Supermarket operators including Albertsons Cos., The Kroger Company and others are reporting rising sales, driven by rising food prices and consumers preparing many meals at home. Profits are also rising for grocery chains as they raise the prices of many products rather than absorb all the increase, although some executives have said inflation is starting to change consumers’ shopping habits.
Inflation hit a four-decade high of 8.5 percent in March, the US Labor Department said on Tuesday, up from a year earlier in the same month. Food prices increased by 8.8% compared to last year, while grocery prices increased by 10%.
Albertsons officials said Tuesday that the Boise, Idaho-based grocery, which operates its namesake stores as well as the Jewel-Osco and Safeway chains, is managing inflation well and gaining market share. . There haven’t been major changes to the way consumers shop so far, officials said, though they expect low-income shoppers to start buying fewer groceries later in the year.
Albertsons CEO Vivek Sankaran said on a conference call with analysts, “We are giving people choices. Buyers are buying items at multiple prices, coming to stores more frequently and as fuel prices rise.” Can consolidate trips to save money in the U.S., he said.
Mr Sankaran said he expects inflation to moderate in the second half of 2022 and supply challenges to improve.
Food price inflation and the ability to pass on grocers’ prices have been a significant contributor to food retailers’ earnings, analysts at Wells Fargo & Co wrote in a research note Tuesday. Demand, historical inflation and “aggressive industry pass-through pricing” have created tailwinds for Albertsons, he wrote, although consumers’ acceptance of higher prices may diminish as the years pass.
Rising prices are at play in the supermarket industry, officials said, as some food manufacturers announce higher prices weekly. The war in Ukraine is expected to further increase prices of ingredients such as wheat, and grain-based products such as flour and pasta are already becoming more expensive, he said. Kroger said last month that the biggest increases were in the prices of meat and grocery products.
As prices continue to rise, some consumer demand is cooling off and shoppers are starting to do business. Grocery executives said people are buying fewer items, while looking for more deals and switching to cheaper private-label brands. Analysts said low- and middle-income consumers are buying more store brands, which are cheaper. For the five weeks ended April 2, US grocery sales rose 6.4% in dollar terms, while declined 4.1% in terms of units sold, according to NielsenIQ.
Albertsons said similar sales for the three months ended February 26 rose 7.5% and were up nearly 20% compared to two years ago. The company said quarterly profit was $455.1 million compared to a loss of $144.2 million a year ago.
Kroger said in March that its similar sales grew 4% for the latest quarter from a year ago and 15% from two years ago, as well as quarterly profit up from the same period in 2021. Kroger executives then said they expect inflation to moderate. second half of the year and that consumers continue to cook more at home.
For its current fiscal year, Albertsons said it expects sales to grow 2% to 3% in fiscal 2022, with adjusted profit of $2.70 to $2.85 per share. Executives said they expect a slight dip in profit margins as the company will introduce fewer Covid-19 vaccines this year. Shares fell nearly 5 per cent on Tuesday.
Industry analysts said retailers that sell a wide variety of food items have more room for pricing. The largest grocery chains are able to offset the pressure on profitability by selling off store brands and selling store brands that expand non-grocery businesses, such as advertising.
Analysts at Bank of America wrote in a note last week that food inflation will continue for at least the next six months and that US consumers are still accepting the hike in supermarket prices. Inflation will drive shoppers to a greater variety of stores, including Kroger, he wrote.
Food manufacturers have said they plan to further increase the prices of their products as the COVID-19 pandemic, and Russia’s invasion of Ukraine, increase supply-chain costs. Conagra Brands Inc. Ltd. said this month that its sales volume remained strong despite higher prices, though profit declined. The company said rising ingredient prices and trucking costs are prompting the maker of Slim Jim Meat Sticks and Healthy Choice frozen meals to raise prices again.
Inflation is also driving up prices in restaurant dining rooms and drive-throughs. Restaurant prices rose at a slower rate last month, but are still up 6.9% over the previous year, the biggest 12-month increase since December 1981. Some restaurant owners have said they are concerned that consumers may return when eating out in response to higher menu prices.
—Heather Hayden contributed to this article.