Food Economists Predict Strong 2015 Despite Setbacks
Food prices have been on the rise in recent years, driven mainly by drought and increasing oil and gas prices. Thankfully, 2015 is expected to provide some respite for grocers and foodservice purveyors struggling against a recovering economy.
The diminishing recession and other indicators are making way for better economic conditions for the retail food and restaurant sectors, according to a webinar, held Wednesday, by the Food Institute.
Brian Todd, president of the Food Institute, said grocery store sales have been somewhat sluggish in early 2015, with a 3.1 percent increase at retail. While that may be the case, grocery sales overall are still on the rise.
“Things were not quite as robust as many had hoped,” Todd explained, “but it’s also better than some of the negative numbers we had seen in years past when the recession hit.”
Burgeoning grocery sales at alternative outlets such as drugstores and warehouse clubs have helped keep food sales on the rise, and online food shopping and mail-order sales have also proven to be a booming segment for the retail industry.
“Grocery store sales are somewhat sluggish; grocery sales overall are not,” Todd said. “People are still buying food to eat and cook at home.”
As for the restaurant and foodservice segment, things are looking even better. Sales were up 9 percent in the first quarter of 2015, and while some media outlets reported that this channel outpaced grocery sales, the number was merely higher than grocery store sales.
Annemarie Kuhns, agricultural economist with the United States Department of Agriculture’s Economic Research Service, shared that retail food price inflation in 2014 was very close to the historical average of 2.5 percent.
While beef and veal prices rose 12.1 percent and pork prices rose 9.1 percent, varying inflation among different subcategories has helped level out the overall numbers. The concurrent deflation of items like fresh vegetables, sugar, sweets, and non-alcoholic beverages has helped this along.
Kuhns said the ongoing drought in California will likely have an impact on agricultural production that could be felt for several years to come. Dairy, fruit, vegetable, and egg prices are likely to increase as farmers reduce total acreage and adjust their planting decisions based on lack of moisture.
Drought conditions in Texas and Oklahoma have triggered higher beef prices, though that issue is starting to improve. Declining oil prices are also expected to help ease grocery store inflation, Kuhns said.
Kuhns also believes the current strength of the U.S. dollar will lead to an increase in the number of imports as goods from other countries become relatively less expensive. Larger supplies in the U.S. market will help put downward pressure on retail food prices.
“In 2015, the strong U.S. dollar and lower energy prices could have a mitigating effect on inflation and any price increases we may see from the drought in California,” she explained.
Overall, the USDA expects food price inflation in 2015 to be normal to slightly below average, increasing anywhere from 2 to 3 percent.
Steven McManaman, managing director at BMO Capital Markets, explained that despite a few drawbacks, the general economic picture remains relatively strong. Even with bad weather on the East Coast and the port strike and subsequent slowdowns in March, the labor market is the strongest it’s been since the tech boom of 1999.
In addition, consumer confidence is at the highest levels since the economic crisis began a few years ago. Driven partially by a strong labor market and more dollars in the pockets of many Americans, discretionary spending is going up, helping both retailers and restaurants.
On another economic note, Louis Biscotti, national director and global practice director at WeiserMazars, expects a high number of mergers and acquisitions to punctuate 2015, possibly an even higher number than the industry saw in 2014.
For the big companies, Biscotti said to expect a broader round of consolidation as a result of mergers and acquisitions. Finding a middle ground for the management of certain stable brands, as well as allowing for the growth of other brands, will be something else to watch for.
“The key, I think, for the big companies and for anyone in the food industry right now would be adapting to a rapidly changing food industry,” Biscotti noted.
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