Wholesale food prices are soaring and consumers are still struggling in a challenging economy. That puts grocery stores in rather nasty bind.
“Retailers face that challenge as to whether to pass it on to consumers or suck it up and take lower margins,” says Timothy Richards, professor at Arizona State University’s Carey School of Business.
Profit margins in the grocery business aren’t that high in the first place. They’re generally around 1-2 percent. Even with these razor thin margins, grocers work hard to keep prices consumers pay low. With so many Americans unemployed or underemployed, stores that raise prices risk losing shoppers.
“We’re seeing consumers at an all-time high in thriftiness,” says Rich Nanda, principal at Deloitte Consulting. “They’re really trying to stretch every penny.”
Retailers worry that this may be a permanent shift. In Deloitte’s recent survey of food shoppers, 94 percent agreed with the statement “even if the economy improves, I will remain cautious and keep my spending at its current level.”