High food prices persist, cutting into spending even as inflation moderates

Inflation is easing, but consumers are still feeling the pinch of escalated food prices.

Three-quarters of consumers who cut back on overall spending cite high food prices as the main reason, reports Circana (formerly IRI and The NPD Group.)  Food prices rose 7.7% year-over-year in April even as inflation moderated, rising 4.9% less than a year ago, according to the April Consumer Price Index (CPI). 

Adding to the impact of food inflation are economic factors that include increased consumer credit debt, depletion of savings built during the pandemic and cutbacks on pandemic-related government credits and subsidies. To manage their food spending, U.S. consumers are shopping at value retailers, spending less on non-food purchases, switching to store brands, and canceling committed expenses such as subscriptions,  noted Circana. 

“Consumers need to eat no matter what and will adapt to higher food costs by finding lower cost options or cutting back on discretionary spending, and that’s what we’re seeing play out now,” said Darren Seifer, food & beverage industry analyst at Circana.   

According to Circana, 78% of consumers plan to or already have cut overall spending on products due to inflation, and 75% of those report that their reason for cutting spending is higher food costs. The low-hanging fruit for spending cutbacks is to decrease purchases of discretionary retail spending and cancel subscriptions. 

In April, general merchandise retail sales revenue fell 7% compared to April 2022, and unit sales fell 8%. Over a quarter of consumers said they’ve canceled subscriptions over the past few months, and 66% of those cancelations were for entertainment subscriptions, including streaming services.   

Regarding food and beverage sales in April, revenue increased by 6%, but unit sales fell by 2%. Eighty-six percent of annual eating occasions are sourced from grocers and other retail outlets. This supports data that reflects that at-home spending remains a more significant portion, 60%, of food and beverage sales, reports Circana. 

The April CPI shows at-home food prices increased by 7.1%. To mitigate higher food prices at retail, 49% of consumers say they shop at food stores that offer lower prices, 42% report they buy more store brand/private label food and beverages, and 41% said they buy essential items only and forego impulse purchases.   

Food away from home grew 8.6% in April compared to a year ago. In the 12 months ending March 2023, foodservice costs were 4.3 times more than the cost of at-home eating occasions, according to Circana. The average cost of an at-home meal purchased from retail was $1.78, and $7.48 away from home. However, consumers still used foodservice options. 

Coming off four consecutive quarters without growth, visits to restaurants and commercial foodservice outlets in the quarter ending March grew by 1% compared to a year ago. Still, the use of foodservice shifted to less expensive dayparts, like breakfast and A.M. snack, or quick service restaurants rather than full service restaurants.  

“Food manufacturers, foodservice operators, and retailers can meet the needs of price-sensitive consumers by understanding the best pricing and promotional strategies,” said Seifer. “Also, consumers have returned to their pre-pandemic routines, and aligning with their shifting needs will increase the value of their offering.”