Food deflation continues to weigh on retail
- The U.S. Department of Agriculture predicted that retail prices for beef, pork, and poultry were all expected to end the year with decreases, with slides as much as 7%, according to Forbes.
- Prices escalations were fueled by the California drought, avian glu, smaller-than-expected cattle herds and other environmental factors.
- The strengthening of the U.S. dollar has also had a substantial impact on declining food prices overall, which has slowed exports and improved imports. The USDA said that the export decline will be around $1 billion, while imports increased by an estimated $7 billion last year.
Food price deflation is nothing new to the industry, with almost all months of 2016 posting negative numbers. In fact, retailers experienced an 11-month span of year-over-year sales declines last year, one of the worst falls since the early ’50s.
Analysts report that food price deflation has been common in commodities such as meat, eggs and dairy for quite some time, and they have taken their toll on the grocery industry. The declining food prices are a result of food retailers trying to pass on cost savings to customers to gain a competitive edge, but with declines continuing, it’s hard to get ahead.
Additionally, low oil and grain prices, as well as cutthroat competition from discounters, has all played a role in the deflation.
Many feel that the projected declines will start to go the other way near the mid-point of 2017.
Once prices do start to increase, retailers need to crank up the marketing machine and offer specials and promotions to get people through the door and start paying normal prices again. A digital platform is a great place to start this kind of initiative, as many grocery shoppers frequently download digital coupons and compare product prices on their smartphones.
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