Higher food prices, led by milk, are hitting consumers where it hurts – in the stomach.
By Aaron Smith, CNNMoney.com
John Norris’ family is drinking a lot less milk these days. He said he considers the higher prices and has cut back on his kids’ milk consumption. But between work and family obligations, he still drives almost as much as he used to.
“That’s the reason I cut down on milk consumption – so I can drive my car,” said Norris.
And Norris should know. He’s the director of wealth management for Oakworth Capital Bank and a food price expert.
The Norrises aren’t the only family getting pinched at the grocery store. Prices of food and non-alcoholic beverages rose 4.7 percent since the beginning of the year through November, outpacing the 4.3 percent increase in the overall cost-of-living, according to the federal government’s Consumer Price Index.
Everyday foods like fruits and vegetables, beef, poultry and cereals are on the rise. The price of milk is the biggest culprit, with a staggering increase of 23.2 percent through November. And with basic foods like dairy and wheat driving up the cost of other groceries, almost everyone is feeling the squeeze.
Families with children, who typically go through a couple gallons of milk per week and spend hundreds of dollars on other groceries, are especially vulnerable.
“Kids need a lot more food than we do,” said John Mulhern, a grandfather and one of several shoppers who spoke to CNNMoney.com outside a Key Food grocery in Brooklyn. “So your hearts go out to young families, especially [those who] have multiple children. They’re the ones who are hurting the most with the rising prices.”
Marie Thompson, a mother from Brooklyn with a couple of kids in tow at the grocery store, said she spends hundreds of dollars a week on groceries, including two gallons of milk.
“It seems to me that I spend more and more every week on food,” said Thompson. “It’s hard, because I have three children at home so there are five of us to feed. Beef is very expensive. The milk is very expensive. Even the butter has gone up.”
Even with gasoline prices soaring, milk still tops gas prices. The nationwide average for a gallon of whole milk is $3.80, according to the U.S. Department of Agriculture. That dwarfs the nationwide average of $2.99 for a gallon of unleaded, according to AAA.
“A lot of basic foodstuffs seem to be going up and dairy products are going through the roof,” said Norris of Oakworth Capital.
It’s not just milk-drinking kids – coffee drinkers are taking a hit from higher dairy prices as well. Back in August, Starbucks Corp. (SBUX, Fortune 500) chief executive Jim Donald blamed “rising expenses, particularly higher dairy costs” for a 9-cent rise in the price of coffee drinks. For the first time in three years, Starbucks reported a 1 percent drop in customer visits to their stores, even as the value per transaction increased 5 percent.
Many retailers, including industry leaders like Wal-Mart (WMT, Fortune 500), absorb the initial cost increases for basic food items to stay competitive, said Charles Cerankosky, food marketing analyst for FTN Midwest Securities Corp.
“For things that are purchased day after day like milk, retailers take a more judicious view about passing it on,” said Cerankosky. “You don’t want to be looked at as the guy who started raising prices.”
At first, retailers keep down prices for “high visibility” items like milk and make up for it by increasing the price of other items, like apples, said Cerankosky. But this is just a temporary measure, and eventually the price of milk will go up anyway, he said.
Of the Brooklyn shoppers interviewed for this story, none of them said that they were eating less, but a couple of them said there will be fewer Christmas presents under the tree this year. Santa’s tightening his belt, so the kids don’t have to.
But if price increases continue into 2008, families will have an even harder time stocking their pantries.
“I do expect food prices to keep going up,” said Norris of Oakworth Capital Bank. “Let’s just keep our fingers crossed that we’re not going to have another year like this year.”
