Food prices rise but shoppers won't pay more
The label from a package of Foster Farms chicken is displayed as a woman shops in a Los Angeles supermarket on October 8, 2013 in California.
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.”
Mark Garrison: When stores have to pay more for food, something’s gotta give, says Arizona State University business professor Timothy Richards.
Timothy Richards: Retailers face that challenge as to whether to pass it on to consumers or suck it up and take lower margins.
And profit margins aren’t high anyway, says Boston College marketing professor Kathleen Seiders.
Kathleen Seiders: Around 1%, 2%, sometimes even lower.
Even so, stores must keep the price we consumers pay low, or risk losing shoppers.
Rich Nanda: We’re seeing consumers at an all-time high in thriftiness. They’re really trying to stretch every penny.
Rich Nanda with Deloitte Consulting says grocers could try pushing their cheaper store brands harder. They may have to, as the firm’s latest research on shoppers shows this thrift is not temporary.
Nanda: 9 in 10 told us that they’re not gonna change if and when the economy improves.
In any event, food prices will likely rise further this summer, at which point most retailers will have to pass more of the cost onto us. I'm Mark Garrison, for Marketplace.