Traditionally, food producers have supported retailers with discounted prices, with an expert cited by the Wall Street Journal noting that processors would often supply retailers with discounts of 15 to 18 percent on certain items that could be passed along to consumers. These days, however, food producers are struggling with higher manufacturing and labor costs as well as supply chain issues, and this is forcing them to raise their prices while limiting their ability to offer the type of discounts they did in the past.
As food companies’ marketing budgets continue to suffer, grocery stores must take on the burden of any discounts that they choose to offer and use their own funds to both advertise and support such discounts. However, with retailers already paying producers more money for groceries, they are not in a position to provide discounts to customers.
According to the WSJ, the promotional levels of all types of groceries are below their 2019 levels, with the exception of meat. Research firm Information Resources Inc. reports that 25.7 percent of foods and drinks were sold with price reductions during the third quarter of 2019, the last full quarter before the pandemic took hold; the same figure for this year's third quarter is just 20.6 percent.
Major grocery retailer Albertson Companies, which owns stores like Jewel Osco and Safeway, does not expect to be able to offer consumers any discounts on products this year.
Stores that are running promotions, such as Fresh Market, are taking a loss on these campaigns but using it as a strategy to draw in more customers. One supermarket manager the WSJ spoke to said he hasn’t been able to run promotions on dairy in around five months.
Food inflation shows no signs of slowing down
Inflation continues to take its toll on grocery prices, with recent government data indicating that food inflation experienced its biggest price increase in more than 40 years. Right now, prices at the grocery store are 13.5 percent higher than last year, while overall prices for food are 12.4 percent higher.
Compared to one year ago, the prices this August for staples such as a dozen eggs are up by 82.3 percent, while the price of a whole chicken has risen by 27.6 percent, ground beef is up by 10.5 percent, and white bread has risen 19.7 percent per pound.
How are consumers dealing with climbing prices? Many low-income shoppers have been reducing their food purchases. Sales are dropping sharply in categories that have seen recent dramatic price rises, such as coffee, cookies and frozen entrees. In addition, customers have been taking the time to hunt for more bargains. Consumer research platform Attest reports that more than half of American consumers have been cutting their spending on groceries by opting for cheaper brands, while 46.7 percent have been making a point of being strict about sticking to their budget.
The report shows that 33.4 percent of American consumers are now doing their shopping at cheaper stores, while 40 percent have been buying less food overall and 46.1 percent are opting for cheaper foods.
The lack of discounts is compounding an already frustrating situation for American consumers and business owners. According to experts, we probably won’t be seeing many discounts or promotions in the near future as manufacturers continue to deal with supply chain challenges and inflation, and the current geopolitical climate means it could be a long time before the situation improves.
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