Get ready to adjust your grocery budget, because top retail executives are warning that the high prices we’ve been seeing for everyday essentials aren’t just here to stay, they might even keep climbing in certain areas, which is a tough pill to swallow for household finances.
Walmart’s CEO, Doug McMillon, recently shared a sobering message at the 2024 Morgan Stanley Global Consumer and Retail Conference, telling everyone to expect higher grocery prices for the foreseeable future, which really highlights how worried industry leaders are about food inflation sticking around.
McMillon expressed his frustration with food inflation ticking back up, specifically calling out eggs and dairy as major culprits, but also mentioned that rising costs for cocoa and other supply chain components are adding to the pressure, making things difficult for everyone.
The Walmart CEO pointed out the huge difference between today’s prices and those before the pandemic, stating, “if you look at all of the food, prices are a lot higher than they were before the pandemic, which is not what the customers want and not what we want,” a sentiment that truly captures the frustration many shoppers feel.
1.Looking ahead, McMillon offered a cautious prognosis for certain food segments. He suggested that while items like eggs and milk might see quicker price adjustments, processed food categories are unlikely to revert to their pre-pandemic levels, or even experience significant reductions, in the coming year. Despite this, he affirmed the company’s commitment to finding solutions, stating, “But I would like to see customers get some relief on that side of the equation.”
Walmart, under McMillon’s leadership, is actively engaging with its supplier network to address these inflationary pressures. He commended certain partners, noting, “We have some suppliers who are stepping forward to help drive volume, and we appreciate that very much and we want everybody to do that.” This collaborative approach is critical in the ongoing effort to manage costs and maintain product availability.
To navigate these tough economic times, Walmart is focusing on its “four dimensions of customer value,” as described by McMillon, which guides their operations and reminds them that “people are super practical, and if they can get a better deal somewhere else holistically, they’ll go get it,” emphasizing the need to always offer value.
2.He further elucidated these foundational pillars: “what we think about is price, breadth of assortment, the experience they have shopping with us, whether it’s e-commerce or in stores, and trust.” McMillon asserted that Walmart’s ability to gain market share is directly attributable to the combined strength of these four elements. This holistic approach aims to deliver comprehensive value beyond just the lowest price point.
Despite the prevailing economic headwinds and the desire for increased growth and sales, McMillon underscored a foundational commitment to customer experience over immediate profits. Walmart has reportedly made substantial investments in recalibrating its pricing strategies and diligently working to keep its price gaps lower than those of competing retailers. Furthermore, McMillon highlighted that shopping at Walmart is designed to save customers time, which he described as their “most precious commodity.”
Reiterating the company’s broader mission, McMillon stated, “We’re a purpose-led company that wants to help people save money and live better. We really mean that, and that motivates us, and it’s been a challenge to go through the last few years with these higher costs, and we’re doing everything we can to try and get prices down, including having 6,000 rollbacks in the U.S. right now.” These rollbacks, temporary price reductions on select items, are a strategic tool employed to attract shoppers and stimulate sales.
3.Stew Leonard Jr., the CEO of Stew Leonard’s, echoed these concerns, noting that the rising costs for meat and seafood are due to a perfect storm of issues including ongoing shipping delays, widespread worker shortages, and increasing labor expenses.
Stew Leonard’s, which celebrates over 50 years in business and has grown into the “World’s Largest Dairy Store” with nearly $500 million in annual sales, maintains a direct connection to its supply chain. Leonard noted that his supermarkets procure food “direct from farms.” This direct relationship provides him with immediate insights into the challenges faced by producers.
Leonard shared candid feedback from his agricultural partners, stating, “I am talking to farmers [and] ranchers [and] they all say the same thing, they can’t get the labor, they’ve had to raise labor rates up and transportation has been really tough right now.” These comments highlight the foundational pressures impacting the cost of goods even before they reach the consumer.
4.The context for these executive statements is a broader macroeconomic trend of accelerating consumer prices. It was recently revealed that U.S. consumer prices last month surged at their fastest annual rate in 13 years. The Consumer Price Index (CPI) recorded a 5.4% year-over-year increase in September, mirroring the July reading, which marked the highest print since 2008. On a month-over-month basis, prices advanced by 0.4%.
Food prices, a critical component of household budgets, saw a significant jump of 0.9% last month and are now up 4.6% annually according to the index. Within this category, specific protein sources have experienced even more dramatic increases: the price for meats, poultry, fish, and eggs collectively soared 10.5% this year, with beef prices alone climbing a substantial 17.6%. Even produce has seen increases, with fruits and vegetables rising by 3%.
Stew Leonard Jr. further elaborated on specific “luxury” food items seeing notable price hikes, observing that prices for lobster and king crab legs are currently “through the roof.” While acknowledging these sharp spikes, he maintained that “overall there are some pretty good prices in grocery stores right now,” suggesting that not all categories are experiencing uniform escalation.
5.However, Leonard advised consumers to potentially adjust their shopping habits in response to these cost pressures. He suggested that shoppers “may have to trim back a little bit” and “not have that ribeye steak that you always wanted,” implying a need for flexibility and perhaps substitution in meal planning. This advice comes at a time when consumers are contending with rising costs across multiple sectors, including a significant surge in energy prices, which climbed 1.3% in September and are up 24.8% over the past year.
The cumulative effect of these inflationary trends is having a tangible impact on household finances. Mark Zandi, chief economist at Moody’s Analytics, noted that for Americans earning the median annual income of approximately $70,000, inflation has necessitated an additional expenditure of $175 each month on food, gas, and housing, as reported by the New York Post.
Given the current supply chain hiccups, Leonard advised shoppers to get a head start on their holiday purchases, urging them to “Don’t wait until the last minute. Try to get everything you can right now ahead of time and stock up,” a practical tip to help manage holiday stress and budgets.
6.The discussion around rising grocery prices extends to the burgeoning sector of grocery delivery services, where companies like Instacart are navigating both the inflationary environment and a competitive marketplace. During a recent earnings call, Instacart executives highlighted their strategic responses to the current economic climate, touting the 7,000 active brands available on their platform.
Fidji Simo, Chairman and Chief Executive Officer of Instacart, articulated the urgency for innovation in this market. She stated, “With grocery prices increasing over 25% since 2019, the need to innovate and enable savings for customers has never been greater.” This figure underscores the substantial price increases consumers have absorbed over the past few years.
Instacart has seen positive outcomes from its strategic initiatives, including continued momentum in the restaurant delivery segment and the introduction of an “industry-leading $10 minimum basket” feature. Simo reported that these efforts have yielded tangible results, including growth in their overall user base and increased frequency of orders from both quarterly and monthly users.
7.Specifically, the $10 minimum basket feature is a notable benefit for Instacart members, lowering the threshold for $0 delivery fees from $35 to $10. This innovation aims to provide greater flexibility and cost savings for customers making smaller or more frequent “top-up” grocery orders. Simo also highlighted the expansive scale of their operations, proudly stating, “We now have 7,000 active brands on the platform. We are seeing extreme strength in emerging brands.”
Emily Reuter, Instacart’s Chief Financial Officer, further emphasized the company’s imperative to offer competitive pricing. She explained that a core part of their strategy involves “offering customers the best pricing, lowering delivery cost options for people who maybe need lower price point options.” While specific future plans for deeper price reductions were not detailed, the $10 minimum basket feature represents a clear step in this direction.
Operating within a heavily saturated marketplace, Instacart faces numerous larger competitors vying for market share. The company’s primary strategy for growth and differentiation is continuous and calculated expansion. Reuter noted, “In fact in 2024, we launched 30 net new retailer sites, more than double the year before.” By empowering retailers to expand their digital footprint, Instacart aims to scale its own operations and enhance the efficiency of its technology and services.
8.Instacart concluded 2024 in a robust financial position, reporting a 15% increase in sales. The company also demonstrated strong performance in specific market segments, dominating smaller order sizes with greater than 70% share in baskets valued at $75 and up. Looking ahead, Instacart is targeting an increase in its annual income by $13 million year over year, positioning itself to capitalize on the ongoing demand for convenience amidst inflationary pressures.
Other significant players in the grocery delivery space offer a range of options, reflecting the diverse needs and preferences of consumers. Instacart itself partners with major retailers such as Albertsons, ALDI, Costco, CVS, Kroger, Sam’s Club, and Wegmans, promising delivery as fast as one hour, though prices may vary from in-store rates. Its membership fee is $99 annually or $9.99 monthly.
Amazon Fresh, an extension of Amazon, provides fresh groceries and household goods with services akin to Instacart, including same-day delivery and exclusive offers for Amazon Prime members. Walmart Grocery leverages the retailer’s extensive network, allowing customers to place orders via the Walmart app for either pickup or direct delivery, branding it as “the easiest way to shop.”
Shipt offers a membership at $99 per year, granting unlimited free deliveries on orders over $35, and uniquely enables direct communication between customers and their assigned shoppers for specific requests. The company also maintains a close partnership with Target. Kroger Delivery allows customers to schedule grocery deliveries at their convenience and utilize digital coupons, though it does not provide same-day service. Finally, Target Same-Day Delivery promises order fulfillment within hours, offers real-time updates, guarantees no delivery markups, includes Target Circle deals, and allows for per-delivery payment or a Target Circle 360 membership for unlimited deliveries.
The collective insights of major grocery store executives highlight the complex and persistent inflationary environment in the food industry. From the potential pressure of labor and transportation costs mentioned by Stew Leonard Jr., to the soaring prices of specific commodities observed by Doug McMillon, and the innovative pricing strategy adopted by Instacart, the market is dynamically responding. As consumers continue to struggle with rising costs of essential goods, the strategies of these major retailers are crucial for determining grocery pricing and the future development of consumer purchasing power.
