC. And they are expanding aggressively in the U.S. They are able to achieve lower prices through several human-centric designs, sourcing strategy, and private labels – none of that really impacting quality or service. With dollar stores and Lidl/Aldi kind of competition looming over their heads, retailers will be forced to find ways to lower their costs and absorb the increases or at least keep increases in check.

Steve Montgomery
BrainTrust

Retailers will try follow the traditional game plan of cutting cost where they can, SKU rationalization and trying to avoid raising prices on KVIs. The challenge will be that cost cutting will be hampered by increased wages coupled by changing consumer purchase habits that require additional labor on the part of the retailer. All of this will be taking place in an environment where the economic recovery has bypassed far too many people. I expect it will be a very difficult year.

George Anderson
Staff

Grocers face tough year-over-year comps going up against the stockpiling that took place in 2020. The Census Bureau’s March sales numbers showed that food and beverage store sales were up 0.5 percent over February even as retail, excluding autos and gas, was up 9.4 percent. Grocery on a year-over-year basis was down nearly 14 percent. Everyone already knew that matching 2020’s comps would be difficult, if not impossible, to match. That will likely be further exasperated as consumers feeling more comfortable going out in public return to restaurants and shift purchasing dollars to other non-food categories and retailers, as well. All of this adds up to a smaller market over which grocers, large and small, will compete. That, if history is our guide, means more pronounced price messaging and the margin pressures that go with it.

Jennifer Bartashus
BrainTrust

Price increases can take many forms so, unless inflation becomes too unmanageable, it is doubtful we’ll see consumers push back. For example, consumers rarely notice when pack sizes shrink by a small amount – and if the retail price stays the same, that’s a de facto price increase that still keeps the overall customer spend fairly stable. Retailers will be looking to keep customers gained during COVID-19, so passing through rising costs will likely be extremely strategic in the short term. This may be in the form of changes to promotions – for example BOGO (buy one get one) may turn to buy one get one 50 percent off. The growth in private label also helps offer value for very price-sensitive shoppers. Some inflation is good for everyone, and as long as total basket inflation remains under around 3 percent, consumers have historically absorbed it.

Kai Clarke
BrainTrust

No. When it comes to a rise in prices (not a sustained rise in prices — that is the definition of inflation) consumers may change their behaviors, but very little and only temporarily. Gas is a great example of this purchasing behavior. When gas drops 5 percent, people don’t drive more. The same for when it rises 5 percent. People don’t drive less. Here we are talking about food, which is one of our biggest necessities. No change as prices slowly rise. Employment numbers continue to increase, driving this impact even further down, and away from consumer purchasing behavior.

Matthew Pavich
BrainTrust

Consumers won’t push back if grocers are using the right analytics, best practices and pricing strategies to meet the shifting demand of their consumers while remaining competitive. As somebody who has worked with numerous grocers on developing winning price strategies, I can attest that using consumer data and having the right solutions and practices can be all the difference. The beauty of price optimization is that, when used correctly, it reduces as many prices as it increases — meaning that consumers will get better pricing on key items and grocers will balance that by increasing margins on items that are less likely to drive price perception. It’s a win-win in a tough economy where consumers can benefit from better prices on top items and grocers can leverage advanced capabilities to achieve business objectives.

Craig Sundstrom
Guest

The question seems to be phrased with the expectation that grocers will replicate what we saw last year when many posted explanations, disclaimers and (even) apologies for various shortages; I don’t think we’ll see that, nor is there a need for such: food prices are notoriously volatile and — as many have noted — a 2% rise will be lost in all the noise.

storewanderer
Guest
19 days 10 hours ago
Prices are increasing, package sizes are decreasing on a number of items with big CPGs like Kimberly Clark and Colgate Palmolive implementing price increases and or package size cuts in recent weeks. Every time this happens, the conventional grocers lose a little more share to the discounters. Grocery stores are mostly running seriously negative sales comps compared to last year and are in a major expense cut move. Although last year was unreal for them with the comp increases they had, this year is tough with expense cuts, raises minimal or frozen, bonuses frozen or minimum, etc. Also add to it that labor is tough to hire in many cases at present and when you have Walmart pushing its starting wage to $15 or $16/hr for bakery, deli, produce, meat positions which is above what the major grocers pay in many markets to start (union contract or not), these stores need to make some changes to their model. Add to it the “hazard pay” ordinances targeting specifically grocers in certain cities (not even Target or… Read more »
Shep Hyken
BrainTrust

Who wants to pay more for anything? That said, a price increase is innevetible. If nothing else, it’s inflation that could drive higher prices. Consumers will pay a little more for service and convenience. However, the prices still must remain competitive.

Richard J. George, Ph.D.
BrainTrust

For all the reasons noted in the article, we can expect some level of price increases in the near future. However, keep in mind that many traditional bricks and mortar food retailers have been price and value driven as part of their legacy, to the point of not actively pursuing non-price differentiation. So they will continue to fight the price battle against “like” retailers. In addition, they need to guard against the dollar and other value chains who seek to capture market share. However, despite noted vendor pushback, I see these vendors reentering the promotion space when pandemic bloated sales return to normal.

The challenge will be bringing customers back into stores from their online pandemic journeys. Price will be a factor, but not the only factor that needs to be considered as the stores see more customers.

wpDiscuz
Braintrust
"As long as you remain competitive, you shouldn’t have to address price increases at all. But watch out for lower priced channels – don’t get too far ahead."
"No one in grocery retailing is going to want to give up the gains they made in 2020."
"Grocers still trying to eek out a profit on selling merchandise will be left behind and squeezed."

Take Our Instant Poll

How likely is price to become a more important factor in consumer purchasing decisions over the next year?

View Results

Loading ... Loading ...