Cash-strapped Americans turn to discounted food as inflation bites
Americans are spending less on food than a year ago, and that’s a troubling sign for an economy that’s supposedly past peak inflation.
According to NielsenIQ data, a consumer research company, grocery store food sales fell by 2.3% in the 52 weeks ending Oct. 7. But there’s a catch. Discounted food sales jumped by 5.3% over the same period—the biggest increase since 2019.
In other words, Americans are increasingly looking for food deals—an indication that they still haven’t fully absorbed the inflation shock of the past two years.
By NielsenIQ estimates, shoppers are paying one-third more on groceries than they did in 2019. Unfortunately, affordability isn’t expected to improve anytime soon.
Food prices continue to creep higher
With food sales on track to decline for a second consecutive year, government economists are warning that things could get worse in the near term.
According to the Department of Agriculture, “food prices are expected to continue to decelerate but not decline in 2024.” The federal agency forecasts food-at-home prices to increase by 2.2% next year.
Goldman Sachs expects real incomes (adjusted for inflation) to grow by 3% in 2024. In theory, that means consumers should be able to absorb higher food prices.
The problem? Real incomes actually declined last year, so the growth rate would merely make up lost ground.
The other problem? Households are spending more on credit cards, auto loans, and student loan payments than they did a year ago.
With less money to go around, consumers are more likely to cook their meals from scratch, go through their pantries, and eat leftovers, according to Sean Connolly, chief executive at consumer packaged foods company Conagra.
“When consumers are flush, they throw their leftovers in the garbage,” he said, according to The Wall Street Journal. “When they’re stretched, they keep their leftovers and they try to avoid spending money on the next meal.”
Getting used to the sticker shock
Instead of reassuring consumers that food prices will come down, food conglomerates say Americans will get used to higher prices.
“Right now, it’s still a little bit of sticker shock,” said Steve Cahillane, CEO of Kellanova, a global food company. Cahillane told the Journal he’s confident food sales will improve as wages increase.
He isn’t alone in his assessment.
Roughly one-half of packaged goods companies surveyed by Advantage Solutions said they planned to increase prices in 2023. Data for 2024 isn't in yet, but the numbers probably aren’t that far off.
“People have been conditioned to go out there and buy what’s right in front of them,” said Harvard Business School professor Alexander MacKay.
MacKay was part of a research study that examined consumers’ responses to higher prices between 2006 and 2019.
The research found that consumers did get used to higher prices and kept buying the same brands despite ever-increasing prices.