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Grocery wholesale price growth outpaces on-shelf prices again in February

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IFRS 9 Impairment How It Impacts Your Corporation And How We Can Help


Grocery wholesale price growth outpaces on-shelf prices again in February

Grocers paid higher prices for produce and beef in February, marking the third straight month in which year-over-year wholesale food prices increased at a faster rate than retail prices.

The "final demand food" category of the producer price index, or PPI, rose 1.6% from the same month one year ago, according to the Bureau of Labor Statistics, or BLS. The subindex represents the wholesale prices that grocers and other retailers pay for food items.

Over the same period, the "food at home" segment of the consumer price index, or CPI, advanced 1.2%. The subindex represents the average prices that shoppers in the U.S. pay for food at retailers.

Analysts who cover the grocery industry use the difference between the two measures to determine the state of grocers' profit margins, subtracting the growth rate of the PPI from the growth rate of the CPI. When the result is negative, grocers' margins are more likely to narrow.

In February, the difference was negative by 0.4 percentage point, narrower than the gap between the metrics in December 2018 and January.

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Wholesale food prices have been growing at a faster clip than retail prices in recent months, marking a change from most of the second half of 2018, when retail prices rose faster. When the difference between retail price growth and wholesale prices is positive, grocers could see their margins expand.

Increases in prices for fresh and dry vegetables, grains as well as beef and veal helped lead the final demand food subindex higher year over year in February. Price declines for eggs for fresh use, oilseeds as well as shortening and cooking oils weighed on wholesale prices.

Consumer prices for nonalcoholic beverages and beverage materials rose 2.8%, while prices for fruits and vegetables advanced 2%. The subindex for cereals and bakery products increased 1.8%; meats, poultry, fish and eggs rose 0.6%; and dairy and related products gained 0.1%.

Other food at home items' prices collectively rose 0.5%.

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M&A activity

Notable deals in the food industry during the month to March 13 included online grocer Ocado Group PLC's joint venture with brick-and-mortar counterpart Marks and Spencer Group PLC, announced Feb. 27. The deal between grocers, both of which are based in the U.K., is worth about $997.98 billion, according to S&P Global Market Intelligence.

Beverage and snack giant PepsiCo Inc. agreed to acquire sports nutrition brand CytoSport from Hormel Foods Corp. Hormel said Feb. 19. The deal is worth about $465 million, according to Market Intelligence.

The following day, Canadian maker of cannabis products Tilray Inc. closed its $318.5 million purchase of Fresh Hemp Foods Ltd., which does business as Manitoba Harvest, according to Market Intelligence. Manitoba Harvest's products include hemp-infused protein powders, oils and hemp seeds.

The month also included Campbell Soup Co.'s sale of Garden Fresh Salsa Co. to Aliments Fontaine Santé Inc. The companies, which announced the deal Feb. 26, did not disclose the value of the transaction.

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