Econ 101 term: elasticity. In this context, it refers to how much sales of a given product go up or down as a result of price changes.
Inflation rates have hit a year-over-year rate of 7.5 percent, according to the Bureau of Labor Statistics. This is a 40-year high. How have substantial price rises affected demand over the past year?
According to a recent story in Forbes, so far, comparatively little overall.
The article quotes Kevin Grundy, an analyst at Jefferies Group who covers consumer-product companies: “Demand elasticity has been surprisingly low. It’s kind of so far, so good.”
That isn’t true in the produce world, where recent statistics show definite signs of elasticity. The January 2022 report from IRI, by Anne-Marie Roerink, indicates that produce prices overall have risen 9.1 percent over the previous January (again, the highest increase in 40 years). Fresh fruit prices increased 13.9 percent year over year.
“Comparing January fruit pound to dollar sales growth very clearly shows the impact of inflation,” says the report. “While January fruit dollars gained 10.1% over January 2021 levels, pounds were down 3.3%.”
Fresh vegetables didn’t fare as well. Sales in dollar terms declined by 0.5 percent, while volume sales fell by 5.2 percent.
The item currently in the spotlight is avocados. “While January 2022 avocado dollar sales were up 13.3%, pound sales were down 12.4%, which would translate into inflation of about 26% on a per pound basis,” says the report.
Of course we have no way of knowing at this point how the U.S. moratorium on Mexican avocado purchases will shape this picture.
Packaged salad was hard-hit, both in dollars and pounds. Dollar sales were down 1.9 percent over the previous January, with pound sales down 10.9 percent.
On the whole, however, “January 2022 sales still tracked ahead of January 2020, which was not yet affected by the pandemic purchase patterns,” notes the report. Here volume growth for vegetables, at 5.3 percent, outpaced that for fruit, at 1.5 percent.
Share of meals prepared at home has remained relatively constant since the beginning of the pandemic: January 2022 was 82 percent, versus 88 percent in April 2020. This gives a brighter outlook for retail than for foodservice.
The fresh sector accounted for 78.8 percent of produce sales in January 2022 vis-à-vis frozen and canned, which is more less stable: 2019’s rate was 80.8 percent.
In broad economic terms, Americans are sitting on a considerable amount of cash, with a savings rate of 12 percent in 2021, up from 7.6 percent in 2019, according to Forbes. Nevertheless, inflation has wiped out wage increases for many. Consumer confidence—aka sentiment—is at a 10-year low, reports Reuters.
“The inflationary levels in retail have two-thirds of shoppers looking for one or more money saving measures. Inflation will likely continue to drive dollar gains for most categories in the foreseeable future but is pressuring unit and volume sales,” sums up the IRI report.
All of this takes place against the background of low fruit and vegetable consumption among the American populace.
It’s hard to believe that the produce industry is failing the public in terms of quality and variety, which are far higher than they have ever been. I think we need to look in another direction to explain the disconnection between produce and the American public. A subject for another column.
