Food inflation to benefit comps in months ahead
American consumers may not like inflation, but retailers are enjoying the favorable impact rising prices have on their same-store sales calculations. It was evident last month when most retailers reported healthy comp increases, and more of the same could be in store for July as it appears retailers are effectively passing through increased prices to shoppers.
This week, evidence to that effect is provided courtesy of Credit Suisse, which shows retail prices on a basket of 60 items at stores in Dallas and Chicago were up 1% compared with May and up 2.7% compared with the same month the prior year.
The firm again had Walmart as the lowest price retailer with Target next closest at 5% higher, or essentially even for shoppers who pay with their Target branded REDcard.
“Walmart and Target both raised prices (month to month) by 1.1%,” according to Credit Suisse. “Year over year, Walmart raised prices 3.8% and Target raised prices by 3.4%. Target’s price gap versus Walmart decreased slightly from 4.7% to 4.6%.”
Target and Walmart both enjoy a commanding lead over other retailers included in the monthly survey. Walmart’s average price gap relative to other competitors was 17.5%, although that figure is skewed by the inclusion of Target on the low end and chain drug retailers Walgreens and CVS on the high end. The drug chains were 27% higher than Walmart.
“While recent commentary from some companies, notably Dollar General and Walmart, suggest that the lower-end consumers are starting to feel the strain of higher prices, we believe most retailers have been successful in passing through cost inflation and will look to continue to do so,” according to Credit Suisse. “Thus far the pricing environment has remained rational, although the key player to continue watching is Walmart.”