The cost of putting food on the table
By Christopher Bjorke, Forum Communications
The banana could be considered a minor miracle of global trade.
Every day of the year, even in winter, a shopper in Grand Forks can purchase fruit grown in the tropics and shipped thousands of miles to be sold during the short period before it turns black — at a price, as of last month, of 58 cents per pound.
Or 68 cents per pound in Fargo, earlier this summer. Or 65 cents in Duluth, 69 cents in Williston, N.D., or 39 cents in Bismarck (there was a sale).
For grocers, the prices they put on bananas — and everything else they sell — go toward covering the costs to ship products, cover wholesalers’ prices, pay employees and keep the lights on in their stores.
Groceries are known as a business with low margins that depends on high volume, said Tom Woodmansee, president of the North Dakota Grocers Association.
“The net profit is very, very small for the retailers, grocers,” he said.
Prices may vary
Among the needs that divide our incomes, food costs, like those for housing and energy, are unavoidable expenses.
An unscientific survey of food prices around the region by Forum Communications staff shows variation in the prices of products but not identifiable high and low spots among cities.
For example, a half-gallon of 2-percent milk cost $2.39 in Grand Forks last month, while it cost $3.17 in Fargo in July, the high among the surveyed cities. Duluth was on the cheap end for milk, at $1.66.
A pound of 85-percent lean ground beef was $4.09 in Duluth, the same as in Grand Forks, while it was $4.39 in Fargo and only $3.79 in Minot.
Grand Forks had higher bread prices, however. The comparison found a loaf of Sara Lee white bread selling for $3.79, while it was $3.09 in Fargo and Duluth and $3.19.
Beer, a less essential food item, also varied in price, from $9.99 for 12 cans of Miller Lite in Duluth to $12.39 in Minot and $11.89 in Grand Forks.
In western North Dakota’s Oil Patch, retailers have struggled to keep employees as high-paying oil jobs and near-zero unemployment has driven up pay. Williston, the largest city in the Oil Patch, showed some outliers in prices, but the differences were not dramatic.
A half-gallon of 2-percent milk in Williston cost $3.29, a pound of 85-percent lean ground beef cost $5.11, and 12 cans of Miller Lite cost $12.49, all higher than any other city surveyed. But a loaf of Sara Lee white bread cost $3.69, a dime less than in Grand Forks.
Woodmansee said grocery stores in the region mostly are supplied by two companies, Nash Finch and SuperValu, and variations in prices are typically the result of retailers balancing the need to move inventory, cover the cost of their expenses and compete for customers.
The most fluid prices are often found in the produce and meats sections, fresh food with a brief shelf life. Shoppers can be nudged toward items that need to be moved before they spoil. Brown bananas that are thrown out hurt a store more than ones sold at or below cost.
In addition to what stores pay to their suppliers, they also have to contend with cost increases in wages and energy. The price of gasoline is especially important with a business that requires constantly trucking in new inventory.
“Everybody has to have transportation, whether they live in Bismarck or Williston,” Woodmansee said.
Competition is a natural influence on prices, too, “More so now as you see discount stores getting more and more involved,” Woodmansee said.
As big-box retailers have expanded their food inventories, local grocery stores have had a challenge matching the prices of the international retailers.
Grocers typically depend on customer volume more than price to make their profits. Woodmansee gave an example of stores that sell Thanksgiving turkeys at a loss and make up for it with all the other things customers buy for the holiday.
Because volume is vital for stores, the need to keep customers returning and away from competitors, is a factor that never changes, Woodmansee said.
Grocers say, “‘You know what, Tom? We never price ourselves to make customers go away,’” he said.
No one has the option of not paying for food, the reason why rises in food prices often upset shoppers more than other areas of inflation.
After a summer of widespread drought, consumers will likely have to prepare for higher prices for their groceries.
The U.S. Department of Agriculture’s most recent food price outlook has shown modest increases this year, but it predicts steeper rises in 2013 when higher commodity prices will have more effect.
Prices for all foods were up 2.3 percent in July over the year before and are projected to rise between 3 percent and 4 percent next year, according to the USDA.
Meats, which are tied to the price of corn, used for animal feed, have shown increases already this year, according to USDA. Beef prices were up 6.6 percent from July 2011 to July 2012. Poultry increased by 1.2 from June to July and was up 6.1 percent over July 2011.
“The volatile products are the perishable items in produce and meat,” said Mark Hamstra, retail editor for trade publication Supermarket News. “The corn crop affects the price of meat and chicken.”
Hamstra said retailers have some ability to absorb rising prices from their suppliers before passing them on to consumers, but not long-term increases.
“For the most part, supermarkets will do whatever they can to keep prices on the shelf as low as they can, but they do have to pass on increases because profit margins are so slim,” he said. “It’s a very, very competitive industry, so they have to be very conscious of doing that, of raising prices.”
Consumers experience higher food prices not only at the grocery store, but at restaurants as well. Kim Holmes, owner of Sanders 1907 in Grand Forks, said sometimes price jumps come from unexpected sources. When McDonald’s puts its McRib back on its menu, it can push up the price of pork.
“I swear to God, things like that affect the price,” he said.
To compensate, restaurants might opt for lower quality products, try to stretch out other items or watch waste, he said.
“To balance it out, there’s certain tricks you can use,” he said.
One of Grand Forks’ largest purchasers of food is Orlynn Rosaasen, director of UND Dining Services, which feeds 4,000. He watches the USDA’s inflation reports for prices when setting his own fees and budgets and looks to alternate products or supplier discounts when prices go up.
“I think this year we manage it unless something crazy happens,” he said.
Next year though, he expects a jump of 3.5 to 4.5 percent.
“The unknown here… is what the drought has done,” he said.