Food prices are falling


How are shoppers benefiting?

By CAndice Choi

AP Food Industry

NEW YORK (AP) — Food prices are falling, but how is that translating to your grocery bill?

The cost of groceries is down an average of about 2 percent over the past year, according to the Bureau of Labor Statistics, including a nearly 9 percent drop for raw ground beef and 4.3 percent drop for roasted coffee. But how store prices play out varies greatly, depending on where you live and shop.

Here’s a look at what’s affecting how much you’re paying for groceries:

WHAT’S CHEAPER?

The biggest price drops are for protein sources, according to government data; the index for meats, poultry, fish and eggs was down nearly 7 percent in August from a year ago. That’s largely a reflection of how high prices had previously climbed because of tighter supplies.

Egg prices, for instance, reached all-time highs last year following an avian flu outbreak that led to a sharp reduction in hens. The average wholesale price for a dozen eggs shot up to $2.29 last September, from $1.29 the previous year, said Russ Whitman, a senior editor at commodities research firm Urner Barry.

That dampened demand, which has persisted even as production recovered, Whitman said. As a result, the average wholesale price for a dozen eggs was 79 cents in September.

Similar factors have affected beef and pork, where supplies are being rebuilt after being hurt by a drought and pig virus, respectively, Whitman said.

Record availability of items including pork, eggs and chicken into next year, Whitman said, means prices will likely stay low for the near future. Costco Chief Financial Officer Richard Galanti said the company expects food deflation to persist for five or six more months.

Other items may cost more, though. The price of fresh fruits overall rose 1.7 percent in August from a year ago, and butter and margarine increased 2.1 percent.

SALES, SALES, SALES

It’s not just that food costs are falling. Supermarkets could easily keep prices steady and pocket the savings. But because of how competitive the industry has become, grocers are using those lower costs as a chance to run sales and promotions — trying to steal customers away from rivals.

“There is a greater availability of food in different locations, I think, than there has ever been before,” Supervalu CEO Mark Gross said at the Goldman Sachs Global Retailing conference in September.

Even Whole Foods has been working on affordability to appeal to a broader customer base as natural and organic products become more widely available.

Sprouts Farmers Markets CEO Amin Maredia told of a rival grocery store deepening its discounts on meat as costs have remained low, from “buy one get one free, buy one get two free, buy one get three free.” It’s a situation where “the winner is the consumer,” he said at the same conference.

That said, there’s great variance in what shoppers see. Grocery store operators often adjust pricing based on what local competitors are doing. Some regions are far more competitive than others — Maredia cited Houston as one of the most competitive areas.

MEAT, IT’S WHAT’S FOR DINNER

Shoppers seem to be taking advantage of the meat promotions. Kroger CEO Rodney McMullen told analysts in September that people are buying beef and pork in a “very, very strong way,” because of the lower prices and called volume growth in those areas “incredible.”

In other cases, he noted that lower prices haven’t spurred more buying. “If you think about eggs, for an example, people only eat a certain number of eggs,” he said.

The availability of cheaper beef may even have shifted people’s behavior. McDonald’s and Burger King were among companies that recently reported weaker-than-expected domestic sales growth, and Wendy’s CEO Todd Penegor cited cheaper groceries for the industry softness.

“It’s gotten a lot more cheaper, relatively speaking, to go get fresh beef at your local butcher and go home and grill it,” Penegor said this summer.

But the big savings on meat don’t necessarily mean overall groceries are a lot cheaper. Kurt Jetta, CEO of consulting firm TABS Analytics, said grocers often reduce prices on items that bring in shoppers, then try to make up for it elsewhere.

McMullen, the Kroger CEO, also noted a counterintuitive finding from the company’s research: Most people are saying their groceries cost more, not less — even though that isn’t the case.

How are shoppers benefiting?
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