Comment: Consumers are fed up with grocery ‘greedflation’

Published 1:30 am Monday, June 19, 2023

By Leticia Miranda / Bloomberg Opinion

The pandemic era of greedflation in the grocery section is finally ending.

Consumers are fed up. And after two years of absorbing spiraling prices as retailers and food suppliers passed on the costs — and then some — of supply chain disruptions and rising commodities, they’re showing it.

Kroger’s earnings on Thursday were a sign of what’s to come. The company missed Wall Street’s estimate for revenue and beat on earning per share by the smallest margin since the beginning of the pandemic. Its stock sank. Analysts discussed increased promotions, inflation-squeezed consumers and economic uncertainty.

But it’s hard to escape the fact that rival Walmart outperformed expectations on both metrics and made an unusual, early upgrade to its annual profit forecast just last month. So, what gives?

Consumers have become laser-focused on price. They’re opting for discount stores and passing up pricey brand-name goods from companies such as Campbell Soup and Kellogg’s for lower-priced, private label alternatives like Walmart’s Great Value line and Costco’s Kirkland Signature. Grocers and food suppliers that will flourish during this next phase of the country’s pandemic recovery will be those that figure out how to deliver quality goods at competitive prices.

A quick look at pricing and volume trends for some of the big packaged food suppliers bears this out. Hefty price increases from Campbell’s Soup, Conagra Brands and General Mills through 2022 were accompanied by contracting volumes, according to an analysis by Bloomberg Intelligence. Weaker demand and fading pricing power should increase promotional activity in the second half of this year, analysts Jennifer Bartashus and Diana Rosero-Pena wrote in a recent report.

Packaged goods providers funded much of the promotional activity that drove shoppers into its stores last quarter, Kroger’s Chief Executive Officer Rodney McMullen said Thursday. Companies such as Kraft Heinz Foods and JM Smucker are looking to sell specialized lower-priced products with dollar stores, which are ramping up their own grocery businesses.

Kroger and other grocers are under pressure to do more to compete with Walmart, which has said it is working with suppliers to lower prices “as fast as we possibly can,” and is being rewarded by shoppers and investors for its efforts. On Thursday, Kroger was grilled on its plans and said it’s investing in pricing, expanding its private label and modifying package sizes.

Sky-high prices are keeping people from going to the grocery store as often as they once did. Location analytics company Placer.ai has recorded year-over-year traffic declines every month since last summer. Instead of mid-price grocers such as Kroger, shoppers are heading to discounters like Aldi and Lidl, where traffic only started to slow month-over-month in April.

In response, grocers are ramping up their own lines of food products. In addition to Great Value and Kirkland, there’s Kroger’s Smart Way and Target’s Good & Gather. These offer the same, and sometimes exclusive, products at a lower price because grocers can control their marketing costs and who they contract to manufacture the goods. Often, private labels sit right with name brands on the shelf. A price-conscious shopper might check the price on a box of Kraft Heinz’s instant mac and cheese and find that Walmart’s Great Value alternative has similar ingredients at a lower price. More than 20% of Walmart’s sales are in private brand items and that figure is closer to 30% across Sam’s Club, Chief Financial Officer John David Rainey said at an investor conference Wednesday.

Signs of cooling inflation are trickling into the data. Food prices climbed 6.7% in May from a year earlier, and down from the recent peak of 11.3 % according to government data.

This leaves companies in the grocery business with few options to compete for those stretched consumer dollars other than lowering prices. As commodities ease, private labels muscle in and more retailers like dollar stores give supermarkets a run for their money. It’s still unclear whether prices will fall back to pre-pandemic levels. My bet is they won’t. But what is clear is that the pandemic party is over for grocers.

Leticia Miranda is a Bloomberg Opinion columnist covering consumer goods and the retail industry. She was previously a business reporter at NBC News and a retail reporter at BuzzFeed News.