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US Food Price Inflation to Begin Easing in First Half of 2023, Gro Forecasts

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This Insight article was sent to premium Gro users on Tuesday, December 13, 2022. To see how you can become a premium Gro user, please schedule a demo with our team here.


Inflation, particularly food inflation, has been a topic of global concern since the start of the pandemic in 2020. 

A Gro analysis of 10 major global food and beverage companies’ price, volume, and margin results since the pandemic began suggests that prices of at-home food — food purchased at places such as grocery stores for at-home consumption — are unlikely to head lower in the near term as CPG companies seek to recover gross margins lost to input cost inflation.

However, Gro’s US Food Price Index — a consumption-weighted basket of food prices that excludes energy-linked ag products such as corn and vegetable oils — indicates that price pressures on food and beverage companies may start to moderate in the next 3-6 months. The Index, which has proved to be predictive of inflation trends as much as six months ahead of official government reports, can be viewed using Gro’s Custom Price Index application

The Gro food price indices in the application are used by CPG companies to manage supply chain risks and costs, by macroeconomic researchers and investors to better predict inflation reports and equity investors to forecast gross margins.

Already, high-turnover food categories such as produce and protein that dominate the perimeter of grocery stores have seen price reductions. But most center-aisle grocery categories, including shelf-stable packaged and frozen goods,  are still playing catch-up with margins. 

That said, center-aisle grocery products are highly competitive categories and manufacturers must manage pricing and promotions delicately. Competitors can undercut on price and gain market share, and consumers can change demand patterns due to price increases. List prices in these categories will likely follow the trends in the store perimeter, but on a lagged basis.

Findings from Gro’s analysis of 10 major global food and beverage companies, with combined trailing 12 month sales of $350 billion, are outlined in the charts below. These include:

  • Prior to 2021, CPG pricing was consistent with longer-term trends, changing 1%-2% per year.
  • Gross margins for the sector moved higher in the second half of 2020, peaking at 42.69% in Q4 2020. 
  • As input costs rose more significantly, gross margins came under pressure. Operating margins also were pressured, though to a lesser extent. Accordingly, the companies in our analysis began to raise prices more aggressively, with year-on-year price increases peaking at 11.6% in Q3 2022.  
  • This is consistent with the Federal Reserve Economic Data on CPI, which showed that food consumed at home was up 12% year over year in November. Even with robust pricing, gross margins for the sector still declined 1.55 percentage points year on year in Q3.

Despite significantly higher pricing, there does not appear to have been a material impact on volumes. This suggests elasticities — consumers’ volume response to higher prices — are lower than historical levels. In aggregate, consumers appear willing to pay higher prices without buying less.

The combination of continued commodity pressure on input costs, current pricing initiatives insufficient to cover past pressures, and no appreciable impact to volumes suggests that price increases taken to date are likely to remain in place for the next 3-6 months. This should continue to maintain CPI at-home food prices at current levels as we move into 2023 but ease as the year progresses.

Monitoring the commodities that drive input costs and margins is crucial for CPG companies in any environment, but even more so in a period of increased volatility. 



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