In July 2019 residents of the United States, according to the Bureau of Economic Analysis, expended 1, 081 billion “real” inflation-adjusted dollars on Food-At-Home. This July we spent 1, 173 billion real dollars on groceries and related, about eight percent more. With inflation included, in July 2024 we spent almost 26 percent more on groceries than in July 2019. This compares to a roughly 19 percent inflation rate for all personal consumption expenditures. See chart below where blue is nominal dollars expended on groceries and red is real dollars (chained 2017 dollars).
There is disagreement regarding the cause of late-pandemic and post-pandemic inflation. There is even more controversy regarding food price increases (at link see August 28 Update below video). The classic cause of inflation is a mismatch of demand and supply where “too much” demand is chasing “too little” supply. The more time-extended this mismatch the more inflation. The more intense — even price-insensitive — the demand, the higher prices will track.
Before the pandemic many Americans spent over half their food dollars eating away from home. From March 2020 through the end of 2021 spending on Food-Away-From-Home was disrupted. Consumers shifted their food dollars from eating out to eating in. This created a classic mismatch of demand and supply. Food prices increased accordingly (again, see chart below).
What has surprised me is how demand for Food-At-Home has remained well above pre-pandemic patterns even as consumers returned to eating out. By mid-summer 2021 US consumers were spending about the same nominal dollars at “food and beverages places” as we were pre-pandemic (today we are spending one-fifth more eating out than in July 2021). Late summer 2021 we finally stopped spending consistently more real dollars on groceries. Between January 2022 and March 2023 we reduced our real grocery spending by almost five percent. This makes sense. This reflects our return to restaurants, fast food, and other Food-Away-From-Home. I expected this gradual rebalancing to continue.
But by mid-Spring 2023 this spending adjustment stopped. Since this Spring — even as food inflation has flattened — US consumers have started spending more real dollars at the grocery store, even as we spend more more than ever before on eating out.
In late July and early August McKinsey and Company interviewed a statistically valid sample of US consumers. Among the questions asked was, “With regard to products and services you will spend money on, do you plan to splurge/treat yourself over the next 3 months? For example, are there categories of products or services where you expect to make more expensive purchases than normal or purchase something to treat yourself?” Food is the most popular answer, see second chart below. Among Millennials and GenX consumers food is even more a “treat” than for others. According to this and similar findings, food is now less a staple and much more a discretionary expense — even a small luxury.
A supply chain for staples is different than a supply chain for luxury goods. Demand for staples is — or usually has been — less volatile than that for luxury. A paternal great-grandfather was a tailor. My grandfather explained that he became a grocer, “because I was the best dressed kid in school but was always hungry.” But for the last generation “Center Store” — where most of the staples are shelved — has consistently declined as a proportion of total sales. Fresh and prepared foods are the profit leaders. Is Food-At-Home an emerging luxury category? Produce, cheese, olive, and sushi cases suggest yes. The proliferation of and throughput at food banks suggest no.
High volume, high velocity supplies originating from many different places and flowing to many different places with sustained, demonstrable, effectual demand implies an innately resilient system. So far, many luxury-oriented “treats” have been well-integrated into nodes and channels that deliver staples. Center-Store flows have not become appreciably less resilient and supply chains for fresh, prepared, and other periphery-products have become more resilient. Everything is more complicated, costly, and complex (which has resilience implications) and the system-as-system is robust.
The food production and logistics capabilities that supplied my grandfather’s grocery stores could never have fulfilled contemporary density, diversity, and intensity of demand — at any reasonable price-point. Today’s supply networks have demonstrated amazing resilience when 1) effectual demand persists and 2) capacity concentrations continue operations. If effectual demand is lost, but capacity concentrations persist , flows can continue and often will continue unless the network determines demand is not coming back anytime soon.
Loss of upstream or midstream capacity is more quickly and certainly a fatal blow. It depends on context — especially distance from other sources of capacity — but once food networks experience long-term loss of between one-quarter and one-third of capacity, the preexisting flow network is unlikely to survive. A new network may form around surviving push capacity and continued demand pull, but at least in my mind this is less a matter of resilience and much more a matter of triage. It is also true that in the thirty-plus years since the emergence of the contemporary food supply chain we have not experienced anything close to the loss of such a huge capacity proportion for a full network over a wide area. I would prefer to avoid any significant opportunity to prove or disprove this hypothesis.
