The fact that food prices in the United States are rising across the supermarket and specifically in the produce department is now widely acknowledged. What’s perhaps less understood is the relative scale of price inflation in fruits and vegetables. From the perspective of having worked intensively with supermarket scan data on fresh foods for more than two decades, the breadth of price increases we are currently seeing has no comparison with any period over these past 20 years.
What we know is that rising prices invariably cause consumers to alter their purchase behavior and product decisions. We’ve witnessed this in aggregate sales data as well as in loyalty card records that reach down to the level of the individual shopper. The key issues now are the significance of the price shifts within the produce department, the categories experiencing above average price shifts and how this may be impacting consumer purchases.
During the severe economic downturn between 2008-2011 known as the Great Recession, households across the United States were suddenly dealing with significant economic stress. Nielsen shopper panel and consumer research revealed that during this period, as household budgets became more stressed, there were marked shifts in consumer shopping and eating behavior. Specifically, shopping trips declined as consumers made fewer store visits. Use of “budget stretching” tools such as couponing and purchases of promoted and sale items increased. More financially stressed consumers began actively switching to lower cost items such as store brands in place of better-known national brands. And most importantly, consumers actively sought substitutes for similar items that would allow them to stretch their food budget.
Inflation was not a factor during the Great Recession. However, we can learn from this period because declining household income effectively impacted consumers by shrinking discretionary food budgets. Today, we see a similar impact. Inflation is effectively reducing the purchasing power of consumers by forcing them to shift their daily and weekly buying behavior to cope with higher prices.
What’s happening in produce?
According to supermarket food data from NielsenIQ, inflation in produce is significant. The national average for retail pricing in the produce department surged 8.1% for the 52 weeks ending August 13, 2022 – the most recent data available at the time of writing – versus the same period in 2021. For the most recent 26 weeks, prices jumped 9.3% for total produce. For the most recent 13-week period versus last year the average price in produce jumped 8.3%. By any recent historical measure, the increases in average retail price for produce are high. Price inflation across the past 10 years has generally increased at a rate of 2-3% annually. So, a percentage price increase that is three to four times that rate in a single 12-month period is substantial and will likely impact consumer purchase behavior.
Organics vs. conventional
Inflationary price pressure in organic produce has been lower than for conventional produce. For all periods (52 weeks, 26 weeks, 13 weeks) the percentage price increases for organic produce have been below conventional. However, during the most recent 13-week period, organic retail prices surged by nearly 8%, not far below the 8.5% increase for conventional.
Organic vs. conventional switching costs
In the case of organics, we see that in real dollar terms, price increases for organic produce are actually larger than conventional, despite showing a lower percentage increase. As the chart on the left shows, the switching cost (or savings) for consumers to move between conventional and organic produce has increased. For the 52-week period, the average incremental cost to buy organic produce was $1.40. For the most recent 13-week period, the incremental cost to buy organic produce has increased to $1.57.
Of larger concern for organic produce is that consumer behavior studies indicate that many consumers trade down and substitute like items as household food budgets come under pressure. As food and energy prices rise, organics are increasing in price faster than conventional, a trend that is likely to incentivize some consumers to opt for conventional produce alternatives.
Price/volume shifts by category
Quantifying price/volume shifts in produce are particularly difficult because season/annual changes in production volume naturally create sales trends which can exacerbate or completely offset inflationary impacts. As such, caution must be used in reaching conclusions regarding inflationary impacts, especially at the category level.
That said, in terms of price changes in individual categories, the vast majority of produce categories have experienced substantial price inflation over the past 52 weeks. In fact, only a handful of products fall below the national average. Multiple large categories (packaged salads, apples, potatoes, mandarins) are showing double digit inflation rates. For most categories, volume declines over 52 weeks have been modest. However, if consumer discretionary budgets continue to be stressed by inflationary price trends, volume declines are likely to become more significant.
• This report was compiled and developed by Category Partners, a strategic insights company focusing on fresh food, utilizing data exclusively provided by Nielsen IQ.