Grocery Stores Fight Back on Food Prices

Outer vs Center Aisles

In a bit of good news for shoppers, the prices of “outer aisle goods” like fresh produce and perishable meat are no longer rising at rapid speeds, like they were last summer. But inflation is still running higher than average on “inner aisle” items like chips, napkins, peanut butter, and other packaged goods.

Inflation for general food prices cooled to 5.8% in May, down from 13.5% last August. Prices of “dry grocery goods” still increased at an alarming rate of 12% in May.

Pricing Power Struggle

A power struggle is playing out between grocery stores across the country, such as Whole Foods (AMZN) or Kroger (KR) and major food manufacturers like Kellogg’s (K) or General Mills (GIS).

Both General Mills and Kellogg have increased prices for the dozens of brands that they sell in grocery stores, citing increased costs for labor, transportation, and raw materials. When producers raise prices, most grocery stores follow suit, passing those increased costs along to consumers.

This hasn’t been sitting well with the management teams of grocers like Walmart (WMT), which specialize in bottom-dollar pricing. If sales slow, these grocers pushback against ‌price increases from manufacturers, which is what’s playing out behind the scenes.

Break Out the Costs

Many customers are cutting back their spending on food, especially on inner aisle goods. Many grocery stores are leaning on food manufacturers to bring prices down, but food suppliers are adamant that their price increases are warranted due to higher costs.

To justify their elevated prices, food manufacturers may be forced to break out their financial documents and prove their costs have increased. If not, they risk having their products removed from shelves at grocery stores.

Either way, a widespread consumer shift toward cheaper, off-brand products coupled with easing costs for companies means that price increases for packaged food have likely peaked. Moving forward, analysts predict lower prices for center aisle goods.

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