One of the silver linings of having some money during depressions is that you’re able to buy so much. Just think of all the fun you could’ve had during the wonderful days of the Great Depression, when people cost less than a pint of beer. For many years, I’ve suffered in great angst at the Whole Foods grocer, where he’d rip me off with reckless abandon. I prefer to eat food without the inconvenience of cancer causing chemicals in it. As such, my monthly grocery bill typically tops $3k for a family of five. While it’s true, my caprices lead to towards high-end olive oil, balsamic vinegar and the very best cuts of meat, I would prefer to spend less for greedily shoving provisions into my gullet.
Well, according to recent data, it appears the local grocer is in a bit of a bind — thanks to Walmart and other crony capitalists — and prices are crashing, precipitously, the most since 1960.
In a startling development, almost unheard of outside a recession, food prices have fallen for nine straight months in the U.S. It’s the longest streak of food deflation since 1960 — with the exception of 2009, when the financial crisis was winding down. Analysts credit low oil and grain prices, as well as cutthroat competition from discounters. Consumers are winning out; grocery chains, not so much. Their margins and, in some cases, their stock prices, are taking a hit. Eggs and beef have have grown especially inexpensive, and it isn’t only an American phenomenon: In England, Aldi recently offered its prized 8-ounce wagyu steaks from New Zealand for about $6.50 — a little more than the price of a pint of beer.
“The severity of what we’re seeing is completely unprecedented,” said Scott Mushkin, an analyst at Wolfe Research who has studied grocery prices around the country for more than ten years. “We’ve never seen deflation this sharp.”
Mushkin, who researches local markets, recently found that prices of a typical basket of grocery items in Houston, had fallen almost 5 percent over the past year.
He credits, in part, the discerning behavior of shoppers like Manny Sinclair. On a weekday lunch break, the 43-year-old contractor stopped by a Wal-Mart in Secaucus, New Jersey, to pick up turtle food and paper towels.
At first, falling prices helped grocers. Low-cost commodities pushed down the tab for meat and packaged food and boosted profits. Now, deflation has turned ugly for the industry. Led by Wal-Mart, retailers are pushing down prices, eating away at their profit margins.
“It starts to border on irrational pricing,” said Jennifer Bartashus, an analyst at Bloomberg Intelligence. “People are lowering prices just to draw traffic, without thinking about their margins.”
Supermarkets are facing competition not just from Wal-Mart Stores Inc. and Aldi but also dollar stores and online retailer Amazon.com Inc. It could get worse. Lidl, one of Aldi’s German competitors, is building three distribution centers on the East Coast and plans to open U.S. stores by 2018. Even Whole Foods Market Inc. — famously derided as “Whole Paycheck” — is trying to compete on price through digital coupons and promotions on items such as beer and produce.
It was only a matter of time for the deflationary vortex to whirlwind though the food industry, laying waste to margins and causing wholesale disruptions in the industry — which, inevitably, will concede the balance of the market to very large corporate players. Ordinarily, I’d dismiss this news item as transient — a minor blip in an otherwise very magnificent economy. Notwithstanding, there is an estimable draw down taking place in grocery stocks, which I find to be notable.
Most of the carnage in the food sector has been isolated, hitherto, only in the grocery stores. Chiefly, stores that compete with Walmart are getting smoked, like KR.
KR -27%
WFM -14%
SFM -24%
SVU -32%
SFS -30%
NGVC -45%
CALM -10%
FLO -27%
HAIN -14%
Just guessing out loud here, eventually the price declines will begin to hurt processed food manufacturers and meat producers. For now, the big winners are consumers.
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It would be interesting to hear from farmers. I’ve heard the ag market has been flooded with so much supply due to the weather this year. The lifted China beef ban that Raul pointed out should make some impact?
They’re hurting. The commodities they produce, especially in the dairy industry are worth less than the cost to produce. Locally here in the Holstein rich area I reside, dairy guys are taking 1 or 2 days worth of production each month and literally draining the milk tank into the manure pit. (recycling at it’s finest) There is so much over supply in relation to demand that there are no processors willing to take their milk. No room for it.
What a waste, thanks for the feedback.
I guess if you eat at low end restaurants it might be true but for the rest of us, I’ve seen no such decline in my overall food costs (Safeway, local family store and occasionally Whole Foods)
Maybe if you eat at Taco Bell you dollar goes father. But so does your waist.
i shop mostly at whole foods and eat strictly organic — there is only inflation for me.
what deflation on food? if did not notice the packages got smaller and you have buy four of something to get 50% off, just follow the price of meat and that is not getting cheaper. what you pay for organic grass fed beef at wholefood fly?
Supermarkets were always paper thin margins and new signs go up on the same markets very decade or so. The wild one is Northgate which is a well run mexican super market that seems to be exploding in Socal. the deli hot plates for lunch is good eatin. and some how they have an in with the vegetable pickers cus they seam to be better quality and half the price of white supermarkets including walmart. I dont see cheap food prices at walmart when compared to Food Warehouse or dollar general or markets in low income areas.
tesla the new nailgun.
http://www.zerohedge.com/news/2016-09-27/caught-tape-hackers-take-control-moving-tesla-model-s-miles-away
microsoft tech nerds going ape shit thinking they can control crime. scary ass fucktards.
http://www.zerohedge.com/news/2016-09-27/wa-goes-after-pre-crime-gun-confiscation-proposed-those-likely-commit-violence-near-
Giant Eagle clearly didn’t get the memo. Their prices are ridiculous. The prices have never gone down.
For instance, a USDA Choice Strip Steak costs $13.99/lb at Giant Eagle while it’s $7.49 at Costco pre-cut, or $5.79/lb in bulk.
Any “deal” that they have requires you to buy 4 of whatever it is. If you only want one, you have to pay the full suggested retail price that’s probably 2x if not 3x the price if you get 4.
I basically refuse to shop there and go to a local discount grocery whose prices are considerably lower on EVERYTHING.
I’m honestly surprised no other grocer has come into this market with the huge margins available.
Perhaps this is good for restaurant stocks?
KR was really beginning to move in on the organic space, which was complete bullshit to begin with. People realize they can just grow share veggies and fruits and split grass fed cows with friends from local farms. 99% of the organic stuff in those sections is complete over priced bunk.
I was shopping at Aldi last night. My old husband loves saltine crackers. I could not believe my eyes when I saw the price for the box. $0.75
Ps. I am choosing to act on the DB issue. Why not take profits now?
Yes, the price of turtle food has dropped precipitously.
The tide has receded away from the shoreline.