The gap between what consumers pay for groceries and what stores pay to stock their shelves reached its widest point in over a year in December 2018, according to an analysis by S&P Global Market Intelligence.
In December, the difference was negative by 2.7 percentage points, a change that likely threatened grocers' margins during the quarter. The difference was also the largest between the two metrics since November 2017, when wholesale price growth also outpaced consumer prices.
Grocery analysts and others in the industry use the difference between the two measures to determine the state of grocers' profit margins.
Analysts measure this spread by subtracting producer price index, or PPI, growth from the consumer price index, or CPI, growth. When the result is negative, grocers' profit margins are more likely to contract.
The "final demand food" category of the PPI increased 3.3% from December 2017, according to the Bureau of Labor Statistics, or BLS. The subindex represents the prices that retailers pay wholesalers for food items.
Meanwhile, the "food at home" subcategory of the CPI rose 0.6% in December over the same month in 2017, according to the BLS. The subindex represents the average prices that U.S. consumers pay for food at retailers.
After a streak of deflation since early 2017, the spread between wholesale and consumer prices for food products turned positive in April 2018 — a sign that grocers' profit margins expanded during the period.
Analysts have debated whether Amazon.com Inc.'s August 2017 purchase of Whole Foods Market Inc., along with the expansion of budget chains Lidl Dienstleistung GmbH & Co. KG and Aldi (Süd) GmbH & Co. in the U.S., has increased pressure among grocers to keep prices low and competitive.
Wholesale prices for fresh and dry vegetables as well as fresh fruits and melons rose year over year in December. Producer prices for eggs for fresh use led the food items whose prices fell during the quarter.
Consumer prices for cereals and bakery products led the food at home CPI subindex higher in December, rising 1.7% year over year. Prices for fruits and vegetables rose 1.6%, and prices for nonalcoholic beverages and beverage materials rose 1.4%. Other food at home, a category that includes baby food, salad dressings and soups, rose 0.2%.
Prices for meats, poultry, fish and eggs declined 0.4%, while prices for dairy and related products fell 0.1%.
Food industry deals in the weeks leading up to Jan. 16 included Conagra Brands Inc.'s $180 million sale of its Wesson Oil brand to private Canadian food and agriculture company Richardson International Ltd. The companies announced the deal Dec. 18.
The following day, Anglo-Dutch consumer goods giant Unilever, whose listed entities are Unilever PLC and Unilever NV, closed the acquisition of The Vegetarian Butcher BV, a Netherlands-based maker of meat substitutes. The companies have not disclosed the terms of the deal.
Colorado Springs, Colo.-based FoodMaven Corp., a startup that specializes in reducing food waste by selling food with cosmetic imperfections, said Jan. 14 that it would acquire Denver-based Anderson Boneless Beef Inc. FoodMaven said in a statement that the deal will allow it to expand into meat processing.