Higher energy, labor, and ingredient costs pushed many companies with a U.S. presence to increase prices in 2022. A new study by economists at the Federal Reserve Bank of Kansas City found some companies raised prices not only because their costs were higher, but also because they anticipated future cost pressures.
The price increases were a major inflation driver, which resulted in consumers cutting back purchases in 2022, “suggesting that they were hitting a ceiling on prices they were willing to pay,” according to Andrew Glover, a senior economist at the Federal Reserve Bank of Kansas City, one of the study’s authors.
IRI and NPD reported unit sales of food and beverages fell 3 percent in 2022 but the amount consumers spent on those items rose 10 percent. That showed consumers were willing to pay higher prices for groceries but bought fewer items, according to the Wall Street Journal.
In the first months of 2023, companies are facing lower costs as fuel prices have dropped and pandemic supply-chain snarls have eased. But Glover said that doesn’t mean the end of inflation or higher prices for end-consumers. China’s economic reopening following the elimination of its zero-Covid policy might boost global demand and the low U.S. unemployment rate – currently at 3.5 percent, a 53-year low – may result in sustained wage growth.
Inflation is coming down, from a high of 9.1 percent in June 2022 to 6.5 percent in December 2022, but U.S. Federal Reserve Chairman Jerome Powell said in January 2022 he’s worried U.S. consumers are now building inflation into their behavior.
“We welcome these better inflation reports,” Powell said. “But I think we’re realistic about the broader project.”
One retailer taking action on the issue is Whole Foods Market, which recently announced it wants its suppliers to cut prices as their own costs decline.
The Austin, Texas, U.S.A.-based grocer, which was bought by Amazon in 2017 and which operates 500 supermarkets in the United States, said at a virtual summit in December it wants to bring down retail prices on packaged groceries, according to The Wall Street Journal.
"We know our customers are weighing the impacts of inflationary pressure on their buying choices," Alyssa Vescio, Whole Foods Senior Vice President of Center Store Merchandising Alyssa Vescio said on the call.
Food suppliers and grocery-store operators have largely passed on higher prices to consumers over the past 12 months, leading them to generate bigger profits. Grocery prices continued to climb through the latter half of 2022, but at a lower pace, with prices up 11.8 percent year-over-year in December, 12 percent in November, and 12.4 percent in October, according to the U.S. Labor Department, though fish and seafood prices actually fell in December month-over-month.
But those higher prices could be having an impact on the frequency Americans go food shopping and the number of items they’re buying, according to data from Information Resources Inc., which reported across the grocery sector, the volume of edible goods sold in December declined by about 2 percent, even as the dollar value of sales increased by about 12 percent. Whole Foods foot traffic decreased 8 percent in Q4 2022, and Kroger and Albertsons also recorded fewer customer visits, while discount grocers Aldi and Trader Joe’s saw increases, according to Placer.ai.
To stimulate sales, Whole Foods executives said at the December summit they are planning more promotions and sale events in 2023, and to provide better value on popular items. They asked vendors on the call to improve their own supply-chain efforts, prioritize Whole Foods when their inventories run short, and to work harder to ship products on time.
Internally, the Whole Foods executives said the company is in the process of streamlining its merchandising teams that oversee product categories, and is planning further investments in high-growth potential areas, naming dairy as one.
Photo courtesy of Trong Nguyen/Shutterstock
