With U.S. consumers experiencing food price hikes nationwide, FMI-The Food Industry Association has launched online resources to explain how the coronavirus crisis has hoisted grocery pricing.
The website, FMI.org/FoodPrices, outlines four COVID-19-driven changes that impacted food prices in a short time period: a rapid shift to eating at home, the loss of foodservice demand, increased production and processing costs, and higher operating costs for grocery stores. FMI said the insights are based on the study, “The Fundamentals of Food Prices: Costs, Consumer Demand and COVID-19,” prepared for the association by Ricky Volpe, Ph.D., associate professor for Cal Poly in San Luis Obispo, Calif.
In April, the Consumer Price Index (CPI) for food at home saw its largest month-to-month increase since February 1974, rising 2.7% versus a 0.5% uptick in March. Grocery prices are up 5.6% for the period from June 2019 to June 2020, FMI noted.
The latest CPI figures from the U.S. Bureau of Labor Statistics (BLS), released this week, show no month-to-month change in the overall food index for September but a decrease of 0.4% for food at home and an increase of 0.6% for food away from home. Still, the overall food CPI was up 3.9% year over year through September, reflecting increases of 4.1% for food at home and 3.8% for food away from home.
“The food industry is sensitive to the fact that American consumers remain highly concerned about COVID-19 and food sourcing, but appear to be acquiring more confidence,” Leslie Sarasin, president and CEO of FMI, said in a statement. “This web experience is designed to educate the public, so grocery shoppers better understand how food prices are determined and how the COVID-19 shock to the supply chain affected food prices.”
FMI’s food prices website highlights a dramatic shift in food spending away from home to at home. In February, 52% of all household food spending was away from grocery stores, but that percentage dropped to 34% in April, with about $23 billion in away-from-home food expenditures being redirected to the grocery sector. That shift gutted demand in the foodservice arena, depriving growers, ranchers and other food producers a core revenue stream and making it too costly or impractical for them to produce and store food.
Meanwhile, manufacturers saw production and processing costs jump as they needed to invest in COVID-19 protections for their workforce, facilities and products. Grocery retailers have experienced similar cost hikes as they instituted coronavirus safety measures in stores, hired more workers to help sanitize stores and keep shelves stocked, and implemented bonus pay and added health care and leave benefits. Supermarkets and other retailers, too, have grappled with higher product acquisition, transportation and logistics costs.
FMI noted that the grocery stores PPI (Producer Price Index), which provides a gauge of supermarket operating costs, climbed 7.9% year over year in April and 6.7% in May, reflecting the significant expenses for COVID-19 operational adjustments.
“Our research indicates there will continue to be a higher level of retail-sector food spending for the foreseeable future, as home cooking displaces spending on foodservice,” according to Sarasin. “However, grocery shoppers can rest assured that cost increases are not related to increased profits and instead result from a spike in expenses due to labor, lower-capacity production, cleaning and sanitation protocols, and even transportation demands.”
FMI’s food pricing website also outlines the workings of the food supply chain — production, processing and retail — and shows the contribution of each part of the chain to the food dollar. Based on 2018 from the U.S. Department of Agriculture, food processing (25.1 cents) accounts for the largest portion of the food dollar, followed by retail (23.6 cents), wholesale (14.1 cents), farm production (13.2 cents), transportation (5.3 cents), energy (5 cents), other (3.9 cents), agribusiness (3.4 cents), finance and insurance (3.4 cents) and packaging (3 cents).
Higher Food Prices Factor Into Rising Grocery Sales
Food price increases, in part, reflect higher U.S. retail grocery sales fueled by COVID-driven demand.
For the year through September, grocery store sales (unadjusted) are up 11.9% versus the prior-year period, the U.S. Census Bureau reported Friday. Overall sales for food and beverage stores climbed 12.1% over the first nine months of 2020. Month-to-month, September grocery store sales inched up 0.1%, with no change for food and beverage stores.
And while U.S. consumers have been buying more when food shopping, due to concerns over the pandemic, higher grocery prices have contributed to their weekly expenditures.
In a study released earlier this week, online financial service marketplace LendingTree reported that Americans’ average weekly grocery spending has risen from $163 pre-pandemic to $190 now, an increase of 17%. Thirty-one percent of the 1,052 consumers polled said they “almost always” overspend at the grocery store. Roughly 40% of respondents reported visiting grocery store less often than before the pandemic, yet 53% said they go to multiple stores per shopping trip.