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Food in Focus: August consumer price gains moderate, wholesale rises slightly

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Food in Focus: August consumer price gains moderate, wholesale rises slightly

U.S. food retail prices continued to rise at a more moderate pace in August from sharp increases earlier in the year fueled by coronavirus-related supply chain issues. Still, the gain in on-the-shelf prices outpaced a slight bump in wholesale prices and likely padded grocery margins during the month.

The food at home component of the consumer price index, which represents what consumers pay at retail for groceries, rose 4.6% in August over the same month a year earlier, according to the Bureau of Labor Statistics. The gain matches July's year-over-year increase. Meanwhile, the final demand food category of the producer price index — the change in wholesale prices paid by retailers to stock store shelves — rose just 0.2% year over year.

Analysts who cover the grocery industry use the difference between the metrics to gauge the state of grocers' profit margins. The difference in August was 4.4 percentage points, suggesting margins broadly grew during the month.

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The coronavirus crisis broadly increased consumer food prices, particularly for meats, as producers grappled with shutdowns that led to limited stock at grocery stores amid higher demand from consumers stuck at home. Prices for meats, poultry, fish and eggs rose 7.1% in August, a slowdown from double-digit gains earlier in the summer.

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The 2.7% increase in prices for fruits and vegetables, however, was a slightly greater jump than the prior two months.

The price increases come as consumers continue to prepare meals at home more frequently than before the pandemic.

The Kroger Co. on Sept. 11 said it expects that trend to boost sales and profit in fiscal 2020. Consumers are "rediscovering a passion for cooking at home" as parents prepare meals for children, work-from-home arrangements continue and could persist after the pandemic, and lower economic activity caused by the pandemic has led more people to cook at home, Kroger CEO William McMullen said during a post-earnings call with analysts.

"All of these factors combined lead us to believe there will be more meals eaten at home or prepared at home for the foreseeable future," McMullen said.

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Wholesale prices for fresh fruit and melons, meanwhile, rose 14.3% year over year, while milled rice prices also notched a double-digit gain at 10.5%.

Other final demand food categories registered more modest gains and, in some cases, declines. Prices for grains dropped 12.8% year over year, while meat prices generally fell during the month. Beef and veal prices fell 9.9%, while processed young chickens dropped 4% and pork prices declined by 3%, according to BLS data.

Production within the pork industry is operating at near-peak capacity, Hormel Foods Corp. Executive Vice President and CFO James Sheehan said during an Aug. 25 post-earnings call. Selling prices for meat products during the company's fiscal third-quarter were down 9% year over year and are expected to remain lower than last year, Sheehan said.

"We expect continued lower hog prices in the near term. This environment supports plentiful supplies of pork, though plant disruptions would pose a risk to production volume and commodity prices," Sheehan said.

Notable food industry deals during the month to Sept. 11 included leaf-tobacco supplier Universal Corp.'s $170 million purchase of Silva International Inc., which supplies the food industry with dehydrated vegetables, herbs and fruits. The all-cash deal is expected to close in October.

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Additionally, food retailers Carrefour SA and Alimentation Couche-Tard Inc. announced they would grow their footprints. Carrefour said Aug. 27 that it will buy 172 Supersol convenience stores in Spain from Lithuania-based Maxima Grupe UAB.

Couche-Tard on Aug. 24, meanwhile, purchased 10 stores from Wadsworth Oil Co. of Clanton Inc. for an undisclosed price, according to a Sept. 1 announcement.

Venture capital firm TLI Bedrock LLC on Aug. 23 announced it would buy the assets of KB US Holdings Inc. and its subsidiaries for $75 million after the food retailer filed for bankruptcy the same day.