Inflation Trends and Their Effects on Food Industry Consumer Spending

Current and Future Inflation Trends

Current inflation trends in the food industry show a stabilization, with expectations of around 2% inflation for fiscal 2025. Companies like Kroger and Costco report flat inflation rates, while consumer behavior reflects product switching due to previous inflation pressures. PepsiCo indicates a shift towards value for consumers after years of high inflation.

"We expect to grow our revenue and earnings in fiscal 2025. We expect the rate of inflation for fiscal 2025 to be approximately 2%, which is consistent with recent trends experienced in fiscal 2024." --- (SYY, sec filing, 2024/Q4)

"The decrease in our LIFO charge was due to lower inflation expectations for the current year compared to last year." --- (KR, sec filing, 2024/Q1)

"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)

"So, yes, there is some value to be given back to consumers after three or four years of a lot of inflation." --- (PEP, earning call, 2024/Q2)

"On the inflation front, it's more of the same from last quarter. Across all core merchandise, inflation was essentially flat in Q3, with fresh foods close to zero and slight inflation in food and sundries being offset by some deflation in non-foods." --- (COST, earning call, 2024/Q3)

Consumer Sentiment and Spending Behavior

Consumer sentiment is softening due to inflation, prompting cautious spending behaviors. Shoppers are trading down for lower-priced options and seeking value, while spending patterns are normalizing post-pandemic. Despite inflation, consistent spending across income groups indicates resilience among certain consumers.

"Starbucks results for the third quarter of fiscal 2024 reflect progress against our action plans to drive traffic to our stores and realized in-store and out-of-store efficiencies, which helped partially offset the impact of continued broader headwinds in a challenging global operating environment, including softening consumer sentiment, a pervasive inflationary environment, and disruptions due to multiple international conflicts." --- (SBUX, sec filing, 2024/Q3)

"In addition, business trends continue to reflect a normalization in spending patterns that first emerged more than 2 years ago, a pattern where consumers are remixing their spending back into services and entertainment outside of their homes after curtailing those activities during the pandemic." --- (TGT, earning call, 2025/Q1)

"Consumers being careful with their spend, trading down, looking for lower ASP products, looking for deals." --- (AMZN, earning call, 2024/Q2)

"So we're seeing that benefit from both sides of the consumer that great value in both areas are doing very well." --- (COST, earning call, 2024/Q3)

"Consistent spending across income groups. We've had more growth as we mentioned in the earlier remarks, on the high-end consumer." --- (WMT, earning call, 2025/Q1)

Changes in Food Spending Patterns

Recent trends indicate a shift in food spending patterns, with consumers increasingly favoring lower-priced options and fresh foods. Companies like Walmart and Costco report growth in unit sales and consumables, while dining out has softened, reflecting changing consumer preferences amid stabilizing food prices.

"And now that food pricing has calmed down some and we've got rollbacks happening in food and you've got a deflationary situation with GM, you've got the opportunity given the elasticity to grow more units, which we're doing." --- (WMT, earning call, 2025/Q1)

"Internationally, the food-away-from-home trend is following a similar pattern to the U.S. business." --- (SYY, earning call, 2024/Q2)

"So that's what we're trying to do. I think our categories will continue to grow faster than food and beverages in the majority of the countries around the world, given the trends on urbanization and the secular trends that we've been talking about both for convenient foods and beverages." --- (PEP, earning call, 2024/Q1)

"Ron Vachris: Yes. It does indeed look that way. I've got to tell you that the discretionary spend we're seeing, I mean, we're definitely winning in consumables as we see the food business and dining away from home has softened up a bit and people are eating and we're seeing that in our fresh foods." --- (COST, earning call, 2024/Q3)

"The increase was primarily due to positive comparable sales in each of our international markets driven by strong sales in food and consumables as well as strength in eCommerce." --- (WMT, sec filing, 2025/Q1)

Price Sensitivity Among Consumers

Consumers are increasingly price-sensitive, prompting companies like Mondelez, Walmart, Costco, Target, and Sysco to adjust their pricing strategies. These firms are reducing prices on key items and focusing on value to attract a broader range of customers, particularly in response to inflationary pressures.

"We moved price points particularly in the bigger sizes, about $4 and we have to lower to below $4 to really get access to those consumers that are price sensitive." --- (MDLZ, conference, 2024/06/13)

"But at the same time 70% of Better Goods items are priced under $5. This is the type of quality and value that will resonate with customers across income spectrums." --- (WMT, earning call, 2025/Q1)

"Our investments in merchandise pricing may include reducing prices on merchandise to drive sales or meet competition and holding prices steady despite cost increases instead of passing the increases on to our members, negatively impacting gross margin and gross margin in the near term as a percentage of net sales (gross margin percentage)." --- (COST, sec filing, 2024/Q3)

"As Brian mentioned earlier, value remains a top priority for consumers, and we recently reduced prices of more than 1,500 items across our assortment in many markets." --- (TGT, earning call, 2025/Q1)

"What's great is these brands do resonate with our international customers, and they provide unique opportunities to both hit lower price points for more price sensitive segments as well as bring innovation globally. Rick mentioned earlier that in Europe, the merchandising teams have launched over 1500 Cisco brand items, and we have over 2,000 more planned in the next 3 years." --- (SYY, event transcript, 2024/05/22)

Strategies Employed by Food Companies

Food companies are employing diverse strategies to navigate inflation, focusing on growth opportunities in both retail and food service sectors, enhancing product availability, and reshaping portfolios. Companies like Sysco and Mondelez emphasize purpose-driven growth and sustainable practices to adapt to changing consumer behaviors and preferences.

"So food service has opportunities but we've also got opportunities across the international business and the retail business in the U.S. as well." --- (CAG, earning call, 2024/Q1)

"Strategy Our purpose is “Connecting the World to Share Food and Care for One Another.” Purpose driven companies are believed to perform better, and we believe our purpose will assist us to grow substantially faster than the foodservice distribution industry and deliver profitable growth through our “Recipe for Growth” transformation." --- (SYY, sec filing, 2024/Q4)

"Internationally as well, I would say that is a huge wide space for growth for our business, both in trying to improve the availability of our current products and also creating new solutions that are more targeting meals and meal replacement as consumers buy more food away-from-home." --- (PEP, earning call, 2024/Q1)

"remain focused on advancing our long-term growth strategy by reinvesting in our brands and people, driving strong execution, reshaping our portfolio, and scaling sustainable snacking." --- (MDLZ, earning call, 2024/Q1)

"So there's a role for us to play or there's -- that business plays a role for us as a company in terms of overhead absorption in our vegetable plants but our aspiration is not to be the world leaders and fastest growers in commodity veg tier within frozen because that's just arguably a bit of a misuse of our resources that we could people and otherwise but elsewhere because there's not much of a profit pool there. So it's important for us to maintain a certain scale of" --- (CAG, earning call, 2024/Q1)

Impact of Inflation on Food Choices

Inflation is modestly impacting food prices, leading to a shift in consumer spending. While food inflation remains manageable, overall unit sales in edible goods are weak, indicating that consumers are adjusting their food choices in response to rising costs.

"So food is up modestly in terms of inflation, consumables is about flat and general merchandise is down." --- (WMT, conference, 2024/06/12)

"It seems like part of it is the inflation's gone out of the edible side of the consumer wallet and units have been weak, but it also seems like genMerch is a little weak more recently." --- (WMT, event transcript, 2024/06/07)

Long-term Effects of Inflation on Consumer Habits

Long-term inflation has shifted consumer habits, as seen in Walmart's strong performance amid rising prices. Sysco highlights the impact on staple items like chicken, while Mondelez adapts pricing strategies to manage costs, indicating a trend towards mindful spending in the food industry.

"The retail giant's performance has exceeded Wall Street's expectations and signalled a robust consumer appetite, marking a significant achievement in a period characterised by inflationary pressures and shifting consumer habits." --- (WMT, press release, 2024/08/21)

"And for them, it was chicken, fresh chicken. And you think about a product like that and the inflation that they've had to deal with and the fluctuations in price over the last couple of years." --- (SYY, event transcript, 2024/05/22)

"Inflation is in total in line with what we expected, and by now we have locked cocoa for the entirety of 2024." --- (MDLZ, earning call, 2024/Q1)

"Now, I don't want to give you the false impression that we are not going to have inflation in cocoa in 2025, because reality is, in 2024 we are covered at materially better prices than current market." --- (MDLZ, earning call, 2024/Q1)

"And then we grow also through, I would say, mindful pricing because there is inflation in this market." --- (MDLZ, conference, 2024/06/04)