Grocery inflation continues to fall in the U.S., but its overarching impact has led to a consistent downturn in consumer spending, and that trend is likely to continue into the holiday season, according to major food manufacturers, retailers, and consultants.
Chicago, Illinois, U.S.A.-based Conagra, which produces frozen seafood brands Van de Kamp’s and Mrs. Paul’s – along with other major food brands such as Healthy Choice and Birds Eye – recently reported that its fiscal first-quarter 2024 net sales were flat compared to the prior year at USD 2.9 billion (EUR 2.7 billion), while organic net sales decreased by 0.3 percent.
The reason for the decline was a 6.6 percent decrease in volume, largely due to an “industry-wide slowdown in consumption and recent consumer behavior shifts,” the company said.
Conagra’s gross profit increased 14.3 percent to USD 823 million (EUR 777 million) in the quarter, however, primarily due to “inflation-driven pricing” that went into effect earlier in the year, the company said. The company’s gross margin also increased 354 basis points to 28.3 percent in the quarter, and its adjusted gross margin increased 272 basis points to 27.6 percent.
Though gross metrics improved, Conagra’s uninspiring sales performance reflected national retail trends, as overall frozen seafood retail sales dropped 7.7 percent in August to USD 619 million (EUR 584 million), with volume in the category falling 8.1 percent, according to data firms Circana and 210 Analytics. Fresh seafood sales also plunged 7.4 percent in August to USD 595 million (EUR 562 million), while fresh seafood sales by volume decreased 6.6 percent.
Most Americans – 92 percent – have cut back on their spending over the past six months, and what concerns retailers the most is that many plan to continue this trend through the holidays, according to a new CNBC Morning Consult survey. The most common categories for spending cuts over the past six months have included clothing and apparel at 63 percent, followed by dining out at restaurants and bars (62 percent), and entertainment outside the house (56 percent). Following those categories, 54 percent of the more than 4,000 Americans surveyed said they were cutting back on groceries.
A variety of challenges are weighing on consumers and resulting in their purchasing wariness, former Walmart U.S. CEO Bill Simon told CNBC during a segment on the news network’s financial talk show Fast Money. These include inflation, higher interest rates, federal budget wrangling, and student loan repayments, according to the news segment. Global tensions connected to violence in Israel are also causing concern.
“That sort of pileup wears on the consumer and makes them wary. For the first time in a long time, there’s a reason for the consumer to pause,” Simon said.
Additional turbulence stemming from the expanding autoworkers strike and the continually looming threat of a government shutdown are also adding to the headwinds already facing the economy, National Retail Federation Chief Economist Jack Kleinhenz said in a press release.
“Interest rates are at the highest level in two decades, gasoline prices have been on the rise since midsummer, inflation is still biting into household budgets, consumer sentiment is backsliding, and student loan payments are resuming,” Kleinhenz summarily wrote in NRF’s Monthly Economic Review for October.
The Bureau of Economic Analysis for the second quarter of 2023 included revisions in its forecasts that reflected less consumer spending on both goods and services than originally estimated. Consumer spending grew but only 1.8 percent year over year adjusted for inflation rather than the original estimate of 2.3 percent.
Despite all the obstacles standing in consumers’ way, Kleinhenz has been impressed that the U.S. economy has been able to stave off a recession, giving retailers some hope that the holiday season won’t pack too big of a punch.
“The economy continues to chug along and defy recession predictions, proving it to be more resilient than anticipated,” Kleinhenz said.
Photo courtesy of Casimiro ZikG/Shutterstock
