Inflation Trends and Their Effects on Consumer Spending in the Food Industry

Current inflation rates and trends

Current inflation trends in the food industry show a mix of moderation and ongoing pressures. While companies like PepsiCo anticipate stable inflation rates, General Mills notes a decrease in food inflation against a broader 3-4% economic backdrop. ConAgra highlights continued consumer challenges due to high inflation, impacting volumes.

"And yes, it comment earlier on our inflationary trends would expect them to be fairly moderate for the balance of the year, fairly smooth through the balance of the year." --- (PEP, earning call, 2024/Q1)

"Actually food inflation is actually coming down. But if you look at the broader macroeconomic environment, we're still seeing inflation of 3% to 4% in the broader environment." --- (GIS, earning call, 2024/Q4)

"We expect consumer trends to continue to evolve and our volumes to improve over time, however, economic pressures on consumers, including the challenges of high inflation, may continue to negatively impact our volumes throughout fiscal 2024." --- (CAG, sec filing, 2024/Q3)

"Latin America's net sales increased by 4% organically in the second quarter sustaining a mid-single-digit growth rate on top of big growth in the year earlier quarter. Price/mix growth is moderating as expected we lap prior year actions to offset high cost inflation." --- (K, earning call, 2024/Q2)

"And so outlook Q2 through Q4, so relatively benign inflation and not a lot of volatility in the rate of inflation quarter-to-quarter." --- (PEP, earning call, 2024/Q1)

Consumer behavior in response to inflation

Inflation has led consumers to switch products and seek value, as seen in Walmart's and Costco's strategies to adapt. Despite a strong job market, consumer confidence has dipped, impacting spending patterns, as noted by Target and Amazon. Overall, inflation significantly influences consumer behavior in the food industry.

"Certainly, has been some inflation and put pressure on consumers. And what we've really noticed, this started in early 2022, was some conscious switching amongst products and you can see that pronounced suddenly in the store, but based on what people are having delivered and our flexibility, convenience and other things that we have improved over the last few years have made a difference on our ability to serve more of our existing customers more often with more units and then meet some new customers as well, which is great." --- (WMT, conference, 2024/06/11)

"In fact, consumer confidence took a meaningful dip in April despite a strong job market and normalizing inflation." --- (TGT, earning call, 2025/Q1)

"In addition, changes in fuel, utility, and food costs, interest rates, and economic outlook may impact customer demand and our ability to forecast consumer spending patterns." --- (AMZN, sec filing, 2024/Q1)

"And so if you think about the three main categories in core between foods and sundries, fresh and non-foods, fresh would have continued to have been slightly lower year-over-year, and that's a very deliberate strategy for us to make sure we're delivering more value for the member, and we think that's a really important place for us to drive member engagement and support, especially as we're still seeing some commodities that are a little bit inflationary right now." --- (COST, earning call, 2024/Q2)

"Other Information ." We expect continued uncertainty in our business and the global economy due to inflationary trends, a challenging macro environment, geopolitical conditions, supply chain disruptions, volatility in employment trends and consumer confidence." --- (WMT, sec filing, 2025/Q1)

Price sensitivity among consumers

Consumers are increasingly price-sensitive, particularly those with household incomes under $100,000. Companies are adjusting pricing strategies, as consumers are reluctant to accept new price points, indicating a strong focus on value beyond just price. This sensitivity is impacting sales and profit margins across the food industry.

"So the basket that people can fill is affected, obviously, by the absolute dollars in their pocket. And the consumer is so strained, it is -- it's become heightened in terms of making sure that you hit those right price points, particularly with consumers under $100,000 in household income with kids, that's where we're seeing the price sensitivity." --- (K, earning call, 2024/Q2)

"And I know the consumer measures value in lots of different ways, not just price, so I was hoping to get maybe a better sense of how the mix of incremental spending for '25 is sort of broken out across what would you consider higher-quality sort of brand equity building versus, let's say, more trade or price-oriented spend, particularly as this is such a sort of a hot button topic among investors right now." --- (GIS, earning call, 2024/Q4)

"Higher net price realization contributed 3 percentage points to net sales, primarily due to list price increases for our U.S. Retail Frozen Handheld and Spreads and U.S. Retail Pet Foods segments and for International and Away From Home, as well as the favorable impact of lapping customer returns and fees related to the Jif peanut butter product recall in the prior year, partially offset by a net price decline for the U.S. Retail Coffee segment." --- (SJM, sec filing, 2024/Q4)

"Steve Cahillane: Yes, Andrew, I think that's exactly right. We talked, I think, in the last quarter and probably the last two quarters about those very reference price points and talking about the consumer will walk by four or five trips, and not just be able to accept that new reference price point." --- (K, earning call, 2024/Q1)

"Segment operating profit of $119 million was up 7 percent, driven primarily by HMM cost savings, lower other supply chain costs, and higher volume, partially offset by unfavorable net price realization and mix, input cost inflation, and a double-digit increase in media investment." --- (GIS, press release, 2024/09/18)

Impact of inflation on food companies' revenues

Inflation is significantly impacting food companies' revenues, as seen in decreased net sales and operating profits due to rising input costs and consumer purchasing power challenges. Companies are implementing strategies to manage these pressures, but overall financial performance remains affected by inflationary trends.

"This initiative is our way of showing appreciation to our loyal customers as we aim to provide tremendous value during a period when inflation continues to affect food prices," said Kevin Miller, Chief Marketing Officer of The Fresh Market." --- (KO, press release, 2024/06/20)

"Europe Reported net sales decreased 4.5% in the second quarter, reflecting volume pressured by elasticity across categories and last year's divestiture of operations in Russia, partially offset by the positive impact of revenue growth management actions over the past year to cover cost inflation." --- (K, sec filing, 2024/Q2)

"The increase in gross profit was driven by the net sales growth discussed above, productivity, and lower transportation costs, partially offset by the impacts of input cost inflation and unfavorable fixed cost leverage." --- (CAG, sec filing, 2024/Q3)

"Operating profit decreased 34%, primarily reflecting the net revenue performance, certain operating cost increases, a 12-percentage-point impact of charges associated with the Quaker Recall and a 6-percentage-point unfavorable impact of commodity costs, partially offset by productivity savings and lower advertising and marketing expenses." --- (PEP, sec filing, 2024/Q2)

"And not surprisingly, when you look at the cumulative impact that inflation has had on their baskets of goods and services and their ability to continue to afford them." --- (KO, conference, 2024/09/05)

Food companies' strategies to mitigate inflation effects

Food companies are implementing various strategies to mitigate inflation effects, including Walmart's focus on long-term supplier agreements and sustainability, Target's price reductions on thousands of items, and Kellogg's emphasis on growth in specific product categories. ConAgra Brands is enhancing product appeal through innovative preservation methods.

"Doug McMillon: I think general merchandise mix was impacted by food inflation to a degree." --- (WMT, earning call, 2025/Q1)

"We expect to sustain momentum in Snacks, led by Pringles, though the Middle East situation may slow its overall growth in the region and we expect to sustain growth in Cereal, led by emerging markets." --- (K, earning call, 2024/Q1)

"Shoppers will enjoy lower prices on food, beverages and household essentials MINNEAPOLIS, May 20, 2024 /PRNewswire/ -- Target Corporation (NYSE:TGT) announced today it will lower everyday regular prices on approximately 5,000 frequently shopped items across its assortment.1 The retailer has just reduced prices on about 1,500 items, with thousands more price cuts planned to take effect over the course of the summer." --- (TGT, press release, 2024/05/20)

"In fact, the advertising we're running now is directly comparative as I mentioned to you previously and features the clear benefit of our Stay Fresh flash freezing process which basically freezes time for the consumer and keeps our vegetables at the peak of freshness until the consumer is ready. So it's a clear advantage. And in the most recent 4 weeks of" --- (CAG, earning call, 2024/Q1)

"I'm working on a number of initiatives, Doug, things like long term agreements with our suppliers to make sure that they can make the investments they need to secure future food supply, working diligently in things like sustainability across the key stakeholder groups to equip farmers to make sure that our food supply is steady for years to come." --- (WMT, event transcript, 2024/06/05)

Future outlook on inflation and consumer spending

The future outlook on inflation and consumer spending appears positive, as companies like Walmart and Amazon report growth despite lower inflation. Costco notes a return to discretionary spending, while Kroger highlights increased basket values. However, cautious growth expectations remain, indicating a careful approach to future consumer behavior.

"We're demonstrating that we're able to grow our business on a sustained basis in the absence of price inflation.Global e-commerce losses continue to narrow, most notably in our Walmart U.S. and Flipkart businesses." --- (WMT, earning call, 2025/Q2)

"I'm happy to report that through all our hard work, combined with strong demand from our dedicated customer base and lower inflation, all this resulted in 2023 operating income of $37,000,000,000 more than triple 20 22's operating income of $12,000,000,000 There are 3 primary drivers for this improvement: First, in stores, our focus on reducing cost to serve, which benefited from our shift to a regionalized fulfillment network." --- (AMZN, event transcript, 2024/05/22)

"As inflation has leveled off, our members are returning to purchasing more discretionary items." --- (COST, earning call, 2024/Q1)

"Identical sales, excluding fuel, for 2022, compared to 2021, increased primarily due to an increase in the number of households shopping with us and an increase in basket value due to retail inflation, partially offset by a reduction in the number of items in basket and the termination of our agreement with Express Scripts." --- (KR, sec filing, 2023/Q4)

"of affairs globally, would suggest that it's prudent to remain appropriately cautious with our outlook.Reflecting these considerations, our guidance is for growth in Q3 sales of 3.25% to 4.25% and operating income of 3% to 4.5% with EPS expected to be $0.51 to $0.52." --- (WMT, earning call, 2025/Q2)

Long-term consumer trends post-inflation

Long-term consumer trends post-inflation indicate a gradual adaptation as consumers establish new reference prices, particularly among lower-income groups feeling economic stress. While some brands like Hostess benefit from favorable snacking trends, concerns remain about specific product lines, highlighting the need for ongoing monitoring of consumer behavior.

"Now, there is nothing in terms of consumer -- long-term trends that tells us that that's not possible." --- (PEP, earning call, 2024/Q2)

"That means a gradual waning of the challenging industry trends seen throughout fiscal ’24, as consumers adapt and establish new reference prices." --- (CAG, earning call, 2024/Q4)

"The Hostess brand gained volume share in the quarter, and long-term snacking trends continue to be favorable, providing tailwinds for our business." --- (SJM, earning call, 2024/Q4)

"Over the last several months, we've been hearing more and more commentary of consumer, particularly a lower income consumer that is feeling stressed." --- (K, earning call, 2024/Q1)

"I know you're staying close to the consumer that gives you any pause with the longer term outlook for the Frito business, which has been so strong for so long." --- (PEP, earning call, 2024/Q2)