Have consumers reached a breaking point with grocery prices?

Inflation, particularly food inflation, has been a hot topic for the past couple of years, and it appears that consumers might be reaching a breaking point when it comes to grocery prices.

Two high-profile retailers, Target BB #:166987 and Aldi BB #:116756, have announced widespread price-lowering promotions for the summer, and this has me wondering if it’s a sign of more to come?

Target and Aldi’s price-lowering campaigns aren’t necessarily innovative. Over the past couple of years of high food inflation, retailers like Kroger, Walmart, Aldi, Southeastern Grocers, and more have had marketing campaigns featuring lower prices, but up until now they’ve been very much targeted at a specific holiday, like Thanksgiving.

Target and Aldi’s announcements are more widespread, touting big numbers: Aldi is “putting $100 million back into customer’s wallets” through labor day, and Target says it is lowering prices on 5,000 items.

While the month-over-month and year-over-year inflation numbers aren’t as much of a shock to the system as they used to be, we have to keep in mind that consumers aren’t tracking the same way.

According to retail data firm Circana unit cost increased about 1.9% from April 2023 to April 2024, which doesn’t sound too bad. However, prices across all food and beverage were 33 percent higher than they were pre-pandemic.

And consumers don’t feel too great about it.

Research by 210 Analytics, Circana, and the International Fresh Produce Association, 34 percent of consumers surveyed said they are worse off financially than they were a year ago.

“While food-at-home inflation has been mild all year, the cumulative impact of inflation has nine in 10 shoppers concerned about grocery and restaurant prices,” the monthly sales report found.

So far, however, retail sales dollars have continued to grow, despite lower unit sales, bolstered by higher prices.

But that may be changing. In an article titled “Grocers are finally lowering prices as consumers pull back,” The Washington Post reported that retailers are nervous consumers’ “increasingly dour outlook about their financial well-being,” saying Target’s rollback is in response to consumers tightening their belts.

In fact, Target reported a 3.2 percent drop in sales in its most recent quarterly report.

Faced with the prospect of lower sales, I think we’ll see more of these price-lowering promotions – for sure in the short term – but maybe long term as well.