Price (mis) Perception

Food-at-home prices in 2016 are predicted to reflect a 0.25 percent to 1.25 percent decline, according to the USDA Economic Research Service, making the past year the first time since 1967 that retail food prices reflected annual deflation. When it comes to sales and margins, this is not great news for retailers, many of whom have attributed declining prices to lackluster results. The consumer point of view on prices is quite different, according to MarketTrack's Dec. 5 survey of 1,000 primary household shoppers.

Misconception of rising prices: Nearly half of those surveyed indicated they perceive prices as either somewhat or much more expensive than earlier in the year. This comes in spite of retail food prices that remained flat or declined for eight of the first 10 months in 2016. When asked if they had noticed price decreases on specific items, the only area where those surveyed felt prices had declined was eggs, a category prone to price volatility. In reality, recent egg prices are nearly 36 percent below October 2015 levels, so in the isolated case of eggs consumers' perceptions were accurate.

Pricing pessimism: While retailers are concerned about a lack of food price inflation on their 2017 financial results, consumers are bracing for rising prices, with 61 percent expecting prices to be higher in 2017. The question will be, in order to mitigate losing the shopper, how far will retailers push down prices, and potentially eat away at their profit margins? Heightened pressure from across trade classes, as well as online retailers, continues to transform how people shop for groceries. In order to compete, it will be important for retailers to differentiate on more than just price—because they don't seem to recognize they are getting better deals anyway.

Transforming behavior: Shopping for groceries is one of the most habitual areas of retail. Often people have a routine, whether weekly, monthly or daily trips to the same store due to proximity, convenience and price perception. However, disruptive technology is driving behavior change, specifically for the younger age segments. Survey respondents age 20-29 indicated the highest propensity to start to change how they shop based on technology.

Thinking about food prices at all types of stores, which of the following best describes the prices you have paid for groceries in recent months compared to earlier in the year? Food prices are now...

In the coming year, do you think food prices will...

With new technology available to help you shop for groceries (such as mobile apps, order online/pick up in store, digital offers), do you plan to alter your grocery shopping habits?