Dive Brief:
- Retail prices are falling across the board for a number of commodities, including eggs, whole milk, cheddar cheese, chicken breast, sirloin tip roast and ground chuck, according to an informal survey from the American Farm Bureau Federation.
- The total cost of 16 food items with which consumers can prepare one or more meals was $49.70, an 8% or $4.40 decline compared to last year's survey.
- Americans spend less than 10% of their disposable annual income on food, the lowest average globally, according to USDA.
Dive Insight:
American consumers, manufacturers and farmers are currently facing the longest streak of food deflation since 1960, except for 2009, when the country was recovering from the financial crisis. Food prices in the U.S. have declined for the past nine consecutive months, Bloomberg reported.
The reasons for the continued decline of grocery retail prices varies, particularly based on segment. In general, lower oil prices and intensified competition among brands and retailers have fueled some of the pricing decreases. But when it comes to specific categories, egg prices have fallen as the supply stabilized following last year's bird flu-related shortage, and milk prices are down because of a massive surplus.
While this may benefit consumers, manufacturers and retailers have seen their margins take a hit. Lowering prices may drive unit sales, but with prices being so low, manufacturers have to sell significantly more products to make up for slimmer margins if they want to maintain profitability.
It's unclear when a turnaround might come for food prices or how that might impact brands' and retailers' sales and foot traffic. But for now, low prices are eating away at sales for fast food chains as more consumers are purchasing groceries and cooking for themselves at home.