While the causes of inflation can be nuanced, the effects are clear. In the face of rising costs, most consumers either purchase less of something or seek cheaper alternatives. There are some examples of inelastic goods that remain in demand in the face of price hikes – prescription drugs, utilities, or tobacco products to name a few. But most products can either be swapped out or not consumed at all.
Whole Foods Market is one of the more expensive supermarket options. The Amazon-owned grocer caters to a segment that is accustomed to higher prices than one would find in more conventional markets. Yet, in the face of ever-rising prices, Whole Foods is making a push with their suppliers to bring down prices as lower-cost competitors such as Aldi Inc. and Trader Joe’s are beginning to gain market share.
Traffic to Whole Foods stores declined by roughly 8% in the fourth quarter of last year. Major rivals such as Albertsons and Kroger also suffered declines, but the previously mentioned Aldi and Trader Joe’s recorded increases. After the Amazon purchase of Whole Foods in 2017 the grocer has been introducing lower-cost Whole Foods brands as a strategy to reach a broader range of clients. This is beginning to bear fruit but the pandemic and resulting inflationary pressures are stubborn and unwieldy obstacles.
Food suppliers and restaurants have been raising their prices since the late first quarter of 2022. Kraft has raised their prices by nearly 14% since 2019, while Tyson’s beef prices increased by an average of 24% from January to April 2022. All of these hikes have predictable trickle-down effects on grocers and Whole Foods is now publicly leaning on its suppliers to help lower prices for the chain’s customers.
It is unclear how suppliers will respond. They are dealing with higher labor and production costs as well as transport (gas especially). Whole Food’s price hikes have been lower than the industry average but for many of its products, a cheaper alternative is readily available at competitor stores. Whole Foods is a lifestyle, yet once that lifestyle becomes difficult to manage, people seek out options.
Whole Foods faces pressures that are common across sectors. Inflation is just a “what if” until it actually appears and begins to slowly erode purchasing power. The US especially has a large segment of people in their 30s and 40s who never lived through the high prices of the 1970s. The only definite in life is history repeating itself … as it’s doing now once again.
