American consumers are sick of inflation. This time, food companies are paying the price.
As shown in the chart below, over the past year, dollar sales of groceries have remained elevated, although the volume of groceries sold has declined. This trend is attributable to inflation: high prices are to blame for both increasing dollar sales and decreasing the amount customers are willing to buy.
Economy-wide inflation means that consumers are forced to make budgetary decisions that cut something out—and inessential food items are on the chopping block. Because the costs of necessities such as housing and auto insurance are increasing, Americans then have less money to spend at the grocery store.
While it is easy to think of groceries as a necessity, consumers are taking action to save at the supermarket. For example, they are buying food on sale and switching from name brands to store-brand labels.
Lower-income consumers are driving the overall decrease in name-brand sales. In fact, name brands are experiencing sales growth among their higher-end products, suggesting that wealthier customers still have room in their budgets. This suggests that the lower end of the income distribution is hit the hardest by inflation. As consumers continue to grapple with elevated price levels, the outlook for food companies remains bumpy.
Source: Aaron Back, WSJ
Victoria Freeman is a Collegiate Associate at the Manhattan Institute
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