The Bureau of Labor Statistics reported the dry numbers that wholesale food prices rose 7.4% in February, while retail prices rose just 2.8%. Even though the grocery stores were eating much of the difference, the rising price of food is leading to sticker shock among consumers, and they are responding with more aggressive coupon use.
According to a Harris Interactive survey, 72% of shopper are using coupons to defray costs and 71% are comparing unit prices of package sizes. About 66% are shopping at discount grocery stores while 64% are stocking up on items when they reach low prices. And in a surprising twist, higher income households are more likely to scrutinize costs: 81% of households in $75,000 to $100,000 bracket are using coupons versus only 63% of households in $35,000 and less bracket.
In the battle of the sexes, the survey found 78% of women use coupons versus 66% of men, 75% of women compare unit prices of package sizes versus 67% of men, and 68% of women stock up at low prices versus 60% of men.
As margins get squeezed, more groceries are relying on retailer discounts provided by manufacturers to help the bottom line, for example, accounting for the equivalent of about 7% of sales at Safeway and 8% of sales at Kroeger, according to the Wall Street Journal. However, manufacturers are also facing margin pressure, and may curtail such incentives or shift them to retailers with the best prospects. Indeed, retailers continued to expand onto grocery stores’ turf with produce, frozen meats, bakery items, and frozen pizza. Target, Walgreens, and CVS are leading the retrofitting because they see it as an opportunity to boost sales by getting people to drop in more frequently.
And it’s working. Packaged Facts reported sales at traditional grocery stores rose 4% over the past five years, while Walmart, Target, and Costco grew at a rate of 10%. Target’s $500 million food investment in 2010 retrofitted 450 of its 1,750 stores with full-blown food sections that yielded 6% higher traffic — and sales — than at similar stores without them. Target noted another 400 conversions are planned for 2011. CVS, with prescription profits squeezed by discount health care plans, added food to lure shoppers inside stores. The 200 redesigned urban stores worked so well, it expects to convert another 1200 stores.
Of course, groceries can always remind brand-name manufacturers that they can increase shelf space devoted to higher margin private label products — a survey from Rabobank’s Food and Agri Research division found that the global market share of private/own label food products will double from the current 25% to 50% by 2025 — to keep the retailer discounts coming and the bottom line humming.