Earlier this week the BLS published the July Consumer Price Index report which showed a +0.5% increase in prices from June and a +5.4% increase over the last 12 months. FMCG prices continue their upward trend with prices up +0.7% in July. Interestingly, the food away from home index also increased by +0.8% in July, the largest monthly increase in 40 years.
We know all of this though as the story of inflation is well told. We also know many of the underlying drivers which continue to hold true month over month:
- Promotion support has increased steadily for the last 3 months but still remains well below historic levels. Promotion depth of discount is down nearly 12% YoY.
- Effective and Shelf prices have been steadily increasing since the 4th of July holiday with effective prices rising faster than shelf prices. Promotions are returning but they are being run at significantly lower discounts than previous years
- Throughout July Perishables prices have steadily risen while Grocery and Non-Consumables prices remain at a consistently elevated YoY level
The Retailer Pricing Divide
So what’s new? We are starting to see a divide form with some retailers using this inflationary period as an opportunity to improve their price position and others using it to recoup margin. We identified three retailer types:
- Winners – These are the retailers that are improving their price position in 2021 by 1pt. or more.
- Followers – These are retailers that are closely tracking the market overall and are maintaining a constant price position by matching the market moves.
- Margin Seekers – These are retailers that are using the inflationary environment to pass on larger increases to their shoppers by increasing prices at a faster rate than the market.
Year to date the winners have increased their prices by only 0.7% vs. their average 2020 prices while the Margin Seekers have increased their prices by 2.8%. The Winners are large price leading retailers like Walmart, Target and Amazon that are investing to improve their price position. The Winning retailers that are improving their price position are driving the biggest price position gains across 6 key categories: Pantry, Personal Care, Frozen, Beverages, Snacks and Dairy. In many of these categories suppliers have already announced cost increases and it would seem that the Winners are either negotiating better deals or passing on less of these increases to consumers.
One of the biggest winners is Walmart. On their most recent earnings call John Furner Walmart US CEO said “Over the last 12 months, we saw our price gaps improve versus the market, and our merchants are working hard to ensure that will continue.” How are they doing it? A significant gap is forming between Walmart’s everyday price changes and the effective price consumers are paying with rollbacks increasing nearly 30%. Growth in rollbacks are keeping the effective price flat while shelf prices are moving up inline with the market.
The Followers are typically large national grocery and value chains that are closely monitoring and following the market. As a result of this strategy their price positions are holding steady vs. 2020 levels. The Margin Seekers are typically more regional grocery chains that are passing significant price increases to the shopper and seeing their price positions worsen.
To better understand the price inflation environment specific to your market and your key competitors please don’t hesitate to reach out to us for help.