US price inflation increased +8.5% in March vs. a year ago, the highest increase since 1981, according to the Labor Department’s Consumer Price Index. Fast Moving Consumer Goods (FMCG) price inflation rose +1.59pts. in March vs. February, one of the fastest increases on record according to the latest NielsenIQ research. The average price paid by consumers rose significantly, driven by a -10% decline in year over year promotion support. Everyday prices remained relatively flat in March as disappearing promotions continue to be the main driver of FMCG inflation.
A Focus on Frozen
Frozen Foods has become a real hotspot. Frozen prices are rising the fastest of any category in the store driven by over +15% out-of-stock rates. Due to the high out of stocks, the percent of items with a promotion has dropped over 10%. Heavily promotion-reliant categories like Frozen Prepared Meals are seeing large price increases due to the reduced promotion frequency. Brands such as Stouffers, Lean Cuisine and Banquet are all experiencing double digit price increases. Private Label is also not immune as prices are up nearly 10% as well.
Great Lakes Price Inflation Heating Up
Prices across the US are up significantly, but in recent months prices in the states around the Great Lakes have risen the fastest. States in this region have seen price increases of 12-13% while the average state is experiencing “only” 8-9% year over year inflation.
Everyday low priced retailers (EDLP) like Walmart and Target are continuing to win the pricing war. While all retailers are increasing prices, heavily promotion reliant (Hi-Low) retailers are seeing their prices increase the fastest. Walmart as an example is increasing prices 3-4% less than the average retailer while retailers that have typically run 30-50% volume on deal are increasing prices 2-3% faster than the average retailer.
The recent declines in promotion frequency present retailers and brands with a great opportunity to rationalize inefficient promotions. A NielsenIQ study found that 72% of promotions fail to break even in the short-term. Leveraging the Engage3 Price Image Driver models you can identify the role that each promotion plays in driving traffic to the store and building long-term brand equity. With these insights you can then rationalize the promotions that are not driving short or long term outcomes. Inflation has been a huge challenge to navigate, but it does present opportunities to optimize and emerge a winner.