Here’s how supermarkets smooth out big jumps in food prices

Expect to see bacon and pork tenderloin promoted on countless weekly supermarket flyers this spring, experts say. Don’t expect the same level of front-page feature treatment for beef, nor for many fruits and vegetables.

That’s because pork is piling up in distributors’ refrigerators amid a North American-wide build up in supply, while the amount of beef being produced remains tight relative to demand.

And the diving loonie isn’t helping matters, and that goes for produce prices, too.

Meat prices popped 12.4 per cent last month, Statistics Canada said Friday, while vegetables rose by 8.4 per cent thanks mostly to the currency’s sustained drop against the U.S. dollar this year, a drop that’s sent wholesale costs surging for supermarket owners.

Pork is poised to drop because lean hog prices have declined sharply this spring to multi-year lows as farmers have raced to take advantage of higher prices, only to now flood the market. February’s rise was fueled by higher imported beef prices.

Fewer features

For their part, Canadian grocers are doing what they can to mitigate the currency-induced cost increases – mindful to be as discreet as they can be in passing the inflation onto shoppers.

To cope, experts say supermarkets are withdrawing from sales on costlier fruits and vegetables this year, pulling them from flyer promotions. Or when fresh food items are promoted, their regular price is inflated to give the impression shoppers are getting a better deal that week, according to experts.

“You feature them less, because you just cannot put something on the flyer that’s attractive. When you do feature them, you price them higher,” said Kevin Grier, a food industry analyst based in Guelph, Ontario.

MORE: Higher consumer prices the new normal thanks to loonie’s decline

Grocers can hold the line on pricing by shrinking volumes and packages – something producers resorted to doing early last year when bacon was rising sharply.

“When prices go up and you want to take the sting out, you make the package smaller,” Grier said.

Face reality

Industry executives and experts suggest though there isn’t much in the tool box for blunting the kind of sustained upward pressure on prices being created by the loonie’s descent.

“The big challenge in an environment like this one is finding a way to get customers to accept the reality that prices are changing,” Marc Poulin, chief executive of Empire, which owns Safeway and Sobeys, said on a conference call earlier this month.

Prices rose 3.9 per sent at the second-biggest supermarket operator in the country in the latest quarter, matching the overall pace of inflation on food purchased in stores this February. Empire’s internal inflation was driven by a 7.1 per cent surge in fresh food costs.

Investment experts say Empire has remained “disciplined” by flowing the increases onto shoppers instead of absorbing the currency hit – something that’s hit at sales at Sobeys and Safeway as some shoppers head elsewhere.

“Some retailers play tricks around this. We’re not trying to. At some point, you’ve got to reflect this to customers and we’re not shying away from it,” Poulin said. “It’s an unfortunate fact of life in 2015, the price of produce is going up.”

“What I can say is that we’ve been very disciplined in trying to reflect the true costs of the commodities to customers. And our plan is to continue to do so.”