For food retailers and packaged goods brands, this is an opportunity, according to food experts. Resigned to paying more, consumers may well decide their best option is to “trade up” into pricier categories like organics, or splurge on fresh prepared foods, which tend to carry higher price tags.
According to the U.S. Department of Agriculture, prices for food at home are up by 4.9% versus a year ago, primarily as a result of soaring meat prices, although prices are on the rise throughout the store.
Consumers for the most part have been accepting of climbing prices—a reality that in part explains phenomenal business results from both brands and food retailers in the face of otherwise staggering challenges, and suggests that between government stimulus, savings and less budget diverted to indulges such as dining out and out-of-home entertainment like concerts, sports games and travel, consumer spending power is there.
FMI, the trade group representing supermarket retailers, in a release last week acknowledged that while more than half of Thanksgiving shoppers (53%) have concerns about inflation this year, the same was true of 40% of shoppers last year. And while dwindling supply is an issue for some 43% of shoppers, 39% felt the very same way a year ago.
According to the Ad Age-Harris Poll, Thanksgiving shoppers say they have been struggling to secure canned ingredients like pie filling and cranberry jelly (47%); turkey (43%); shelf-stable dry goods like stuffing mix and pasta (42%); bakery items like pies (40%); and premade foods like pie crusts and bake-and-serve rolls (40%). The poll was conducted online from Nov. 3-Nov. 4 among 1,125 U.S. adults.
Sufficient retail supply of these and other popular items have been compromised by a variety of knots in the supply chain including shortages of labor, transportation and packaging, plant slowdowns and wholesalers delivering less than full orders, according to sources.
Reluctant to stimulate demand for items in short supply, retailers have less incentive to entice shoppers with sale prices and deals.
“We’ve seen promotion frequency and quantities decreasing significantly,” said Edris Bemanian, CEO of the pricing software firm Engage3. “We’ve seen the depth of discounts decreasing significantly. At the same time, we are seeing a rise in base shelf prices. Also interesting, though unsurprising, is that categories with high out-of-stock levels are taking significantly faster price increases. We've seen all of the above most impacting retailers that have typically relied on promotions to drive their price image.”
Soaring turkey prices
According to Burt P. Flickinger III, managing director of the consulting firm Strategic Resource Group, sale prices on items like turkeys are less intense this year. At supermarket retailers like Giant Food and Weis Markets, for example, a turkey reward that cost a shopper 300 “points” last year (or $300 in eligible purchases over a specified period) will cost 400 points this year. Brands have similarly reduced the intensity of discounts.
“Brand manufacturers have gotten away from the average deal being 20%, or 20 cents on every dollar of sales pre-COVD, and up to 25% in Thanksgiving,” Flickinger said. “Brands today are only promoting at levels at 5% to 10%. So in addition to consumers paying more for food, fuel and energy, the consumer has a double price increase: There’s the ongoing inflation, and the second, hidden increase is that the big brand manufacturers are not promoting at the level they used to.”
“Protein prices are way, way up,” noted Neil Stern, CEO of Good Food Holdings, the parent of West Coast supermarket chains Bristol Farms, Lazy Acres, Metropolitan Market, New Seasons Market, and New Leaf Community Markets. “I expect retailers to keep bird prices somewhat in line and try to take prices up elsewhere.”
The USDA last week said average retail turkey prices are $1.41 for birds of 8 to 16 pounds—up from $1.15 last year; and $1.39 for 16-24 pound toms, up from $1.16 a year ago. Demand, the agency said, was “steady to firm” until Thanksgiving.
Kyle Lock, senior director, retail marketing at Butterball, acknowledged in an interview that “it would be reasonable to think there would be appreciation in costs for turkeys this Thanksgiving,” but expects retail stores will continue to feature turkey as a means of drawing shoppers to buy other items that go along them. “So will we see some appreciation in prices? Yes,” he said. “Will consumers be able to find good deals? Also yes.” (Ad Age spotted Butterball turkeys advertised as low as 87 cents per pound at discounters like Aldi and Lidl; Target had a private-label selection at the same price.)
He suggests shopping early: Butterball anticipates that virtually all the inventory it delivers to the market this year will sell.
Shopping reminders and recipe tips
According to IRI, Thanksgiving product categories with “elevated and worsening out-of-stock rates” include whipped toppings, liquid gravy, frozen pie/pastry shells, refrigerated pies and bakery pies. Promotional and pricing activity in these categories reflects these shortages: Retailers are running between 1 and 9 percentage points fewer promotions in these five categories compared to last year. On average, prices in these five categories have risen about 3.6% over this time last year, IRI said, with frozen pie/pastry shells showing the highest pricing increase of 6% over the year-ago period.
The situation demands effective marketing—but the good news for food brands is that 58% of Americans report being swayed by advertisements, according to the Ad Age-Harris Poll. Effective purchase drivers, according to the poll, are those providing related benefits like a recipe or décor inspiration (47%); reminders to shoppers to pick up a particular item (45%) or a straight discount (43%). Brand affinity doesn’t break the top three reasons.
This season is also illustrating the degree to which food retailers have shifted promotions from traditional weekly sales flyers to digital offers delivered through apps.
Sprouts Farmers Markets, the Phoenix-based natural foods retailer, is one such example. The chain last year discontinued its weekly flyer, which CEO Jack Sinclair said tended to draw bargain-hunters whose baskets were unprofitable. Sprouts has since struggled to draw shoppers in the numbers they once did, but its profits are soaring.
“In past years, promotions might have been communicated in the Sprouts’ printed weekly ad. Sprouts now offers weekly specials and ads exclusively on Sprouts.com, the Sprouts app, and via email every Tuesday to those with a Sprouts account,” Gil Phipps, Sprouts’ chief marketing officer, said in an email. “These channels are designed to offer our customers insight into trending foods and the latest in healthy living. We also engage customers with sale details through SMS text. SMS text is our fastest-growing digital marketing channel, with more than 70% growth this year alone.”
Sprouts isn’t giving up deals entirely. Its subscribers are now receiving a direct mail promotion including $30 worth of coupons that can be used in-store and on shop.sprouts.com now through the middle of December. The mailer includes details on Sprouts’ pre-order offerings, specialty items like Cellar Picks wines. The retailer is also offering five fully-prepared meal options.
Retailers are also urging shoppers to stock up ahead of the holiday. Kroger for example is offering a variety of Thanksgiving prep items like Campbell's Cream of Mushroom Soup, Daisy Sour Cream and Reynolds aluminum foil for 50-cents off when they buy any 10 items.
At Butterball, the marketing challenge lies not in selling more birds, but in serving the shoppers who buy them, according to Lock. The brand’s Turkey Talk Line—which offers expert help in preparing meals—has answered nearly 3 million calls since its launch as a phone help line in 1981. The company has since evolved the Talk Line to a multimedia enterprise with videos, tips and tricks available at places like Pinterest and Tiktok. Help is also available through text messages and an Alexa skill.
Lock said he sees the Talk Line as a critical element of having built customer trust in its brand.
“Butterball recognition is almost universal in America. But then you’ve got to find what it is that’s special inside of it,” he said. “One of the things we realized is, we’re human. The Butterball Turkey Talk Line was always about people helping people. And even as we’ve added technology to the way that we connect to people when they need us most, we kept the humanity. There’s a genuineness that’s born out of our point of origin. It’s something we have kept consistent as we’ve evolved and adapted.”