Practical Dad

PracticalDad Price Index - September 2015:  Stabilizing, but…

The data from the September 2015 PracticalDad Price Index is in and the price declines of the past nine months have ceased and stabilized, for now at least.  But I've been noticing something and it's gotten me to thinking about the earliest stages of what's happening with wealth inequality and how it might be starting to affect the grocery store.

In terms of the actual Index results, both the Total Index (47 total market basket items) and the Food-Only Sub-Index (the 37 foodstuff items in that basket) stabilized with the Total Index rising incrementally to 105.21 (November 2010 = 100) from August's Total Index reading of 104.96.  The Food-Only Sub-Index likewise rose slightly to 107.12 in September (November 2010 = 100) from August's result of 106.97. 

But what have I been noticing in the past number of months and what has this to do with income inequality?  Let's take a quick look at income and wealth inequality first.  The disparity between the highest levels and the remainder of American society have been noted in several ways.  Obviously, the percentage of assets held by the top 3% of families has reached large proportions as the remaining 97% of American families have fewer and fewer assets available to them.  The lack of retirement savings has led to a situation in which middle-aged and older Americans have a lower unemployment rate than other age groups.  As income and wealth have bifurcated - split - this has likewise been noted in the prices of different markets of items.  While the BLS reports that CPI and wholesale prices are largely static, there's been greater price inflation in products oriented towards wealthy buyers.  The price of truly high-end luxury automobiles has risen as has the price of collectible artwork as the ultra-wealthy look for new assets in which to place their money.  The point to take away from this is that there's a notable split between the economics for the average American versus the wealthier American.

So how does that impact the daily shopping in the grocery store?  What I'm noticing over the months leads to this question:  is the product mix on the store shelves beginning to disproportionately affect the lower-income level consumers as their best alternatives for products are either removed completely or replaced with lower-quality products as grocers rework their product mix in order to survive?

The key point to remember about grocery retail is that it's a business with extremely low profit margins and that with a limited amount of shelf and freezer space, products have to have a sufficient amount of profit or they'll be removed and replaced with an item that's more profitable.  Grocers do pay attention to this metric and are constantly re-evaluating their product mix in order to maximize their own bottom-line.  What I've noticed is that the grocers are slowly - and thus far on a small scale - removing items from the shelves that are better for customers but worse for their bottom line.  It began over a year ago when one of the grocers - an independent - simply removed the two baby-related items (23.4 ounce Enfamil formula and a store-brand case of size 3 diapers) from their shelves entirely.  That formula is no longer sold as the selection was thinned out and the store brand cases of diapers were eliminated.  Parents with children could still purchase the size 3 store brand diapers, but in the smaller packaging with a higher per-diaper cost.  About three months ago, the second of the three retailers likewise removed their case of size 3 store brand diapers from all of their stores - I checked multiple locations in that chain each month - so that that option was no longer available for the family with small children.  Again, the smaller packaging was available, but it's more expensive on a per-diaper basis.

Another instance pertains to the sale of 80% lean ground beef.  Over the past several months, one of the grocers - which has also removed the case of store-brand diapers from the shelves - has eliminated 80% lean ground beef from its meat case; it still sells the leaner ground beef at various percentages (85 and 93) as well as the less expensive 73% that is sold in a tube.  Please note that this same 73% ground beef tube is sold in all of the stores.  Given that the markup is progressively higher for each lean/fat category as it increases, the grocer is implicitly stating that the low cost mass produced 73% lean container will be available for the low-end market but that the profit mix is best served by eliminating the 80% and pushing the higher end, more profitable ground meats.  We've become used to the sales pitch that leaner meat is better and more will hopefully - for the grocer - purchase the less-fat ground beefs; what's interesting was that in researching this article, I found that the yield of actual cooked meat was most cost-effective for the 73% lean than the higher leans since a pound of 73% lean after cooking left 11 ounces of meat while the far more expensive 93% lean left only 12.75 ounces of meat after cooking.  The lost weight was due to fat that was able to be drained away.  In this particular instance, it might be a mixed blessing for the lower-echelon consumer if he is willing to be serious about draining the fat from the cooking.

There's early initial evidence that the same issue is occurring with both hot dogs and tuna as well.  One grocer has eliminated the store-brand hot dog in entirety while I'm noticing that another grocer is starting to not carry store-brand tuna; I'll be checking the various locations for that grocer in the next several months to verify whether that is or isn't the situation.

This is assuredly a small sample on a local level and I'm not going to fight to show that it may or may not be occurring nationally.  But it is indeed occurring here and my concern is that if it continues, what is starting on a very small scale will accumulate to more and more products that are, on the whole, detrimental to the family trying to make the monthly budget work.

And because a full update hasn't been shown in several months, here is the listing of Total and Food-Only Index results going back to December 2014.

 

PracticalDad Price Index - September 2015
Month Total Index Food-Only Index Spread
9/15 105.21 107.12 1.91
8/15 104.96 106.97 2.01
7/15 106.30 107.35 1.05
6/15 107.11 106.46 (.65)
5/15 107.56 107.74 .18
4/15 108.21 110.20 1.99
3/15 107.89 109.50 1.61
2/15 109.42 112.08 2.66
1/15 111.32 114.00 2.68
12/14 111.18 115.13 3.95

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