Report: Grocery Inflation Not On-Par With Past Recessions, But Will Reach ‘Normalcy’ By 2024
The impact of the COVID-19 pandemic on grocery retail prices may have been felt the most in 2022, according to a new report from Coresight Research, in partnership with the Food Industry Association (FMI).
The U.S. Grocery Retail and Recession report, released this week, analyzed the economic environment since the pandemic, in comparison to the conditions in the years following the dotcom crash downturn in 2000 and the Great Recession, beginning in 2007. Coresight predicts that the consumer price index (CPI) will return to a semblance of normalcy next year with a rate of 2.4% compared to this year’s 3.5% and 2022’s high of 8.1%.
“As a fundamentally non-discretionary, non-cyclical sector, grocery retail tends to be a relative outperformer in tough economic times—but that does not mean the sector does not feel the pressure in recessions,” the report states. “The outlook for the global economy is looking more favorable than it recently did. However, there remains some degree of economic uncertainty.”
In both of the previous periods of economic atrophy, grocery prices saw the greatest surge in the year following the inciting event. However, researchers noted that after COVID-19 sent consumers into lockdown and caused panic grocery buying in March 2020, new global challenges also continued to pile up around the globe well into 2021 and 2022. The aftereffects of the pandemic recovery further exacerbated the situation with governments adopting fiscal stimulus policies that may have caused long term recovery challenges in the already uncertain market.
High inflation caused by supply chain bottlenecks is also a key point of difference when comparing the current climate to past recessions. According to the report, the abundance of discount food outlets, such as Dollar Tree and Dollar General, and the rise of e-commerce grocery shopping have also prolonged the market’s volatility. The report states that Dollar Tree and Dollar General sold a combined $42.0 billion in grocery- related products in 2021 and their revenues have increased seven-fold and 15-fold, respectively, since 2001.
Researchers note that the dotcom crash also marked the first wave of online grocery. Coupled with dollar stores emerging within the top 10 grocery retailers, these two sectors have driven significant changes to the grocery landscape. Online food and beverage sales reached $77 billion last year, per Circana data (previously IRI and NPD) cited in the report, while during the Great Recession between 2008 and 2009, e-commerce grocery sales were less than $10 billion.
In the wake of the pandemic, normally tight food retail operating margins increased by 200 points compared to the about 40 point and 10 point growth seen in 2009 and 2001, respectively. That extreme margin growth was quickly offset by food price increases in the two years following the pandemic onset. In both 2021 and 2022, the food producer price index (PPI) was greater than the consumer price index (CPI) signaling that food retailers were pressured to absorb some of the cost increases.
“Coresight Research continues to see multichannel retailing as the dominant format for grocery for the foreseeable period,” the report states. “Amazon’s brick-and-mortar ventures are now solely concentrated in the grocery sector, reflecting the challenges of carving meaningful share in the overall grocery market with an online-only proposition.”
