Despite record inflation, shopper demand has remained strong for months, which has led retailers to pass price increases to their customers. However, that’s beginning to change as more consumers are looking for savings and moving away from big-ticket purchases.
As inflation in the U.S. has reached a nearly four-decade high, rising costs in labor, raw materials, and transportation have driven up food prices. Grocery prices rose 10.8% last month, with meat and egg prices climbing at double-digit rates from April 2021, according to the U.S. Department of Labor.
In response to rising prices, consumers have been opting for cheaper options for meat and cooking oil and looking for discounts. People are also buying more store brands and buying in bulk, not only to save money on food but to also reduce trips to the store to save money on fuel.
Supermarket chains like Kroger Co. are pushing back on higher prices from food makers, asking brands to justify their higher prices before they accept them and regularly negotiating with suppliers to make sure prices are affordable.
Kroger’s chief merchant and marketing officer Stuart Aitken told the Wall Street Journal that the Cincinnati-based grocer checks the prices for every commodity, as well as packaging costs, to ensure suppliers’ price increases are justified.
“We want a justification for it, and what we then do is validate,” Aitken added.
Grocers are also warning manufacturers that they’ll stop carrying their products if they aren’t willing to negotiate on prices. Some are switching to new meat suppliers with cheaper products and are delaying price changes on certain items such as canned goods.
“We don’t just accept cost increases,” said Don Clark, chief merchandising officer of Giant Eagle Inc. The Pittsburgh-based grocer has let manufacturers considering price hikes know that higher costs could push away customers. In some situations, the company stopped stocking new items due to cost increases.
This industry-wide pushback against rising prices should impact the Invesco S&P 500 Equal Weight Consumer Staples ETF (RHS), which follows the S&P 500 Equal Weight Consumer Staples Index and has companies like Kroger as holdings. RHS offers exposure to the consumer staples sector of the U.S. economy, making it one option available to investors implementing sector rotation strategies or looking to tilt exposure towards a low beta industry, perhaps in anticipation of a down market.
RHS is linked to an equal-weighted index, meaning that component companies receive approximately equal allocations. The fund holds 32 stocks and is less concentrated than cap-weighted consumer staples ETFs. For example, Lamb Weston is the largest component in RHS and commands a weight of 3.98%.
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