July 26, 2007
Grocery Prices Go Way Up in Missouri
A new market basket survey conducted by the Missouri Farm Bureau has found that consumers in the state paid almost 10 percent more for groceries in the second quarter of 2007 than in the first.
Diane Olson, director of promotion and education for the Missouri Farm Bureau, said in a press release, “We hear a lot of conversation about food prices going up, but we actually have the documentation that they did, in fact, go up.”
The survey, which tracked the price of 16 staple food items, found that prices on 12 increased during the second quarter while four were less expensive. Included in the market basket were dairy, fruits, grains, meats/poultry and vegetables.
“We found that the ticket on those 16 items this time in Missouri was $43.22, and that compares to $39.32 from the previous quarter,” Ms. Olson said. “We actually have seen a $3.90 increase in just one quarter.”
As to the why behind the increase, Ms. Olson said, “We hear a lot about the food versus fuel issue, but our survey really does not point to that as a cause for higher food prices. Energy prices, however, affect each step of food production from the farm level to the processing and packaging to the wholesale and to the retail level.”
Discussion Questions: What do you see as the primary factors behind higher food prices? Does grocery price inflation help supermarkets and other retailers? With food prices going up and energy costs high, what product categories typically sold in food stores are most likely to take a hit?
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Everybody should have seen this coming a long time ago. I am not surprised by the increases for retail goods. Dry conditions in the Midwest the last couple of years has kept yields down driving up the prices on raw materials, increases in the price of oil, packaging plastic & transportation, and a global shortage on milk powder are just a few of the many reasons. Corn being used for Ethanol is small potatoes. This is just an easy place for the media to point blame for the price increases.
Grocers will try to resist price increases, because customers will get angry at them. Ultimately, price increases help grocers, because margin dollars are often based on percentage markups times wholesale cost. Margin percentages aren’t likely to decline because the rollout of new Wal-Mart supermarkets has slowed down, and Wal-Mart announced that its domestic new location plans are being cut back.
In addition to Frank’s and Jerry’s listings, I suspect necessity is also a motivator of price rise inventions and intentions.
The reasons for food price rises are many and varied. Here’s a short list:
The conversion of corn into ethanol is one.
The second is cost of energy.
Demand for all types of commodities by the two new giants–China and India–are another reason.
Hedge funds are also impacting food prices by their interest in the industry.
Environmental sustainability demands may have also increased CPG production expenses.
Food prices are forecast to increase for a number of reasons. Among those is the increase in fuel costs which everyone pays from the farmer, through the processor and retailer. Oil is over 70 dollars a barrel now versus $60 in the first quarter. Some farm production is being sent to ethanol plants, but many are in the building state. The consolidation in the food industry has reduced some competition thereby easing the pricing pressure. Inflation has always been good for the supermarket industry. Since many perishables are percentage priced, an increase in cost increases gross margin.
It will be interesting to see what happens over the next two to three quarters. I am home-based in Missouri and observed that in the first quarter, the regional chains were very aggressive with discount pricing, while most of the unusually deep discounts returned to normal pricing in the second quarter, and then some, with delayed annual price increases. Therefore, its possible that the percentage of difference is not as solid as it appears.
All prices are set by Wal-Mart and Wal-Mart does not seem to be opposed to raising prices. There is more volatility with perishables and those are the most difficult to manage. Strong inflation might cause consumer demand to drop. I think speculation over inflation had contributed to the drop in grocery stocks this week.
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Everybody should have seen this coming a long time ago. I am not surprised by the increases for retail goods. Dry conditions in the Midwest the last couple of years has kept yields down driving up the prices on raw materials, increases in the price of oil, packaging plastic & transportation, and a global shortage on milk powder are just a few of the many reasons. Corn being used for Ethanol is small potatoes. This is just an easy place for the media to point blame for the price increases.
Grocers will try to resist price increases, because customers will get angry at them. Ultimately, price increases help grocers, because margin dollars are often based on percentage markups times wholesale cost. Margin percentages aren’t likely to decline because the rollout of new Wal-Mart supermarkets has slowed down, and Wal-Mart announced that its domestic new location plans are being cut back.
In addition to Frank’s and Jerry’s listings, I suspect necessity is also a motivator of price rise inventions and intentions.
The reasons for food price rises are many and varied. Here’s a short list:
The conversion of corn into ethanol is one.
The second is cost of energy.
Demand for all types of commodities by the two new giants–China and India–are another reason.
Hedge funds are also impacting food prices by their interest in the industry.
Environmental sustainability demands may have also increased CPG production expenses.
Food prices are forecast to increase for a number of reasons. Among those is the increase in fuel costs which everyone pays from the farmer, through the processor and retailer. Oil is over 70 dollars a barrel now versus $60 in the first quarter. Some farm production is being sent to ethanol plants, but many are in the building state. The consolidation in the food industry has reduced some competition thereby easing the pricing pressure. Inflation has always been good for the supermarket industry. Since many perishables are percentage priced, an increase in cost increases gross margin.
It will be interesting to see what happens over the next two to three quarters. I am home-based in Missouri and observed that in the first quarter, the regional chains were very aggressive with discount pricing, while most of the unusually deep discounts returned to normal pricing in the second quarter, and then some, with delayed annual price increases. Therefore, its possible that the percentage of difference is not as solid as it appears.
All prices are set by Wal-Mart and Wal-Mart does not seem to be opposed to raising prices. There is more volatility with perishables and those are the most difficult to manage. Strong inflation might cause consumer demand to drop. I think speculation over inflation had contributed to the drop in grocery stocks this week.