Grocery Aisle Relief as Food Prices Fall

Grocery shoppers are finally seeing some reprieve from last
year's steep price increases.
Food prices are dropping on some key items as retailers slash
prices to better compete and food makers do more promotions and
pass along savings from lower ingredient and gasoline costs.
It's welcome relief for American consumers who are looking to
save money as they cope with stagnant incomes, job loss and
economic uncertainty.
Prices for dairy, meat, fruits, vegetables and bread have all
fallen.
A Labor Department price index of food sold to be eaten at home
fell for the seventh time in eight months in July. The index, which
is part of the Consumer Price Index, fell 0.5 percent in the most
recent month and is down 0.9 percent in the past 12 months.
In fact, overall food prices - what's sold in groceries and in
restaurants - haven't risen on a monthly basis since November 2008.
Still, that doesn't make up for the surge in food prices from
last year, when costs for ingredients like wheat and corn and fuel
costs for transportation soared to record highs. Food makers raised
their prices and some even shrank package sizes to protect their
profits. CPI's food-at-home index finished last year up 6.7
percent, so the less than 1 percent drop so far this year doesn't
erase that.
But ingredient costs for major food makers, including Heinz,
Kraft and Hormel, are down about 28 percent on average as of Sept.
1, from the same time last year, according to Jonathan Feeney, food
analyst for Janney Montgomery Scott.
That means the food industry now has room to give back some of
those price hikes - and feed the frugal consumer who is using more
coupons, buying more store brands and switching to discounters to
stretch a budget.
Consumers' demand to save money is pressuring retailers and
manufacturers to cut everyday prices and boost promotions
throughout their stores.
"The consumer really is very much in charge of the effort,"
said Herb Walter, a partner with PricewaterhouseCoopers. "They're
picking the price points they want and when they want it."
Safeway Inc. recently announced lower prices on milk, eggs,
cheese and other basic items. Whole Foods Market Inc. says low
prices on produce, such as organic berries, has meant significant
savings for shoppers.
And Costco Wholesale Corp., which aims to be the first of its
peers to lower prices and last to raise them, says prices are down
on items from paper towels to prime-cut meat.
Costco's Chief Financial Officer Richard Gallanti said the
company made some drastic moves in pricing, including reducing the
price of its rotisserie chicken by $1. The company sells just under
1 million of these chickens a week, so it hurt margins.
But Costco determined it would be worth it in the long run, and
shoppers gobbled up the deal. The company said it helped solidify
its position as a value-focused company, which is so important to
consumers.
"I think across the board, people are spending less and
spending more consciously," Galanti said.
The factors that drive what consumers actually pay can vary
wildly.
Weather, demand, oil prices and market competition all play a
role. And each food category has its own economics of supply and
demand. Falling prices for gasoline and transportation plus
consumer resistance to price increases have helped drive this
latest spiral downward.
April Schreiner, a mother of two, said she has noticed a
difference in her grocery bill.
During a vist to a Portland, Ore., Fred Meyer store she paid 88
cents for a half-gallon of milk, which she rarely sees for less
than $1. Butter and other staples also were unusually low-priced,
she said.
"Everything spiked for awhile with gas prices, it hurt to go to
the store," she said. "Now there is some relief. I see it. My
budget sees it."


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