Decades High: How Food Prices are Devouring American Wallets Again

📝 SUMMARY: For the first time in three decades, American consumers are dedicating a significant portion of their disposable income to food, echoing spending levels last seen during George H.W. Bush's presidency. According to the Labor Department and U.S. Agriculture Department data, restaurant prices have surged by 5.1% and grocery costs by 1.2% compared to the previous year, with consumers spending 11.3% of their disposable income on food in 2022. This increase in food expenditure is happening despite a general easing in inflation rates, underscoring the sticky nature of food prices post-inflation periods. Food industry executives, like Steve Cahillane of Kellanova ($K1EL34), highlight the challenges of dealing with rising labor and ingredient costs, notably cocoa, which recently hit a 46-year price high.

Consumers are adapting by dining out less, opting for cheaper brands, and seeking promotions, while food companies face their own pressures from varying commodity prices. President Biden has criticized the industry for "shrinkflation," reducing product sizes while maintaining prices, a sentiment echoed by consumers like Lisa Wister who find their food bills outpacing income gains. Restaurant chains and food manufacturers report declines in sales volumes and profits due to the pricing pressures, though some, like Mondelez ($MDLZ) and Kraft Heinz ($KHC), plan to continue price adjustments in response to cost increases.

The industry is also grappling with higher wage costs, as states raise minimum wages, adding to the operational challenges of food and beverage companies. Despite these pressures, some companies project higher earnings, though the overall investor sentiment towards food stocks has cooled, reflecting concerns over consumer spending slowdowns and the sustainability of current price levels.

Efforts to offer relief through promotions and pricing strategies are emerging, with companies like J.M. Smucker ($SJM) and Conagra ($CAG) lowering prices on select items. Campaigns aimed at presenting affordable meal options, such as WK Kellogg's ($KLG) push for cereal as a dinner alternative, illustrate the industry's attempt to navigate the tightrope between managing costs and maintaining consumer loyalty. Analysts like Robert Moskow of TD Cowen suggest that grocery prices may see a temporary decline as companies face pushback from consumers and retailers, indicating a potentially volatile period ahead for food pricing dynamics.

🔍 SOURCE: https://www.wsj.com/economy/consumers/its-been-30-years-since-food-ate-up-this-much-of-your-income-2e3dd3ed?mod=hp_lead_pos7