Finally, some good news for U.S. grocers.
After retail prices for major food sources ended 2016 on a downswing, meaning U.S. supermarkets had to eat from their margins to stay afloat. But this could all start to see some change in the latter half of 2017 indicates a recent report from Moody’s Investor Service.
Last year, Moody’s found that grocery stores’ operating profits declined about 5 percent due to a 1.3 percent decline in food prices. But Moody’s anticipates domestic food prices to rise about 1 percent in 2017, taking a bit of pressure off supermarkets’ top line.
“We expect the U.S. supermarket sector’s operating profits to grow about 8 percent in 2017, compared with an approximate 5 percent drop last year,” said Moody’s analyst Mickey Chadha. “As deflation subsides, growth will be skewed toward the second half of the year, driven by improvement at Albertsons, the Kroger Company and Whole Foods Market.”
This doesn’t necessarily mean that the grocery space will look the same it did as before. Moody’s data projects that natural and organic foods sales, as well as sales of private-label food products, will continue to grow their market share in 2017.
Even with all the talk of digital usurpation, online sales make up a notably small fraction of the U.S. food retail market. This minority share will continue over the next five years. Moody’s expects 2 to 3 percent annual growth for the food retail market over the next five years, with online penetration accounting for less than 3 percent of the total by 2022.
But don’t expect your favorite grocerants or local food delivery services to be cut back — streamlining and consolidation initiatives along with in-store digitization and other transformations will likely continue to be used by brick-and-mortar grocery locations in the coming years to increase customer foot traffic, engagement and store profitability.