Jared Hunt column: Kroger goes against food price trend

Kroger did something last week that grocery shoppers probably won’t see a lot of this year: it lowered prices.

Kroger Corp. officials announced on Friday it would lower prices on thousands of items at stores in its Mid-Atlantic Division, which includes West Virginia.

It’s the grocery chain’s second major store-wide price reduction campaign in two years. The company said it plans to cut prices on thousands of items in its grocery, produce, meat, organics, natural foods, and general merchandise sections.

“Price is important to customers when they are deciding where to shop,” Joe Fey, division president, said in a press release. “Our customers will get more great prices along with fresh departments and clean stores at their neighborhood Kroger.”

Kroger has been fighting hard to better compete against retail giant Wal-Mart Stores, Inc. Last year, the company changed its pricing strategy, moving away from the traditional discount model to the everyday low price model favored by Walmart.

But the move goes against the current trend among grocery chains.

After absorbing increased food costs for some time, retailers appear to be finally passing on price increases to customers. Retail chain Safeway announced last week it would raise prices on items in its more than 1,300 stores.

“We expect to pass along most of the inflation we are experiencing,” CEO Robert Edwards said in a news release.

The U.S. Department of Agriculture reported last month the Consumer Price Index for food consumed at home rose 0.4 percent for the second month in a row. Prices were up 1.4 percent from last March.

“The food-at-home CPI has already increased more in the first three months of 2014 than it did in all of 2013,” the agency said.

It expects overall prices to increase between 2.5 to 3.5 percent this year, which is still close to the historic average of about 2.8 percent.

The Royal Bank of Canada released a survey last week that said the vast majority of U.S. households have noticed a recent rise in food prices.

Tom Porcelli, the bank’s chief U.S. economist, told the Wall Street Journal that while some of those who noticed the price increases are buying less of an item or substituting cheaper alternatives, the vast majority are spending less on other goods and services to meet their food bills.

There are several factors driving food prices higher.

First, droughts in California and Texas are expected to push prices for produce and beef up later this year. The California drought could push prices of things like broccoli and lettuce anywhere from 10 to 25 percent higher. Beef prices are already at record highs and expected to climb higher.

The National Pork Producers Council told Congress last week pork prices, including bacon, could go up an additional 10 to 12 percent this year due to effects of an outbreak of porcine epidemic diarrhea virus which has ravaged livestock.

Meanwhile — and most painful for this writer — a drought in Brazil has pushed coffee prices up 95 percent in the past year.

Florida-based Hackett Financial Advisors Inc. told Bloomberg the world might have a 10 million-bag deficit of coffee through 2016 due to the resulting supply gap. “All-time high prices are very likely to be seen as a result,” the firm said.

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