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Food in Focus: Rising wholesale prices squeeze grocer margins in July

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Food in Focus: Rising wholesale prices squeeze grocer margins in July

Rising wholesale food prices — and slower gains in on-the-shelf prices — likely weighed on grocers' profit margins for the second month in a row in July. Vegetable and grain prices led the gains in supplier prices.

The "food at home" category of the consumer price index, or CPI, rose 0.6% in July over the same month one year ago, according to the Bureau of Labor Statistics. The subindex represents the prices that consumers pay for groceries.

Over the same period, though, the "final demand food" segment of the producer price index, or PPI, increased 2.5%. The subindex represents wholesale prices that grocers and other food retailers pay to stock their shelves.

Grocery analysts use the difference between the two metrics to determine the state of grocers' profit margins, subtracting the growth rate of the PPI subindex from the growth rate of the CPI subindex. When the result is negative, as it was in July, grocers' margins are more likely to narrow.

In July, the difference was negative by 1.9 percentage points, according to data compiled by S&P Global Market Intelligence.

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The nonalcoholic beverages and beverage materials segment of the food at home index rose 1.9% in July, cereals and bakery products grew 1.5%, dairy and related products notched a 0.9% gain, and fruits and vegetables advanced 0.6%.

The category of "other food at home," which includes spices and salad dressings, was 0.1% higher. The meats, poultry, fish and eggs subindex was unchanged.

Producer prices were led higher in July by gains in fresh and dry vegetables as well as grains, while declining prices for eggs for fresh use as well as fresh fruits and melons weighed on the subindex.

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Notable food industry deals in the month to Aug. 13 included the planned sale, announced Aug. 2, of international businesses at Campbell Soup Co., including the company's Arnott's cookie business. Investment firm KKR & Co. agreed to pay $2.2 billion for the units — below the $3 billion that Campbell reportedly hoped to receive for the business. KKR beat out other potential buyers, including snack company Mondelez International Inc., The Kraft Heinz Co., Ferrero SpA and Bain Capital LP.

Hostess Brands Inc. said Aug. 1 that it would sell its Superior Cake Products business, which makes brownies and pastries, to Sara Lee Frozen Bakery for $65 million.

French retailer Casino Guichard-Perrachon SA said July 22 that it would part with its Réunion Island-based chain Vindemia SAS for $245.7 million. Groupe Bernard Hayot SAS, a Martinique-based retailer, plans to buy Vindemia.

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