By Ahiza Garcia-Hodges -
NBC News
Shoppers who want to keep their grocery bill in check or even save money probably know this hackneyed advice: go to the store with a shopping list and stick to it.
Don't get carried away by impulse purchases.
But discipline alone may not be enough to protect shoppers from hits at the checkout, especially if they like brand-name products.
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According to the monthly consumer price index from the Bureau of Labor Statistics, food prices rose 7.4% last year.
The inflation rate is the highest in the last 40 years.
The reasons are already known.
The economic crisis caused by the COVID-19 pandemic, with its supply chain delays and labor shortages, continues to drive up the costs of transportation, agricultural raw materials, packaging, and just about everything else.
As large food and beverage companies and grocery stores grapple with rising costs, many companies have begun to pass them on to consumers.
Some of the most notable increases have been in branded products from big food manufacturers like Kraft Heinz and Coca-Cola.
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Meanwhile, prices for private label or store brands haven't gone up as much.
They include lines like Target's Good & Gather, Walmart's Great Value and Whole Foods Market's 365.
“Store brands are raising prices more slowly than national brands because they have a contract with a supplier for a year or two years and it is a fixed price that is locked in,” explained Phil Lempert, a food marketing expert nicknamed The Guru of Supermarkets.
"The manufacturer, not the store, is going to absorb it in the short term," he added.
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Own brands are often manufactured by third parties, insulating them from rapidly rising costs.
National brands, by contrast, often oversee their own manufacturing and distribution and absorb price increases throughout the supply chain.
A section of shelves is nearly empty at a Target store in Hackensack, New Jersey, on Wednesday, Jan. 12, 2022. Seth Wenig/AP
“Companies have been soaking up a certain amount of money, and they can't keep doing it.
They have to pass it on,” Lempert said.
And they haven't been shy about doing it or bragging about it.
Kraft Heinz presented its quarterly results on Wednesday, beating Wall Street expectations.
In a call with investors, Global CFO Paulo Basilio explained: "Although we ended 2021 announcing or fully implementing all the prices we had planned, we are now taking additional pricing actions, as appropriate."
This has become a familiar refrain among executives at several large food and beverage companies that also recently reported quarterly earnings, including PepsiCo, Coca-Cola and Mondelez, which owns brands like the Ritz and Oreo.
“We anticipate another year of material cost inflation,” said Mondelez CFO Luca Zaramella, who went on to point out how Mondelez would benefit.
"As such, prices will be a bigger contributor to top lines than in previous years."
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Although some consumers will remain loyal to certain brands, others are already adjusting their spending habits.
In a survey this month by Jefferies Group, 80% of respondents said they are actively looking for ways to cut costs by doing things like buying less expensive, private-label products and more sale items.
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Although price differences can vary widely by product, retailers have made concerted efforts to improve the quality of their private label products and ensure they are on par with name-brand products while keeping prices low, he said. Lempert.
It is an advantage that can be useful for retailers.
In a Los Angeles supermarket, 365-brand organic refried black beans cost $1.39 for a 16-ounce can, while a 15.4-ounce brand-name can costs $3.79.
A dozen cage-free eggs from Target's Good & Gather brand cost $2.79 in Los Angeles, compared to $5.69 for a dozen pasture-raised eggs from Vital Farms.
The Jefferies report concludes that “if prices go up (and they likely will), more shoppers will resort to cutting corners.
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Walmart, the largest retailer in the country, is betting on it.
The company, considered a barometer, presented better-than-expected results on Thursday.
CEO Doug McMillon summed up his outlook for Walmart as follows: “In times of inflation like this, middle-income families, lower-middle income families, even the wealthiest, become more price sensitive, and that It benefits us," he explained.
Bragging rights are yet to be determined.