Your dollar may be going a little bit further at the grocery store these days, thanks to falling prices on meat, eggs, pork and poultry.
But what is good news for consumers is giving food retailers and food producers such as farmers heartburn as the downward pressure on prices cuts into their bottom line.
“I’ve definitely noticed” the lower prices, said Henrico County resident Tiffany Cutts, an avid price watcher who writes about grocery store deals on her website FrugalinVA.com.
“You can get eggs now for as cheap as 69 cents a dozen. Before, they were about $2 a dozen. It’s definitely helped with my grocery bill. I can tell it’s gone down a lot,” Cutts said.
Egg prices, which skyrocketed last year because of the bird flu crisis, have returned to normal levels, even dropping below pre-crisis levels. The average cost per dozen across the southern U.S. was $1.52 in September, compared to $3.02 per dozen in September 2015, according to federal data.
Egg prices are trending even cheaper in the Richmond area, according to figures compiled by the Virginia Department of Agriculture and Consumer Services. According to the agency’s monthly Market Basket survey of supermarkets, the price for a dozen eggs in the Richmond area averaged $1.07 per dozen in October.
Consumers also are getting deals on beef and veal, with the average price nationally down 7 percent in September compared to the same month a year ago, and down 5.5 percent from January to September of this year, according to federal data that track food prices.
This long stretch of falling food prices — food price deflation — is something that has not been seen in awhile. On average, for the past 20 years, supermarket food prices have risen 2.5 percent a year.
“According to people who watch these things, 10 months of year-over-year grocery price deflation is almost unprecedented,” said Jon Springer, retail editor for trade publication Supermarket News.
“And it’s very unusual to happen in an economy that is otherwise improving,” Springer said.
“There is some debate as to the extent to which it’s just the strong dollar and creating an oversupply of domestic goods. That’s got some role in the deflation issue affecting retailers. It’s not necessarily clear that is the only thing going on,” Springer said.
The falling prices may translate to just pennies per purchase for individuals, but to grocery stores already operating on razor-thin margins, these falling prices are a big deal.
“It’s a very tough time to be a supermarket operator. You have to sell more to come out even,” Springer said.
To sell more often means cutting prices with sales to stay ahead of the competition.
“It makes a tough operating environment even tougher,” said Frank Badillo, director of research for MacroSavvy, a market research and consulting company based in Henrico.
“Ultimately, in the long term, there will be additional thinning out, additional shakeout in the lower end of the grocery store market where these price effects weigh heaviest,” Badillo said.
In Richmond’s ultracompetitive grocery market, shoppers are finding weekly specials too good to pass up.
Tiffany Cutts said she barely bought any eggs last year when prices where sky-high, but today finds premium eggs at bottom-dollar prices.
“About two weeks ago, Martin’s had a sale on cage-free eggs — $1.50 a dozen. They taste a whole lot better than the regular ones,” she said.
At the Kroger in Short Pump last week, customer Jarnell Dorman of Henrico and Bobbie Mayhew of Goochland County looked over beef roasts stacked in a refrigerator case. Dorman selected one and said she would probably make a pot roast with carrots and potatoes.
“I try to come to Kroger because it is a little more competitive,” as far as price, Dorman said. She has noticed the price difference on eggs, particularly, but not necessarily on other foods, she said.
Milk, she thought, had gone up in price. She’s right.
In the Richmond area, milk prices are up, according to the state Department of Agriculture and Consumer Services. The average price for a half-gallon of milk in the Richmond area was $1.79 in October, up from $1.67 in September. In October 2015, the average price was $1.65 per half-gallon.
In the past five years, milk prices in the Richmond region were highest in May 2014, when a half-gallon sold for an average of $2.53, and the lowest was in June 2015 at $1.50 for a half-gallon.
Prices overall also are down based on the state Agriculture Department’s Market Basket report, a monthly survey of 40 food items priced during the same period each month at selected stores in the area. October’s Market Basket total for those 40 items purchased in the Richmond area was $131.72, down from $134.45 in October 2015.
Food prices in 2016 on average could end up below the previous year’s price levels, something that has not happened since 1967, said Annemarie Kuhns, an economist at the U.S. Department of Agriculture.
According to government forecasts, beef and veal prices are expected to decline 5.5 to 6.5 percent this year. Pork is expected to be down 2.5 to 3 percent in price; dairy down 1 to 2 percent; and eggs down 18 to 19 percent.
“The reason we are seeing these lower prices at the grocery store is largely a story about production,” Kuhns said.
“We just have increased production at the farm level, placing downward pressure on retail prices.”
Farmers also are facing a squeeze.
Farm cattle prices were down 20.5 percent comparing September 2015 to September 2016, Kuhns said. Farm-level egg prices are expected to decrease between 61 and 62 percent this year.
The falling prices are not across the board, nor are they affecting all retailers the same way.
At Ellwood Thompson’s Local Market in Richmond, owner Rick Hood said his store, which specializes in natural and organic foods, is doing OK. Prices for fresh fruits and vegetables, one of Elwood Thompson’s niches, have fluctuated the past year but overall are forecast to be up 1 to 2 percent this year.
“We are not seeing inflation, but we are not seeing deflation,” Hood said.
“We have run into some needed price adjustments with producers because there is a lot of competition. There are more of the conventional grocers that are selling the organic and natural products, so we have made some adjustments. The rest of the store we have not seen a need to lower prices to get more volume and that kind of thing,” Hood said.
“Our segment continues to be sought after. The demand is high — it’s often greater than the supply,” he said.
The USDA is forecasting that the deflationary cycle will end sometime next year. Grocery food prices are forecast to increase 1 to 2 percent in 2017.
Executives at Kroger, in a meeting with investors last week, talked about how food prices are hurting its bottom line. In September, the nation’s largest traditional supermarket retailer revised its earnings forecast, noting that because of continued deflation, it was lowering its net earnings guidance range to $2.03 to $2.13 per share, down from prior guidance of $2.19 to $2.28 per share.
“If you look at beef and pork categories, people are moving back in a very strong way, and we have incredible tonnage growth in those areas,” said Rodney McMullen, Kroger chairman and CEO.
Supervalu, the nation’s largest grocery wholesaler and a grocery store operator of such chains as Farm Fresh, also slashed its full fiscal-year earnings outlook in September, citing stiffer competition and price deflation. The company, a major local employer, said its fiscal second-quarter performance at its Save-A-Lot discount supermarket chain “has been impacted by deeper levels of deflation.”
In contrast to falling grocery food prices, restaurant food prices have been steadily rising.
Restaurant food prices are tied more closely to labor and rent costs, federal analysts and others said.
“The inflation at restaurants is helping boost growth there, but there is no rush to eat more at home because grocery prices are lower,” said Badillo with MacroSavvy.
“At restaurants and eating-out places, you have a population that skews more higher income and younger. They don’t do as much shopping at grocery stores to eat at home, so they are a little less affected by the falloff in prices there and are more inclined to keep spending at restaurants, even though prices are rising there,” he said.
Wendy’s CEO Todd Penegor cited cheaper groceries for the fast-food industry softness, according to The Associated Press.
“It’s gotten a lot more cheaper, relatively speaking, to go get fresh beef at your local butcher and go home and grill it,” Penegor said.
George Holm, president and CEO of Goochland County-based Performance Food Group Co., which distributes food and food-related products to more than 150,000 restaurants and other locations, said he believes price deflation has been “more impactful” to grocery retailers.
“There has been deflation at retail, and it’s made the difference in the cost to go out to eat and the cost to eat at home — it’s made the spread greater. A lot people are attributing the slowdown in the (restaurant) industry due to that. I’m not so sure about that,” Holm said.
“But I do get, let’s say you are someone who goes out twice a month for a steak at a mid-scale place, and you are paying $22 for a strip steak. And you go in and it’s $23 and, two days later, you go to the grocery store and you see strip steaks are down 50 cents a pound,” he said. “That may encourage someone to just cook it themselves.
“I can’t imagine that’s having that big an effect. There are two different occasions for someone. I am not sure they connect those dots. But we have customers who feel that is an issue.”