Nibbling your wallet
Pandemic has pushed grocery prices higher
If you’ve stood in the checkout line at a grocery store over the last year, watching the tally grow and grow with each item scanned, and walked away thinking your wallet feels strangely light, it’s not your imagination.
“I, myself, go to the grocery store and feel like I don’t get as much as I normally get for the money I spent,” said Tammy Gore, an assistant business professor at Alvernia University. “That’s probably what the average consumer is feeling. And it’s not just in people’s minds, it’s true — you’re not getting as much for your money.”
COVID-19 has impacted just about every corner of people’s lives. That includes trips to their local grocery stores.
The pandemic has wreaked havoc on the grocery industry. It caused frantic buying rushes, severed supply lines and, in the end, led to higher prices for consumers.
According to the U.S. Department of Agriculture, grocery prices rose 3.5% in 2020. That number is 75% higher than the 20-year annual average of 2%.
And, according to the USDA, prices are expected to keep going up in 2021, likely between 1% and 2%.
“I know a lot of people were hoping 2021 was the finish line,” said Anthony S. Gigliotti, executive vice president of sales, marketing and procurement for Boyer’s Food Markets. “I don’t see that there’s a light at the end of the tunnel yet. Probably not until the fourth quarter of 2021 or the first quarter of 2022.”
Unexpected, unprecedented event
Nobody was prepared for 2020.
No one knew that a pandemic would sweep across the globe. That it would kill millions, sicken millions more.
People weren’t ready for lockdowns and business shutdowns and for schools to close their doors.
And the grocery industry wasn’t ready for a sudden, drastic surge in demand coupled with breakdowns in supply chains.
“It was obviously very challenging because the established sales patterns that we had seen up until that point were pretty steady and were the patterns that we were using to forward plan our buying schedule and selling schedule,” said Eric White, marketing director for Redner’s Markets. “What the pandemic did was it created such a surge in sales and strain on the supply that it created shortages.”
Gigliotti said grocery stores felt an immediate impact when Gov. Tom Wolf issued a statewide shutdown order in mid-March 2020.
“The pandemic, from mid-March on, was incredible,” he said. “Obviously from Day One we saw record sales right away. It blew the shelves away the first week.
“The first two weeks there was mass panic.”
That panic led shoppers to grab anything and everything they could find and toss it in their swelling carts, worried they needed to stock up for a long stint stuck in their homes. The result was bare shelves as products were gobbled up as soon as new shipments came in.
White said Redner’s saw about a 300% increase in sales of all sorts of items.
“It was across the board,” he said. “Us, storage facilities, manufacturers, no one was prepared for that increase.”
The hardest hit areas were staple items, simple things like peanut putter or canned vegetables, Gigliotti said.
“They came out and stocked up on every staple they could find,” he said. “If it wasn’t bolted down, it went. And price was really irrelevant, price had nothing to do with it.”
Alex Baloga, president and CEO of the Pennsylvania Food Merchants Association, said that’s a pattern that’s often seen in difficult times like the pandemic created.
“In times of a lot of disruption, people are looking to traditional, go-to items,” he said. “People focus on the staples, things they’re familiar with and comfortable with.
“They’re looking for some sense of normalcy and comfort, snack foods become more popular. I think we’ve all taken up some additional snacking, understandably.”
While demand for groceries skyrocketed, the ability to get them onto shelves was hampered.
Food producers were overwhelmed by the demand while also having to deal with labor and materials shortages caused by the pandemic.
Take, for example, the meat industry, Gore said.
There was widespread, national coverage of outbreaks of COVID-19 at meat-packing and processing plants that had devastating impacts on the industry.
“That just meant that the supply has been limited,” Gore said.
The transportation industry also faced challenges, becoming overwhelmed trying to keep up with shipping demands while often operating with fewer employees.
“I think we all found out how important truckers are,” Gigliotti said. “Warehouses were all trying to triple order, but with no drivers the whole thing comes to a halt.”
Between the increased demand and challenges with supply, it should come as no surprise that prices rose in 2020.
“From an economic perspective, it’s a simple issue of supply and demand,” Gore said. “The supply has been disrupted and the demand has increased at the same time, which isn’t really supposed to happen.”
The 2020 numbers
According to the USDA, the chaos caused by the pandemic led to grocery prices rising by 3.5% in 2020.
While that is significantly higher than the 20year average of 2%, it’s by no means historic.
As recently as 2011 there was a larger increase at 4.8%, and during the economic crash of 2008 the increase was 6.4%.
But that doesn’t mean shoppers didn’t feel the pinch.
Gigliotti said Boyer’s worked to keep prices steady but that manufacturers stopped offering deals. The deals shoppers see at grocery stores — the 10 for $10 and the buy-one get-one — almost all come from manufacturers.
“Manufacturers couldn’t handle what they were doing, let alone sales,” Giliotti said. “So they pulled the sales.”
The result was bigger bills for shoppers.
Baloga said grocery stores are traditionally pretty price sensitive, knowing that even small increases can impact what and how much customers buy. During the pandemic that has meant trying to find ways to get product on the shelves without ballooning price tags.
That included things like focusing on products they can get in bigger quantities, looking for locally sourced items, reaching out to a more diverse network of suppliers and partnering to create their own private labels.
Gigliotti said producers got smarter as the pandemic wore on, which helped minimize price increases. Companies that make things like pasta sauces or chips cut down on the number of varieties they were producing, he said, focusing on upping the amount of their top sellers that were available.
The 2021 forecast
Projections point to grocery prices continuing to go up in 2021, but not by huge amounts.
What that means for shoppers will depend on what they buy.
The USDA anticipates overall prices to increase by 1% to 2%.
Items such as processed fruits and vegetables, sugar and sweets, and cereal and bakery items are projected to rise by up to 2.5%. Nonalcoholic beverages have the biggest forecasted increase at up to 3.5%.
But many other items are expected to drop in price. That includes beef and, possibly, pork and eggs.
“It depends on the market,” White said. “I don’t want to make a blanket statement, some prices might stay the same, but the supply for some things still might not be whole.
“Across the board I don’t think there will be ridiculous high increases, they’ll be gradual. Manufacturers know they can’t raise prices dramatically because they’ll lose sales.”
There are a lot of factors leading to continuing price increases and the expected level of the increases.
On the negative side, supply lines have still not fully recovered. And transportation costs, including the price of fuel, has risen.
Weather events also have an impact on food prices, with things like the winter storm that crippled Texas leading to mass loss of crops.
“Once a crop has been frozen out or droughted out or burned you can’t simply replace it quickly,” Gore said. “It’s going to take time to recover.”
White pointed out that incidents like the cargo ship that recently got stuck in the Suez Canal, temporarily choking shipping lanes, also could impact food prices.
“A boat got stuck, how 2021 is that?” he said with a laugh. “Do we have any product coming from over there? I don’t know, but possibly.”
Gigliotti said another factor that may push price increases is a shortage of products used to create products. That means things like aluminum cans.
“There’s an aluminum can shortage,” he said. “There are some of the smaller soda companies that can’t even create cans right now, they’re all going to Coke and Pepsi.
“We’re still seeing a lot of those kinds of issues.”
On the positive side, Baloga said, supply chains, while not completely fixed, are starting to get back somewhat close to normal.
“I think there is more preparedness, certainly, with the supply chain,” he said. “I think retailers, wholesalers, distributors, everyone up and down the supply chain have really focused on strengthening the supply chain.”
A potential rebound of the restaurant industry could also impact grocery prices. With restrictions on restaurants beginning to ease, there is an expectation that consumers will start to eat out more and more as the year progresses.
“I think we’re hearing already, restaurants even in March some are seeing some of the best numbers they’ve seen in years,” Gore said. “I think some people will still be hesitant, but I think people in general are anxious to get back to some sort of normalcy.”
That means that the overwhelming demand on grocery stores, the one that struggling supply chains couldn’t meet, will lessen.
But, White said, it doesn’t mean that people will completely abandon newly-created patterns of cooking and eating at home.
“I’m hoping people have realized the value of eating at home,” he said. “The forced meal planning of last year, I hope it resonates.”
White said cooking a steak dinner at home is far cheaper than going to a steakhouse, and that’s not its only benefit.
“You’re eating as a family, preparing the meal as a family, sitting at home as a family,” he said.
The end result, grocers hope, is a new balance of demand that doesn’t stress supply chains but continues higher levels of grocery purchases.
“We’re preparing our promotional calendar to retain much of the growth we’ve seen,” White said.