When food manufacturers raise prices for retailers, those retailers don’t necessarily pass prices along to consumers. Grocery prices in particular are sticky also because of how much of a hassle it is to change them.
“What we’re seeing now is really a cost of living crisis.” “Consumer prices are increasing faster than wages are increasing,” he said. In the past, consumers may not have noticed higher prices because their wages kept pace with the increases. Typically, however, grocery prices go up about 2% or 3% a year, he said - far slower a pace than the increase happening now. “There’s always a general increase in prices overall,” said Ortega, the food economist. Every other year, they went up, though some years the increase was very slight. Government data shows that from 1974 to 2021, grocery prices dropped only during two years. In general, prices tend to go up over time. “We think the risk of promotions ramping up significantly over the next couple of quarters is quite low,” Harmening said during the call.įor manufacturers to increase promotions, supply chain disruptions would have to end and costs would have to fall significantly, he said. Consumers accepted the higher prices more than General Mills would have expected, Harmening noted.īetween costs continuing to rise and people continuing to buy, there’s little reason for companies to discount their products. Elasticity refers to how easily customers change their shopping behavior in response to higher prices. “So far, we haven’t seen really any change in elasticities, which for us was a positive in the quarter,” he said.
The company is planning additional price hikes for its retail customers.įor now, consumers haven’t balked at the higher prices, noted CEO Jeff Harmening during a September earnings call. General Mills, which makes everything from Cheerios to Blue Buffalo pet food, expects that its costs will increase by 14% to 15% for its 2023 fiscal year, led by a rise in prices of ingredients such as nuts, fruits and flavors. The maker of Oreo and Ritz said that its energy, transportation, packaging and raw materials costs remain elevated, and it announced further price increases to offset those increases. “We do expect the near-term inflation to remain high,” Mondelez CEO Dirk Van de Put said on an earnings call this summer. “The cycle will break when supply is high and demand moderates,” said Davey. This imbalance means companies can pass along higher prices to shoppers without sales plunging. And many people are still working from home and consuming more of their meals there. And paying higher grocery prices may still be cheaper than dining out at restaurants, where menu prices are also rising (though at a slower clip). Consumers may be able to pull back on some discretionary items, but they have to eat. The firm expects food inflation to rise between 5% and 10% next year. Producers aren’t “seeing any end to inflation in terms of their labor and commodities cost,” said KK Davey, the president of client engagement at market research company IRI. “That’s one of the reasons why prices take longer to come down.” It’s not clear when the war in Ukraine will end, or how weather will impact crops in the future.
“There’s a lot of uncertainty,” said David Ortega, food economist and associate professor at Michigan State University. Extreme weather, like drought or flooding, and disease, like the deadly avian flu, have been hurting crops and killing egg-laying hens, squeezing supplies.Įven if some of these situations stabilize, it will take a while for those changes to reach consumers. Producers say they’re paying higher prices for labor and packaging materials. A number of factors have contributed to the surge in prices.
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