Consumers pulling back on food dollars, Rabobank report says

Consumers are adjusting purchases of food in response to inflation, according to the latest Rabobank North American Agribusiness Review.

The August report said early indications point to consumers switching to cheaper food alternatives, such as lower-priced brands and private label options. Shoppers are looking for deals and more frequently shopping at discounters, according to the report.

“From gas to rents and food, consumers are seeing their disposable income evaporate,” the report said. On a positive note, Rabobank noted that unemployment levels remain low, at 3.6%, roughly the same as pre-pandemic levels.

The Rabobank report said discount grocery outlets are benefitting from rising price sensitivity, at the expense of premium and natural food stores.

Discounter retailer foot traffic is up 10% to 15% in 2022, according to the report. “Besides inflation, the rapid expansion of discounter store openings have contributed to increasing sales,” the report said.

In general, Rabobank said the demand outlook for retail and foodservice is softening, as wage levels for most workers are not maintaining pace with rising costs and higher interest rates. Consumer disposable income levels will suffer, the report said.

Other observations from Rabobank’s review:

• The Federal Reserve may be forced to hike interest rates beyond the neutral level and cause a recession in 2023 to “terminate” the wage price spiral.
• Avocado prices are trending down after several consecutive months of elevated shipping point prices. The report said abundant supplies from Mexico, “potentially at a record level,” will reduce the possibility of a price spike in the next few months, the report said.
• Global refrigerated container rates are expected to surge 9% in the third quarter of 2022 before normalizing. "We expect reefer rates to stabilize in [fourth-quarter] 2022 and even mildly contract in 2023 due to the easing of supply chain issues and a general recessive environment,” Rabobank said. Even with price correction, the report said reefer rates are likely to stay at higher than pre-pandemic levels.
• Trucking spot rates seem to be trending toward stability in recent weeks, at around 22.5% above the pre-pandemic 5-year average and 35.5% below the peak in January 2022. Rabobank said fuel surcharges have dropped in recent weeks, easing overall inflationary press on trucking. “We expect trucking contract rates to continue to normalize, which may lead to capacity exiting the market,” the report said.
• Pent-up demand for eating out will wane for the cost-conscious consumer. Restaurant revenue growth will slow, remaining positive, the report said. “A higher number of consumers will choose to eat an affordable meal at home instead of splurging at restaurants or ordering delivery,” the report said.
• As the peak of California strawberry season is over, strawberry availability will decline and provide price support.
• Fresh potato supplies will ease the market's need in the short run, but the tight supply and strong demand are supportive of higher prices throughout the marketing year, the report said.