Nowhere has the constant ripple effect of the pandemic been more evident recently than the steady rise of price points of consumer-packaged goods. Inflation has spread across the economy just as workplaces and daily routines had begun to stabilize, offering one more unknown as consumers head to grocery stores. According to the Bureau of Labor Statistics, prices rose 8.5% in March 2022 compared to a year ago — the single highest increase in over 40 years.
While that data point certainly grabs any retailer’s attention, it’s important to realize that inflation is appearing differently depending on the retail channel.
Conventional Channel
Stores in the Conventional Channel are feeling the biggest brunt, with an overall average retail price (ARP) increase of 10%. Digging deeper, conventional products saw 11% ARP increase, while natural products sold in the Conventional Channel posted an increase of 7% in ARP.
Inflation Index – 4 weeks ending 3/20/22
*Indexes can be read as % increases. An index of 100 = no change year over year.
Department:
- Alcohol 103
- Body Care 108
- Frozen 113
- General Merch 112
- Grocery 112
- Medicine/Personal Health 109
- Pet 114
- Produce 107
- Refrigerated 102
- Vitamins & Supplements 102
- TOTAL 110
Source: SPINS Total US-Food Average Retail Price, 4wk ending 3/20/22
Natural Channel
Conversely, natural food retailers thus far have seen less of an impact from inflation. The Natural Channel (stores with 40% or more in natural/organic sales) posted a 6% ARP increase over the past year; still higher than normal but not double digits. Conventional products sold in the Natural Channel grew 7% in ARP, while natural products grew 5%.
Department:
- Alcohol 106
- Body Care 101
- Frozen 108
- General Merch 106
- Grocery 106
- Medicine/Personal Health 104
- Pet 105
- Produce 111
- Refrigerated 105
- Vitamins & Supplements 102
- TOTAL 106
Source: SPINS Natural Channel-Total US Average Retail Price, 4wk ending 3/20/22
NCG Co-ops
Finally, we look at NCG members’ totals, which experienced the smallest impact, with a 4% increase in prices through March 2022. Most impactful is the fact that this 4% ARP increase held regardless of product positioning: Conventional and natural products both held to this 4% increase, unlike in other retail channels observed.
Department:
- Alcohol 103
- Body Care 103
- Frozen 106
- General Merch 103
- Grocery 105
- Medicine/Personal Health 99
- Pet 108
- Produce 102
- Refrigerated 105
- Vitamins & Supplements 101
- TOTAL 104
Source: SPINS NCG-Total US Average Retail Price, 4wk ending 3/20/22
From the above data points, there are a few key take-aways to note:
- Impact by category: Across channels, food category prices increased between 5% and 14%, with nothing immune from inflation. Non-food categories saw very low movement in price, especially wellness (perhaps an opportunity to hold on to customers won during the pandemic and not lose them to other channels).
- Natural resiliency: Natural products have always cost more, but even with two recessions in the past 20 years they have not lost their momentum. SPINS data from 2009 shows 8% growth even in the middle of that recession — so don’t expect this one to blunt natural’s progress.
- Hold your ground: There seems to be a conscious effort by independent retailers to hold their ground and not follow the larger price increases elsewhere, and it has the potential to pay off. For so long the biggest consumer complaint of natural and organic products has been the higher price point. If the gap between conventional and natural prices shrinks, it offers motivation for customers to switch to a competitor.
Many economists are predicting inflation woes to continue through much of the summer, so unfortunately, we’re not out of the woods yet. However, when put into the context above, these difficult times still offer opportunities for retailers who utilize sensible pricing strategies to capitalize on the competition’s shortcomings.
