By Panos Mourdoukoutas
Sales at the nation’s supermarkets and restaurant chains for the second quarter reveal a continued shift in Americans’ eating habits: more meals at home, fewer meals out, and a move away from expensive lifestyle eating to value meals amid growing economic stress from elevated food inflation and uncertain job growth prospects.
On Sept. 11, Kroger, the third-largest supermarket chain, reported a 3.8 percent annual sales rise for the second quarter, in line with the sales growth of the first quarter and the four quarters of 2024. In addition, the company boosted its guidance for the rest of the year.
A critical driver for Kroger’s higher sales for both quarters was strong demand for fresh produce, a raw material used in home cooking.
“We know that fresh products are important to our customers, specifically in meat and produce. These categories continue to outpace center store sales and reflect the growing demand for healthier options,” said Ronald Sargent, chairman of the board and interim CEO of Kroger, during the conference call that followed the release of the second quarter earnings. “Our sales growth in the fresh category shows that we’re making strong progress in the categories our customers care most about.”
Meanwhile, he sees spending on retail food remaining resilient as customers are cutting back on discretionary purchases and restaurant visits.
“They’re doing things to save money. And when you look at income cohorts, low- and middle-income households are really looking for deals. They’re using coupons more. They’re making smaller but more frequent trips and purchasing more private-label products. They’re also eating out less,” Sargent said.
Last month, Walmart, the nation’s largest supermarket chain, reported strong sales in its grocery segments. At the same time, value stores such as Dollar Tree and Dollar General also reported higher sales.
While supermarket sales point to the rise of the eat-at-home trend, restaurant chain sales point to another trend: consumers substituting expensive lifestyle meals with more affordable options.
For instance, McDonald’s reported robust same-store sales for the second quarter, in sharp contrast to the reports from lifestyle chains such as Chipotle, CAVA, and Sweetgreen, which experienced flat or declining comparable-store sales.
One factor stressing American consumers in the past two years is the elevated cost of living, as evidenced by a string of inflation reports from the Bureau of Labor Statistics (BLS), including one released this week.
The annual Consumer Price Index rose to 2.9 percent in August, the highest since January, after holding steady at 2.7 percent in June and July.
Prices for basic goods that fill a typical consumer basket were led higher by an acceleration in food costs, which rose by 3.2 percent in August, up from 2.9 percent in July.
Another source of stress for American families is the concern that the job market is cooling at a faster pace than previously reported.
The BLS announced on Sept. 9 that the U.S. economy added 911,000 fewer jobs in the 12 months through March than initially estimated. It’s the most significant downward revision since at least 2000, pointing to fewer opportunities for job seekers and tame labor income growth.
The weakening labor market has shaken consumer confidence, as indicated by another weak Consumer Confidence report released a couple of weeks ago.
“Consumer confidence dipped slightly in August but remained at a level similar to those of the past three months,” said Stephanie Guichard, senior economist for global indicators at The Conference Board.
“The present situation and the expectation components both weakened. Notably, consumers’ appraisal of current job availability declined for the eighth consecutive month, but stronger views of current business conditions mitigated the retreat in the Present Situation Index.”
The changing eating habits of American consumers, which have made them more thrifty in allocating money to food, have profound implications for the overall economy and food providers.
For the overall economy, this means slower economic growth, as cooking at home is a non-market value-added activity that isn’t included in the Gross Domestic Product (GDP).
For food service providers such as the restaurant industry, it means slower revenue growth and job creation, especially for lifestyle menu chains, which have proliferated in recent years.
For food material suppliers such as supermarket chains, it means more opportunities for growing their product lines by providing ready-to-serve fresh products such as washed vegetables and ready-to-cook dishes.
However, a thrifty consumer and growing competition will make it difficult for these chains to pass on rising costs, such as tariffs, to consumers in the form of price hikes.
“Any cost increases, we’ve tried to absorb them as much as possible. Occasionally, the tariffs will have an impact on some of our pricing,” Sargent said.
“The competitive backdrop on pricing remains very rational out there. Our priorities currently are to really simplify our pricing strategy. We do want to lower prices.”
