Grocers Absorb Price Hikes

Consumers aren’t feeling the rising price of food—yet.

December 19, 2017

NEW YORK – The Wall Street Journal reports that grocery retailers are holding the line on prices out of fear they could lose business “to discounters and new rivals online” such as Aldi, Lidl and Amazon.

The news source says that higher prices for vegetables, beef and eggs “helped push the food portion of the producer-price index up 3.5% annually in November,” per U.S. Labor Department data, while consumers “paid just 0.6% more for groceries that month than a year earlier.”

Meanwhile, according to Barclays, the spread between producer and retail prices is the widest in more than three years. “That gap is putting grocers under increasing pressure as they try to manage shrinking margins without losing customers,” the Journal writes, adding that many grocers are investing in e-commerce to keep pace with Amazon, which has “slashed prices on products including avocados, organic milk and chicken” since the Whole Foods acquisition.

Earlier this year inflation rose on meat, pork, eggs and other farm prices “as demand started to catch up with production in some commodities and oil prices increased,” writes the Journal, adding that volatile weather in California, Mexico and Florida contributed to rising prices of produce.

Grocers say they are focused on holding down the price of staples like milk, eggs and meat that shoppers watch closely. The Journal notes that Kroger Co. told investors in November that it was “aggressively managing” operating expenses to hold down prices. “Our inflation at cost is still above our inflation at retail,” said Mike Schlotman, CFO of Kroger. “We didn’t pass all of it on.”

Some grocery executives told the Journal that they expect to eventually pass along rising prices to customers, if they haven’t slowly begun to do so. Restaurants are also being affected by rising food prices, which have been increasing at a faster pace than the grocery industry since 2015, writes the Journal.

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