One of the hardest items to budget for in a modern economy is food.
Prices can be notoriously finicky, and even if a family decides to cut back on splurges like dining out or ordering delivery, they're still largely at the mercy of price fluctuations at the grocery store for even the most basic staples.
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And unless you take a drastic route, like cutting out meat, eggs, and dairy (some of the parts to a grocery bill) or opting for local offerings at a farmer's market, no matter how you slice it, food simply costs more.
According to the U.S. Department of Agriculture, 2022 saw a near-record food price increase of 11.4% – the largest hike since the 1980s. Its data predicts 2023 experienced a subsequent 6.3% increase in prices.
Some of the most expensive items over the past several months have been:
- Beef
- Olive oil
- Oranges
- Peaches
- Chocolate
Each of these items were up by double digits in 2023, with some large companies warning customers and investors about the impact.
"While historic cocoa prices are expected to limit earnings growth this year, we believe our strong marketing plans, innovation and brand investments will drive top-line growth and meet consumers' evolving needs," Hershey CEO Michele Buck said following a 6.6% drop in Q4 sales thanks in part to a 40% rise in cocoa prices.
But some retailers are weathering the price increases better than others.
Sprouts Farmer's Market reports bumper earnings
Naturally, many customers are looking for a reprieve from price hikes this year, and while large retailers like Walmart and Sam's Club might have more pricing power, the Arizona-based Sprouts Farmer's Market (SFM) is finding other ways to keep customers returning.
The grocery store, which reported Q4 2023 earnings in February, saw sales rise 8% to $1.7 billion and comparable store sales grow by 3.3%. And while many stores shutter or lock goods up, Sprouts opened six new stores, bringing its total store count up to over 400 in 23 states across the U.S.
Its strongest point, management says, is diversification. Sprouts offers mostly organic and high-quality, health-conscious foods ranging from grass-fed beef and bison to organic milks and snacks. Its variety of high quality offerings differentiate it from more conventional grocery stores.
"We continue to see strong performance in categories with the most differentiation, including grocery, dairy, frozen and meat," CFO Curtis Valentine told analysts on the earnings call.
"Sprouts has experienced exceptional growth in attribute-driven categories within these departments such as grass-fed beef and no antibiotic-ever proteins. These categories have gained popularity due to their superior quality and health benefits, making them a top choice for our customers who prioritize healthy eating," he added.
Sprouts has big plans for customers in 2024
Sprouts foresees that its future strengths lie in further diversification, rather than consolidation which is more common across retailers currently.
"Our intent is to become a leading provider in attribute, health-driven categories, such as organic, vegan, grass-fed and Keto, prioritizing winning and gaining market share in these differentiated categories," CEO Jack Sinclair told analysts.
"To achieve this, our foraging team is searching far and wide for new health trends and working with niche vendors to find differentiated products such as low caffeine annuity, Popadelics, a snackable mushroom chip and matcha bubble tea drops," Sinclair said.
Niche vendors and better-for-you snacks are a growing corner of the market, as more shoppers – especially younger Gen Z customers – are aware of health and ingredients in our foods.
And Sprouts is forecasting a big growth in its customer base – and loyalty program. It plans to invest $15 million into a new loyalty program, which rewards customers for repeat business. It hasn't issued many details about the forthcoming program yet, though it anticipates a rollout in summer 2024.
"The program is designed to grow our identifiable customer base and gather valuable data on their preferences, enabling us to personalize the experience to their specific needs," Sinclair explained. "We're also optimistic about how the data will potentially unlock value across our business by deepening our insights on customers, aiding Sprouts' brands product development, improving customer acquisition and providing a new asset to utilize with our vendors to grow our mutual business."
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