Rising food prices, growing anxiety: Retailers grapple with consequences

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With rising food prices, the cascading, adverse impacts of the pandemic on the economy keep spiraling.

In December, global food prices reached a six-year high, according to a recent Bloomberg report citing data from the Food and Agriculture Organization of the United Nations. That trend is expected to continue this year, putting pressure on many families already struggling to survive in an economy hobbled by COVID-19.

Food prices began rising last spring as COVID upended the food supply chain. While higher prices helped fuel retail grocery sales, including a dramatic increase in online grocery sales, what’s going to happen when people struggle to afford food?

The data’s in: Rising food prices, record high sales figures

The UN data shows that prices for almost all major food categories – cereals, oilseeds, dairy products, and meat — rose for the seventh consecutive month in December.

The FAO Food Price Index, which tracks monthly changes in the global prices of food commodities, averaged 107.5 points last month, 2.2% higher than in November. Over the entire year of 2020, the benchmark averaged 97.9 points, a three-year high and 3.1% increase from 2019.

According to the United States Department of Agriculture, grocery store food prices increased 3.5% and the cost of restaurant food rose 3.2% in 2020 compared to 2019. In that same time period, the Consumer Price Index for all food increased an average of 3.3%.

The CPI jumped 2.7% between April and May last year, its biggest month-to-month increase since 1974, according to Supermarket News, citing data from the U.S. Bureau of Labor Statistics.

Rising food prices: The COVID effect

A website produced by the Food Industry Association and Cal Poly examines the impact of COVID-19 on food prices, and breakdowns the complicated ramifications on the food supply chain. It cites four COVID-driven factor to rising food prices:

  1. A rapid shift to eating at home with stay-at-home orders
  2. The loss of foodservice demand. With people eating at home and restaurants and office and school cafeterias closed, farmers lost key buyers. Some were forced to dump their perishable products last spring.
  3. Increased production and processing costs. Manufacturers had to invest in safety measures and facility upgrades to protect their workers and products.
  4. Increased operating costs for grocery stores. Grocers had to buy plexiglass barriers and other protective measures while labor costs increased. The cost of acquiring goods also rose as rush orders became common and transportation costs increased.

“Our research indicates there will continue to be a higher level of retail-sector food spending for the foreseeable future as home cooking displaces spending on foodservice,” Leslie G. Sarasin, president and CEO of FMI, said in a prepared statement.

Grocery sales surge, online and off

Rising food prices contributed to higher, COVID-driven grocery store sales in 2020. According to US Census Bureau estimates, US grocery store sales grew 11.4% through November.

Meanwhile, online grocery sales skyrocketed last spring as consumers flocked online to buy essentials from the safety of their homes. Many bought groceries online for the first time.

Online grocery sales in the US were projected to grow 53% last year, totaling $89.22 billion in sales, according to eMarketer. The trend isn’t fading anytime soon. It’s expected to reach $129 billion by 2023 and make up almost 10% of grocery sales.

While grocery retailers have had more business than ever, they haven’t necessarily enjoyed bigger profits. Increased expenses due to the pandemic – additional cleaning protocols and equipment, labor costs, and a bigger logistics burden – offset the growth.

What happens now?

Rising food prices increases anxiety on many levels:

  • What happens when people can’t afford food?

  • What if food takes up more of the average consumer’s budget, leaving little for other items?

  • How will all this impact grocery retailers, who we rely on so much today?

The pandemic was already exacerbating a global hunger crisis, adding an estimated 132 million people to the 2 billion undernourished. Bloomberg notes the risk posed by rising food prices to the poorest countries with limited social safety nets and purchasing power.

In the US, it’s heartbreaking to imagine, but more people could be forced to turn to already overburdened food banks. Ongoing joblessness and business shutdowns have led to long lines at food banks across the country, with many people asking for help for the first time.

US consumers were already spending much more on groceries during the pandemic. Higher food prices may force some to make tough choices in their spending.

However, with the rollout out of vaccines, there’s some hope on the horizon as economists predict strong growth ahead.

Before that rebound, though, the US will weather a tough first quarter “that’s likely to be among the most dismal since the great Recession,” USA Today said.

2020 drastically changed
shopping behavior.

How much?
Download the report HERE.

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Marcia Savage

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