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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:
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.