The Wall Street Journal | By Annie Gasparro and Jaewon Kang | June 9, 2020
Food makers are designing value packs, and supermarkets are restoring promotions, aiming to offset disruptions wrought by the coronavirus pandemic that have led to the fastest rise in food prices in more than four decades.
While food companies and supermarkets say they have reopened plants and resolved supply constraints that contributed to higher prices, they also expect prices to remain elevated because of increased costs for labor and transportation. Companies are buying equipment and reconfiguring factories and stores to keep people safe from the new coronavirus. Some of those changes are adding costs that are trickling down to shoppers.
“These are historical price changes we have never seen in a short window,” said Jagtar Nijjar, director of import and commodities at Gordon Food Service Inc., one of the biggest food-service distributors in the U.S.
Prices for store-bought food rose a seasonally adjusted 2.6% in April from a month earlier, according to the Labor Department, the biggest monthly increase since 1974. The department is due to release figures for May on Wednesday, and many economic analysts expect it to be a sharper increase than April. Market-research firm Nielsen said food prices rose 5.8% in the 13 weeks from March 1 to May 30 compared with the year-ago period.
Mondelez International Inc. said it is considering smaller packages of some products like its Oreos and other snacks that cost less overall. Campbell Soup Co. said it might add more family-size packs that will cost less per ounce.
“There is going to be strain, and I think value will play an important role for consumers going forward,” Campbell’s Chief Executive Mark Clouse said.
The job and earning outlook for many is more uncertain than it has been in years. Nicholas Fereday, executive director of food and consumer trends for agricultural lender Rabobank, said he expects spending on food as a percentage of disposable income to rise this year for the first time in decades.
Karen Stadnicki, a physician assistant in suburban Chicago, said her hours have been reduced because of the pandemic, lowering the income her family of five relies on. At the same time, she said, “my grocery bill is so much higher.”
“Chicken and beef, if you can find it, is like double what I used to pay,” she said.
The jump in meat prices has propelled the overall increase in food prices. The pandemic has disrupted meatpacking plants, creating shortages of meat and pushing up prices. While the meat supply is improving, promotions are still hard to find, and prices remain high, retailers said. Meat prices rose 15% in the week ended May 23 from the prior year, according to Nielsen.
Transportation and logistical costs for food makers are rising, too. With most air traffic canceled, Be Well Nutrition Inc., maker of protein-drink brand Iconic Protein, recently chartered a plane to pick up its main ingredient, grass-fed milk protein, from Ireland.
“The cost is astronomical,” Chief Operating Officer Mariah Faulhaber said. She said Be Well hasn’t yet raised prices.
Grocery costs also rose because food makers and supermarkets have pulled back on the discounts they typically apply to about a third of the items they sell. Consumers are finding some 28% fewer discounts, according to Nielsen, because manufacturers are focused on their top sellers, grocers said.
SpartanNash Co., which owns more than 150 grocery stores in the Midwest and distributes food to about 2,100 retailers, said it cut promotions during the pandemic by about 5%. California chain Bristol Farms’ discount volume is down by half from before the pandemic in part because the food supply is still in flux, said Kevin Davis, special adviser to the grocer’s board.
Some customers are migrating to cheaper foods, generic brands and discount stores, as prices rise. Nicole Reeder, a program coordinator in New Orleans, said she recently bought vegetables instead of chicken thighs for $5.99 a pound, $2 a pound more than a few weeks earlier.
“My last grocery haul, I didn’t buy any meat,” she said.
In response, food makers and retailers are restarting promotions and adding more lower-priced products to avoid losing customers. Private-label products have taken sales from big food makers, such as Kraft Heinz Co., in recent years, and mainstream grocers, including Kroger Co., have lost market share to discount chains, such as Aldi Inc., and dollar stores.
SpartanNash said it has restarted promotions for cereal, coffee and other items but held back on discounts for faster-selling products such as pasta and frozen vegetables. Bristol Farms said it is promoting more fresh and prepared foods.
Yogurt-maker Danone SA CEO Emmanuel Faber said shoppers are buying more bulk packs that cost less per ounce. “We see people moving to value,” he said.
PepsiCo Inc. has been planning what ranges of prices it should have for its snacks in different economic scenarios, depending on how severe a recession is.
“In any recession in recent history, our business has been pretty resilient. But we haven’t seen anything like what people are forecasting,” said Steven Williams, chief executive of PepsiCo Foods North America.