Grocery Store Prices are Climbing; Promotions and Special Deals Being Eliminated
Here is a follow-up to my post, First Sign of Accelerating Price Inflation: Egg Prices More Than Triple in March.
JPMorgan says food companies have started to talk about reducing the number of promotions they offer, reports MarketWatch.
In a note published Friday, JPMorgan analysts said 22% of food on store shelves is discounted, according to the companies under its coverage, and the average discount is 23%. Retail sales would increase 5% if all discounts went away.
“In a normal environment, reduced discounts — that is, higher prices — would lead to lower volumes, but we are not in normal times,” JPMorgan said. “We think elasticity will be minimal as long as food-at-home is benefiting from COVID-19 to this degree.”
Analysts noted that J.M. Smucker Co. US:SJM has already announced that it will be cutting discounts, saying in a March 19 letter to retailers that terminating promotions scheduled to start between April 17 and Nov. 30 is one of the measures it’s taking to deal with the aggressive demand.
“What I would tell you on promotions right now is, we’re honoring all the contracts we have in place,” said Conagra Chief Executive Sean Connolly on the company’s third-quarter earnings call on March 31, according to a FactSet transcript.
“But the tactical dynamic is that we’re in daily discussions with our customers on how to help them meet the needs of their shoppers. And many customers are looking to pull back on promotions as they try to manage the basics of just keeping their shelves stocked.”
S&P Global Ratings also identifies certain categories, like shelf-stable foods and household cleaners, as well-positioned for the coronavirus pandemic and volatile capital markets.
“The initial spike in demand from pantry-loading and consumers replenishing at a rapid rate because of the shift to at-home consumption gives manufacturers of staple items an advantage,” S&P said.
Again, I am warning in the EPJ Daily Alert that there is plenty of money out there. There isn’t much that can be bought now but what is being bought now is pushing prices higher. This going to expand once the lockdown is over.