June 27, 2023

Food price hikes to slow, which is good for trucking


The biggest food brands have cooled it on price inflation. That’s good news for consumers — and trucking companies.

Two freight brokers told FreightWaves that truckers have had to reorganize their routes to grocers in the past year due to reduced volumes, though they haven’t experienced the fallout of business that other firms have grappled with:

  • Andrew Lynch, the president of Zipline Logistics, said food companies in his network are moving less freight. Demand is choppy; a shipper may want to send 12 pallets one week and then a full truckload the next week. However, he said his brokerage’s volumes are up overall 20% year over year.
  • David Spencer, vice president of market intelligence at Arrive Logistics, said there hasn’t been a “dramatic pullback” in consumers buying the necessities, like groceries. However, he’s noticed some key grocery customers are more likely to ship products twice a week, whereas several years ago it may have been once a week. 
  • Food headed to restaurants or cafeterias requires less packing than food headed to grocery stores. The shift to grocery spending over eating out was great for trucking companies in the early months of the pandemic; Spencer estimated that a truckload of food headed to a restaurant requires four to five truckloads if headed to a grocery store — thanks to that hefty packing. However, as consumers have shifted their spend from grocery back to restaurants, trucking companies have less packaging to haul.

FreightWaves SONAR data suggests that truckers have been hard-pressed to find grocery loads. Looking specifically at refrigerated freight (which, unfortunately, leaves out a healthy chunk of the grocery sphere), conditions this spring hit their weakest point since at least 2019. 

The Reefer Outbound Tender Reject Index shows that trucking fleets are rejecting around 4.7% of refrigerated freight jobs. Last year at this time, that number was around 8%. Truckers rejected a whopping 34.9% of refrigerated truck jobs at this time in 2021.

Reefer Outbound Tender Reject Index for refrigerated trucking volumes
Refrigerated truckload tenders rejected by carriers have fallen below 5%. (Chart: FreightWaves SONAR. To learn more about FreightWaves SONAR, click here.)

While this index is currently very low, there have been signs of stabilization in the past six months. In mid-May, the Reefer Outbound Tender Reject Index slumped to around 2.6%. The current reading of nearly 5% is a marked improvement. 

Reefer Outbound Tender Reject Index for refrigerated trucking volumes
The percentage of refrigerated truckload tenders rejected by carriers has slightly recovered in June. (Chart: FreightWaves SONAR. To learn more about FreightWaves SONAR, click here.)

That stabilization may be because of slowing inflation for consumer packaged goods, like soda, dish soap, cereal and bread. According to Nielsen data, food prices increased by 7% in May 2023 compared to the same month last year. Consumption decreased by 2% over that same period.

As food inflation slows, experts believe that volumes will creep up again. 

“We saw volume shrink to some of the lowest levels in a very long time in grocery,” Jennifer Bartashus, who is Bloomberg Intelligence’s senior equity research analyst of consumer staples and retail, told FreightWaves. “Now the tide seems to be turning and inflation is coming down … . We’re expecting to see volume start to rise again across grocery.” 

‘Excuseflation’ has been great for food manufacturers… but not customers

In recent months, there’s been something of a reckoning on why everything has gotten more expensive. Highly circulated research from Isabella Weber of the University of Massachusetts Amherst points to increased profit margins as an outcome of inflation. The supply chain crisis should have limited corporate profits as companies scrambled to find key inputs, like semiconductors or space on a container ship, as Weber has outlined. 

Instead, many industries have reported record profits in the past few years. That’s particularly notable among food manufacturers. As Time reported in April, giants like Cal-Maine Foods (which owns Land O’ Lakes and Eggland’s), Kraft-Heinz, General Mills and Conagra saw their net incomes soar during the past year.

Given that troublesome supply chain crisis, presumably they shouldn’t have profited so much. However, thanks to what Bloomberg’s Odd Lots podcast dubbed “excuseflation,” companies were able to excuse historic price hikes by pointing to the everything shortage and supply chain crisis. 

Inflation on household staples and food is slowing, but customers are still buying less and less. (Chart: NielsenIQ.)  

Many of these shortages have dissipated or even reversed. Freight transportation capacity in most modes is plentiful. Still, companies aren’t exactly hankering to slash costs — in part because they’ve found that consumers will still buy stuff even if it’s more expensive than it was last year. Many companies have accepted lower volumes in exchange for higher prices.

Companies have opted for higher prices and sacrificed volumes — not particularly a chipper development for the trucking industry. CPG giants enjoyed higher profits even though they were selling less. Increasingly, they’re finding that they’ll have to be more reasonable with prices and boost that volume again.

“Grocery sales and margins were really supported by inflation, so they got lots of good top-line growth,” Bartashus of Bloomberg Intelligence said. “That was at the expense of volume. So in order for a lot of the publicly traded grocers to continue to show profit gains, they need volume to pick up.”

Trucking companies would definitely like you to buy more stuff at the grocery store. (Photo: Jim Allen/FreightWaves)

Unfortunately for consumers (and truckers), CPG companies almost never make things cheaper. Big-box retail whiz Arun Sundaram, who is a senior equity research analyst at CFRA Research, said prices will come down thanks to promotions — particularly on cereal, produce, dairy, protein and other staples.

Sundaram pointed out that there are still some pressures to keep food prices high, by the way. Certain commodities are still unusually expensive, like cocoa and sugar. The cost of labor has increased. But other key inputs like corn and (of course) transportation are down from pandemic highs. 

Grocery chains don’t like food price inflation either, so they’d like you to buy their private-label brands

Back in March, UBS Chief Economist Paul Donovan wrote about the possibility of a “consumer rebellion” that could halt grocery inflation. There’s also a precedent of the U.S. government stepping in to halt price increases, most notably in the 1940s. 

Neither of those things happened. In lieu of the federal government protecting household budgets, we have … Walmart?

During its first-quarter earnings call in May, Walmart said food prices were up 20% on a two-year basis — largely thanks to CPGs keen on hiking prices. As a result, Walmart has been pushing its private-label brands. About 20% of Walmart sales are now private-label; at Sam’s Club, that’s around 30%.

Private-label goods got a bad rap in the 1990s as weird, off-brand stuff. Think “Sweet Fizzy Drink” instead of Coca-Cola, or “Sugary Grain Circles” instead of Froot Loops. (Note: Neither of those private-label goods actually exists.)

Now, store brands are a bit wiser, with their own in-house kitchens and branding experts to make private-label cool, said Juli Herdegen Lassow, the owner of private-label partnership firm JHL Solutions and former director of sourcing operations at Target. The aim is for private-label to be not just an economical option for consumers, but their first choice. 

“That’s where you’re going to see something super fun and innovative, like premium granola or a fruit snack,” Lassow said. “That grocer has taken the time to invest in food scientists and to build out a brand and a compelling flavor profile that the consumers are gonna be excited to have.” 

Walmart’s private-label brand is called Great Value. (Photo: Jim Allen/FreightWaves) 

Among all U.S. grocery channels, the dollar spend on private-label brands jumped 10.3% during the first three months of 2023. National brands grew by just 5.6%, according to data analyzed by industry group Private Label Manufacturers Association and data firm Circana.

Private-label is likely here to stay

Grocery stores aren’t just pushing their in-house brands because they want to save us money. Private-label foods are more profitable for grocery stores. Grocers also don’t enjoy the same plunder 

Bartashus noted that grocery stores’ profit margins generally sit around 2% to 5%. CPG firms typically enjoy a profit margin of 11% to 15%.

One reason is that there aren’t many options of, say, what kind of boxed mac ‘n’ cheese you buy. There’s the iconic Kraft blue box, Velveeta, or Annie’s if you’re feeling indie. But there are myriad options for where you buy that mac ‘n’ cheese: big-box grocery stores; dollar stores; online; pharmacies; or a mom-and-pop. 

If, say, Kroger can develop a killer mac ’n’ cheese that you can’t seem to stop craving, that’s a win for them. You’ll likely buy your other groceries while you’re there.

Christopher Durham, president of Velocity Institute, a private-label professional association, noted that store brands are typically thought of for staples like vegetable oil or milk. But a trend that started before the pandemic — and is set to continue on — is store-brand stuff that consumers actually like.

“If I can get you to love one or two unique things and come back for it, that’s when I win,” Durham said. 

In the long term, that may mean more profits for grocers.

For the $875 billion trucking industry, freight and private-label experts alike told FreightWaves there’s not really a big difference whether a retailer is intaking its own store-brand goods versus a national brand. But, we can thank the private-label world for keeping freight volumes somewhat elevated this past year. 

What’s your favorite store brand purchase? Email [email protected] with your grocery opinions. And don’t forget to subscribe to MODES for more freight transportation insights.


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