Few prices are as visible to Americans as the prices they find in the supermarket or at the drive-thru checkout. That’s why two years of rapid food inflation have been a major strain on U.S. households and the Biden administration.
Shoppers have been slow to regain confidence in the economy as they pay more to fill their shopping carts, and President Biden has made a habit of shaming grocery companies — he even made a Super Bowl video on Sunday in which he criticized snack manufacturers for their “rip-offs”. Prices.
But now the trend in food and restaurant inflation appears to be on the cusp of changing.
After months of rapid increases, the cost of food at home rose at a much slower pace in January. And from packaged food providers to restaurant chains, companies across the food industry report that they are no longer raising prices as much. In some cases, that’s because consumers are finally resisting price increases after years of spending money on them. In other cases, it’s because the prices companies pay for inputs like packaging and labor are no longer rising as much.
Even if food inflation cools, that doesn’t mean your grocery bill or restaurant check will get smaller: It just means it won’t rise as quickly. Most companies plan smaller price increases rather than direct price cuts. But when it comes to the question of whether the rapid price jumps in food and restaurants are behind us, the executives’ statements give investors reason to be hopeful.
Some, but not all, consumers say no.
Executives have realized in recent months that they can only raise prices so much before consumers lower their prices.
Soda and snack maker PepsiCo had increased prices by double-digit percentages for seven quarters in a row, and although that streak ended at the end of 2023, PepsiCo still increased prices by 9 percent in the final months of the year.
But all these price jumps on sodas and chips are starting to have an impact. The company recently experienced a surprising decline in sales.
PepsiCo Chief Executive Ramon Laguarta said in a recent earnings conference call that the company was less likely to raise prices above “normal pricing levels” – about 2 to 3 percent per year. The company is seeing lower ingredient cost increases and is more focused on maintaining sales, he said.
Coca-Cola CEO James Quincey said in a recent earnings call that the company has identified a stark divide among U.S. customers: Some are under financial stress and facing a “real lack of purchasing power,” while others are “still “A lot of money, a lot of purchasing power” for lactose-free milk and protein shakes are always affected.
And some companies, like Burger King owner Restaurant Brands International, have reported continued resilience in the United States.
Consumer spending is in “pretty good shape,” Joshua Kobza, the company’s chief executive, recently told analysts.
Walmart, the country’s largest retailer, reported strong U.S. sales in the fourth quarter as more upper-income households used the grocery shopping value chain.
“We continue to see a customer that is resilient but seeks value,” Walmart Chief Executive Doug McMillon said during an earnings call on Tuesday. He noted that prices for food and consumer goods are still “slightly” higher than a year ago.
“Prices are lower than a year ago in countries such as eggs, apples and gourmet snacks, but higher in others such as asparagus and blackberries,” he said.
Companies are experiencing a return to normality.
Some companies appear to be following the rest of the economy toward more modest price changes. Headline inflation, as measured by the consumer price index, peaked at 9.1 percent in the summer of 2022 but slowed to just 3.1 percent earlier this year, while prices for food commodities such as beef, grains and some dairy have fallen.
“Our prices are declining broadly in line with the nature of inflation returning to more normal levels,” Ian Borden, chief financial officer at McDonald’s, said in a call with investors. (McDonald’s executives also noted that some lower-income customers spent less per visit.)
Shake Shack, the burger and ice cream chain, plans to raise prices by 2.5 percent this year, a return to increases that were normal before the pandemic, Katie Fogertey, the company’s chief financial officer, said in a recent conference call the results.
However, she noted that some stores will have to increase prices even more to offset rising costs. This is particularly true in markets where workers are hard to find and larger price increases are needed to “offset wage inflationary pressures,” she said.
Such comments underscore an important point. Many companies have taken advantage of inflation to boost profits, but in recent years some food and restaurant price increases have been aimed at covering higher costs. Wages have risen rapidly in hospitality and retail, and key ingredients have been expensive due to supply chain problems, Russia’s invasion of Ukraine and bird flu outbreaks.
Companies typically at least try to raise prices when the cost of doing business increases to avoid losing profits. However, as pressure on wages and production costs eases, companies can stop aggressively raising prices without risking their profits suffering.
Some companies are turning to technology.
Of course, there is a way to cover higher costs without raising prices: Companies can increase productivity so that each employee can stock more shelves, flip more burgers, or serve more tables. That’s partly what Wendy’s does.
The fast-food chain is rolling out digital menus hoping they will deliver “immediate benefits to order accuracy, a better crew experience” and revenue growth, company Chief Executive Officer Kirk Tanner said in a recent earnings call.
The company also plans to try “dynamic pricing,” he said, using technology to change prices to meet consumer demand. Another company executive suggested that the company expects “low single-digit prices” this year.
This all leads to lower food inflation.
Overall, evidence suggests that inflation in the food and restaurant sector is likely to be more moderate in 2024 than in the previous three years.
Many food costs are either decreasing or increasing at a slower rate. Wage gains in the restaurant industry remain high, but they are cooling back to normal. And consumers are beginning to push back against the big price hikes that companies have used to pad their profit margins.
Mike Swanson, chief agricultural economist at Wells Fargo, expects food inflation to cool to 0.5 percent this year – “much slower than it has been” – although restaurant inflation could remain stronger as people continue to eat their food Opening wallets to eat out.
Even there, he said, “there will be a downward trend.”
Jordyn Holman contributed reporting.
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2024-02-20 13:23:08
www.nytimes.com
