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What Does The Economy Have In Store For Grocers?

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by Jim Dudlicek / director, NGA Communications and External Affairs

Grocers’ sales soared during the pandemic, when restaurants closed and consumers ate more meals at home. Now, as restrictions are being lifted, food prices are soaring – CPI experienced its greatest jump since 2008. And when food prices rise, it’s from grocers that most consumers get the bad news.

What’s the outlook for food prices and the overall economy in the next six to 12 months? What should grocers expect and how should they prepare so they can continue to provide their shoppers with a fair deal?

To answer those and other questions, NGA hosted a webinar presented by economists from international firm KMPG: Julia Wilson, deal advisory managing director, and Timothy Mahedy, senior director for KMPG’s Office of the Chief Economist.

Defending against inflation will depend on how well grocers meet pricing challenges as the year unfolds, when mobility and price sensitivity are expected to increase; and how well they employ best practices, such as revenue growth management and margin improvement programs to maintain momentum in a post-COVID-19 world.

Here are some key takeaways from the discussion:

Food inflation – Most manufacturers have announced price increases, citing inflationary pressures of raw materials, labor and logistics. A reduction of promotions and premiumization of products increased prices across the board last year, especially spices/seasonings, sugar and dish detergent. Moderating wage growth should help somewhat offset cost-push inflationary pressures stemming from supply chain disruptions. Even so, consumers are primed to accept at least some pass-through of costs; most see price spikes as transitory.

Can’t get good help – Grocers welcomed many displaced foodservice workers during the pandemic to contend with the surge in demand. Now, as conditions in the hospitality and transportation sectors improve, grocers are in fierce competition for a shrinking labor pool. Even with reduced slack in the unskilled labor market and elevated demand for goods, wage increases should remain moderate in the near term.

Home and away – Grocery demand is expected to ebb a bit in the coming months as the hospitality industry rises up out of its pandemic restrictions and consumers start heading back to restaurants more often and in greater numbers. For the moment, consumers are continuing to dine more at home than prior to the pandemic, though home consumption of food peaked in March and April 2020.

Four strategies to combat inflation – To counteract the impact of inflation, KMPG experts recommend investing in these areas: reinvention, such as digital innovation, marketing and loyalty repositioning; revenue growth management, such as category/assortment management, pricing and trade promotion optimization, and marketing efficiency; costs, such as optimizing store labor costs, distribution and logistics efficiencies, and back office automation; and margin, such as strategic use of private label, cost of goods improvement and inventory optimization.

To view this complete webinar, along with others in the series, visit nga.sclivelearningcenter.com/MVSite/default.aspx.

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