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December 4, 2024
Walmart CEO Says Food Inflation To Persist in 2025: Can Consumers Handle Rising Grocery Bills?
During the Dec. 3 Morgan Stanley Global Consumer and Retail Conference, Walmart CEO Doug McMillon took to the stage to make a few remarks regarding the company and the broader economy.
As Supermarket News reported, McMillon expressed disappointment over the continuing pace of food inflation in the United States and indicated that he believed it would persist into 2025.
“[Food inflation] is primarily driven by eggs and dairy, but it’s not just those categories,” McMillon said. “There’s also pressure on cocoa and other inputs.”
According to Grocery Dive, Walmart’s CEO also suggested that customers are frustrated with food prices — prices that are “a lot higher” than in the pre-pandemic era. Citing FMI – The Food Industry Association, the outlet shared that grocery prices had jumped by 25% compared to the period preceding the pandemic.
Per data from the U.S. Bureau of Labor Statistics, food-at-home prices have increased 1.1% year-over-year, as of November.
Walmart CEO Expresses Concern Over Food Inflation, Explains Company’s Plan
McMillon showed some degree of hope for the future, even while simultaneously showing some hesitation to offer any firm expectations on the subject of food inflation.
“I don’t know what the whole year is going to look like. I hope and I think it could be better as these commodities adjust — some of them,” the Walmart CEO said.
While McMillon suggested that egg and milk prices may stabilize more quickly than pantry items or canned goods, he also implied that processed food prices are unlikely to return to pre-pandemic price levels, and they may not budge whatsoever in 2025.
Pointing to extensive rollbacks — per Supermarket News, Walmart has rolled back prices on more than 7,000 items across various departments in response to inflation and consumer sentiment — and the company’s current position, which McMillon described as “front-footed, both in food and general merchandise,” the Walmart CEO inferred that the company was taking macroeconomic challenges seriously.
“A couple of years ago, I spoke with my peers — CEOs of suppliers and other business leaders — and we all agreed that storm clouds were on the horizon, and there might be a hard landing,” McMillon said. “I saw those storm clouds, but the wind never blew them this way, and they’ve dissipated. Now, I don’t feel the same way.”
Can Shoppers Survive Rising Grocery Prices (Without Going Into Debt)?
If the CEO of Walmart, one known for its relatively low prices compared to other grocers in the same space, is concerned about food inflation, what about the average American?
Earlier this year, the BBC, citing Pew Research data from January, reported that 94% of Americans were at least somewhat concerned about the price of groceries and consumer goods. While the BBC’s July 7 reportage largely profiled long-time Democrats concerned about the state of the economy, they weren’t alone.
According to NBC News‘ exit polls following the Nov. 5 presidential election, 75% of respondents indicated that inflation had caused them moderate to severe hardship in the last year, and 73% said they were either dissatisfied or angry with the way things were going in the country.
Analysis from the Urban Institute reinforced the notion that many Americans have been facing economic hardship, particularly at the grocery store. A full 20% of grocery shoppers polled said they used a credit card to finance purchases last year and did not pay the amount they owed in full (but made the minimum payment). A further 7% said they had used a credit card to pay for groceries but had also missed paying even the minimum payment, and 3.5% admitted to using a buy now, pay later loan to cover grocery bills. Finally, 1.9% resorted to taking out a payday loan to afford groceries.
Will ongoing food inflation further strain U.S. grocery shoppers? As 2025 approaches, some experts and data points indicate a pessimistic outlook.
Discussion Questions
Do grocers have a responsibility to roll back prices for their customers during times of significant food inflation?
Will 2025 see food prices stabilize, tick upward, or finally begin to fall?
Which food categories will see growth next year, and which products will see sales numbers dip?
Poll
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Lisa Goller
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Retail Industry Strategy, Esri
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Consumers can handle moderate inflation, which is what we have now. However, it will not be welcomed as inflation is cumulative and even small rises add to the enormous toll of the last couple of years. For example, October’s inflation for food at home was 1.1%. However, compared to October 2019, food prices are up by 27.2%. Some of the current issues relate to fluctuations in supply with things like weather negatively impacting oranges and cocoa. Much will also depend on political factors such as tariffs, regulation/taxes, and energy input costs. The former will move in a direction that’s unfavorable to inflation; the latter two things are likely to shift favorably. We will have to see how all of this balances out.
Great assessment Neil! While the inflation rate has slowed to a reasonable rate, the impact on prices compared to 5 years ago is dramatic and is an ongoing burden, especially to low income families. The uncertainty of potentially large new tariffs could have a harmful impact on food prices, especially produce from Mexico.
Consumers aren’t going to find new ways to pay inflated grocery prices. They’re going to change their behavior. They’re going to refuse to buy $8 boxes of cereal, and they won’t buy meat that’s not on sale. (I recently asked my grocery cashier what percentage of shoppers buy $8 cereal, and her answer was “ZERO.”)
Walmart should continue to fare well given its buying power and everyday low price approach. Hi Lo retailers are another story. Their everyday prices are budget breakers. Inflation is a chance for Walmart to capture even more grocery business from consumers seeking to get the most from their food budgets.
Grocery retailers don’t have a responsibility to roll back prices, however, they do have an obligation to serve the customers and market they serve. And preferably not lose money doing it. If Walmart customers expect to see ‘roll backs’, then Walmart will do roll-backs. They could choose not to, but they would be taking a risk that the shopper defects to another, lower cost retailer. When food prices are going up systemically (as they appear to be), then consumers are going to get squeezed. As for the gloomy forecast, no one can predict the future but these prognostications from Walmart are a troubling sign. Throw-in a little political uncertainty for good measure, and it’s hard not to see persistent inflationary pressure and this is most widely felt in groceries.
Exit polls showed voters unleashed at least some unhappiness about the economy alone. Once the government gets in a mode of working more with business, in reducing regulations, and places a greater emphasis to growing our way out of things, we’ll see consumers feeling more confident about spending. Food prices should level, and while some categories may decrease, I don’t see us returning to 2019 levels regardless – the pie is baked full of ingredients from the supply chain mess, and everyone is living off of it now.
Which regulations going away will help grocery prices? Getting rid of child labor and working hours protections? Deporting undocumented workers but not improving our immigration processes? Deleting food safety inspections? Eliminating vaccine research to leave our herds susceptible to disease? Unprocessed raw milk for everybody?
An off the top scorched-earth approach serves no one. It requires diving deeper, being surgical about more onerous burdens, towards streamlining requirements more to outcomes rather than being so process heavy. Smaller growers and producers hold a heavy and costlier burden of this government thumb.
An example here out west – a highly regarded small family-owned cured meats company was paying salaries daily for three USDA inspectors to sit on site at their small shop while they produced some of the best product in the US, sold at high quality food stores. It was a noose dragging them down. They ended up selling the company to someone with bigger pockets. Eventually passing on all imbedded and added regulatory costs in price increases to customers diminishes sales and incentives to making a small profit.
Inflation in 2025 will not repeat the bad days of 2022/3. However, it will be felt most painfully in the sensitive meat and dairy categories, and we may see more substitution purchases for a family’s protein intake. As these categories take up more of the share of wallet, retailers will need to lean on suppliers and sharpen their prices on other categories less impacted by inflation. In the coming year, the world is entering a more challenging macro environment with the rise and uncertainties of tariff regimes. Lastly, operating on razor-thin margins, grocers also have their dilemma in managing their way through higher input costs and strapped consumers.
Walmart is in a unique position to benefit from inflation. If Walmart absorbs some of its cost increase, without passing all of it along to the consumer, they can win more market share while absorbing the profitability hit via the GM side of the store (which has higher margins to begin with).
For example, now that Walmart owns Vizio, they can keep the price of TVs the same while enjoying a higher margin, and use the extra profitability to offset grocery inflation.
The first thing to mention is that most supermarkets don’t take the hit from rollbacks, TPRs, or price promotions. Manufacturers and sellers are the ones who take the hit.
Secondly, I greatly respect Doug McMillon for his transparency, and it is not surprising that he believes food inflation will continue up until 2025. The question will be – for how long?
Gas prices, interest rates, printing too much money, mishandling of the supply chain, ridiculous government spending, and other factors contributed to record inflation under Biden.
Good news, the incoming administration will make a difference on each of those causes, but nothing happens overnight, and it won’t take over until three weeks into the new year.
Despite conventional wisdom, I believe that Trump is playing “Art of the Deal,” and that tariffs will be few and far between, except for a few countries such as China. Inflation is something Trump does not want, and he knows what causes it.
Politicians may say inflation is under control, but that does not mean prices will go down. Prices are already far too high.
Inflation is expected, however, extreme price increases are definitely a problem for many consumers. But is there a choice? Retailers can do what they can to keep margins reasonable for them to stay in business, however, cutting down to minimal profit margins and even losses could prove to be a problem down the road for the retailer. That said, they can do what they can to keep prices reasonable during tough economic times. They want their customers to keep shopping. Customers who are feeling the inflated prices will start to change buying habits, look for deals, and maybe even look for different retailers.
Grocers don’t have a responsibility to roll back prices amid high inflation. Yet those who do will gain a timely, meaningful differentiator and attract more loyal customers. Making essentials affordable will remain a powerful value proposition in 2025.
There is so much uncertainty in the market at the moment that it would be good for grocers to hedge their exposure to rising prices wherever they can. The best practices for now would be to game out different scenarios based on the various ideas being floated by the incoming administration.
The consumer has no idea what the impact of true inflation is, since they don’t really understand how it works, and never consider the cost of goods, compared to the increase in income that they receive as time goes by. Consumers just know that eggs cost more (but we have been having the impact of Avian Bird Flu since 2014 on our egg production), milk is up, gas is both up and down, and they “feel” like they are paying more. But it really depends on what period they are comparing. Oh yeah, how many consumers complain when they sell their homes which has more than doubled in price in 8-9 years? Where is this factored into inflation? Oh yeah, it is not. Or the fact that for 2 years, they could sell their used car for more than a new car? How does our measurement of inflation account for the 48 record high levels that the DOW set this year and made many people lots of money? It doesn’t.
In our research we found that the government, product manufacturers, and wars/conflicts received higher amounts of blame than the supermarket for higher prices. Meanwhile consumers have implemented a number of inflation coping strategies, which they continue to use. However, a new level of higher prices versus inflation is co-mingled in their perception of the current situation. And if prices rise further due to tariffs, it will be interesting to see where the blame is placed.
As food inflation continues to challenge both retailers and consumers, staying competitive requires more than rollbacks. Real-time price monitoring ensures you respond to market shifts swiftly, protecting margins and customer loyalty. Let’s talk solutions!