Archive for Saturday, November 19, 2005

Give thanks

As holiday nears, rising costs for groceries not as bad as feared

November 19, 2005

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— Stocking the fridge and pantry for a big feast at Thanksgiving is never cheap. But consumers who were braced for steeper costs because of the recent spike in energy prices can relax a little when they head to the supermarket before the holiday.

Thanks to stiff retail competition that keeps stores from risking big markups, prices for most food items are only nominally higher than a year ago, according to government data and survey results released this past week.

Even shoppers with full carts aren't grumbling as much this year, finding that prices hadn't shot up as was feared in the aftermath of fall hurricanes that wreaked havoc with transportation costs.

"I'd say things are up a little bit but not much," said Paul Stancy, who was loading up on food and beverages in a Chicago supermarket.

That sentiment jibed with monthly statistics reported Wednesday by the U.S. Labor Department showing that food costs edged up 0.3 percent in October, only a slight acceleration.

"I think we're seeing higher food prices than we would have absent the increases in energy costs," said Ephraim Leibtag, food price analyst for the U.S. Department of Agriculture. "But we haven't seen anything go off the charts price-wise."

Carolyn Ewing checks her grocery list Friday at a Chicago supermarket. Consumers who braced for steeper costs because of the recent spike in energy prices can relax a little when they head to the supermarket for the Thanksgiving holiday: Stiff retail competition has kept stores from risking big markups.

Carolyn Ewing checks her grocery list Friday at a Chicago supermarket. Consumers who braced for steeper costs because of the recent spike in energy prices can relax a little when they head to the supermarket for the Thanksgiving holiday: Stiff retail competition has kept stores from risking big markups.

Food price inflation has been relatively low in 2005, he added, with costs estimated to increase about 3 percent over last year.

That's exactly how much more a traditional Thanksgiving dinner with all the fixings is likely to cost a shopper this year compared with 2004, according to the American Farm Bureau Federation. Based on results of informal price checks conducted by 108 volunteer shoppers in 30 states, the average cost of this year's feast for 10 is $36.78, up $1.10 from 2004.

Milk, pumpkin pie mix, frozen vegetables, stuffing and rolls were all higher in price while sweet potatoes and fresh cranberries were among items that were lower, thanks to more abundant crops this year.

The slight overall increase can largely be attributed to higher energy prices which affect processing, packaging, refrigeration and shipping costs, said Terry Francl, a senior economist at the federation.

Kraft Foods Inc., the biggest U.S. food manufacturer, gave a similar explanation earlier this month in boosting prices for its crackers, pizza, lunch meats and some other items an average 3.9 percent. The entire packaged food industry, in fact, has been hammered by the price of oil, affecting plastic packaging expenses and the cost of energy involved in running plants and transporting goods.

So why aren't shoppers facing sharply higher prices across the board?

It's the same reason why the biggest U.S. airlines continue to offer bargain fares even while losing money: Customers will vote with their feet if they don't.

"Food manufacturers have tried raising prices but every time they do they lose market share," said Bob Goldin, an analyst at the Chicago-based food consultancy Technomic Inc. "It's intensely competitive out there."

General Mills Inc. and Campbell Soup. Co. both lost sales by putting through price increases that their competitors didn't follow.

Supermarkets, then, are understandably leery about imposing price increases beyond the ones dictated by manufacturers.

"Grocery store owners know energy prices have risen a lot, so if they raise their prices as well they're likely to see reduced sales," said Corinne Alexander, an agricultural economist at Purdue University. "It doesn't make sense for a retailer to raise prices in response to a short-term energy spike."

Carolyn Ewing, left, and other shoppers make their grocery selections at a Chicago supermarket. Consumers face only a slight increase in grocery costs as Thanksgiving nears.

Carolyn Ewing, left, and other shoppers make their grocery selections at a Chicago supermarket. Consumers face only a slight increase in grocery costs as Thanksgiving nears.

Another reason why the impact on food prices hasn't been dramatic despite Katrina and other hurricanes is that wholesale beef and dairy prices have dropped from last year's record highs, giving retailers an extra cushion to absorb some of the greater energy-related costs, she said.

This doesn't mean grocery bills are immune from higher energy costs indefinitely. Experts say creeping increases in food prices are more likely to show up more and more if oil prices don't keep dropping.

"Consumers so far have not had to pay up too much," said Diane Swonk, chief economist at Mesirow Financial, a Chicago-based financial services firm. "But we are starting to see some of the increased transportation costs seep into food costs and that will be somewhat apparent this holiday season."

Also, while the cost of Thanksgiving dinner may be going up only marginally, getting there will be much more expensive - gasoline prices are up roughly 50 percent from a year ago.

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