Industry consolidation leads to higher food prices, requiring sharp strategies by consumers
PITTSBURGH (KDKA) — The United Nations reports food commodity prices dropped in May, down 25% since its record high in March of last year.
But as KDKA-TV money editor Jon Delano reports, that price drop is not reflected on the grocery store shelves.
Although the world price of grains like wheat, barley, and oats are dropping, food experts say it takes months to see that at the grocery store — in part, that's because both food manufacturers and grocery stores have hiked prices to make record profits.
"We're seeing higher profits for the major, particularly, for the food retailers and food processors," University of Guelph Professor Simon Somogyi said. "We have seen consolidation in the food sector quite dramatically over the last decades where there are fewer and fewer suppliers."
Fewer meat processors and food manufacturers mean higher prices, and, at the same time, we're seeing fewer grocery store chains, too.
"In the grocery space, we see a lot of consolidation," said Thomas Gremillion of the Consumer Federation of America. "We see more than 60 percent of America's grocery sales concentrated in just five companies."
"When so few companies have so much control over the supply chain, they can kind of charge what they want," Germillion said.
With food prices up 7% last month, consumers are buying fewer products.
"We're seeing about a 2 percent decline in retail sales," said Carman Allison of Nielson IQ. "So even though we're spending more, we're putting fewer items in our shopping basket overall."
"About 90 percent of Americans are cutting back on their grocery expenses," Allison added.
That's one way to send a message. Another is to buy generic store brands, buy locally grown produce, stop buying prepared foods, stick to a shopping list and look for lower prices.
So is any relief in sight?
"Hopefully, we'll see prices normalize and come down to that 2% to 3% level, but that might not be something we can hang our hat on until early next year," Allison said.