November 17, 2008

Economist: Thanksgiving feast gobbling up more food dollars

As consumers prepare for the annual November feast, they'll find retail food costs have risen at a rate 3 percent higher than restaurant prices since 2007, said Corinne Alexander.

"Thanksgiving food prices are up about 6 percent compared to last year," Alexander said. "What's interesting is the difference between grocery store prices compared to restaurant prices. Grocery store prices are increasing at a pace of 7.6 percent, compared to a pace of 4.5 percent for restaurants."

Food retailers are passing higher commodity and energy costs on to consumers, Alexander said. Supermarket prices are climbing quicker than restaurant prices because about half the cost of a restaurant meal is tied to labor, and restaurant wages are flat, Alexander said.

Consumers who insist on having the traditional Thanksgiving meal at home should find bargains on several holiday staples, including the symbol of the season: turkey.

"There's a plentiful supply of turkey," Alexander said. "Turkey production in the U.S. is up 6 percent from last year. The U.S. Department of Agriculture predicts that the wholesale price of whole turkey in the eastern market is going to be between 94 cents and 98 cents per pound. Whether or not that translates through to the retail price and what retail price consumers pay is going to depend on the individual retailer pricing decision."

The estimated wholesale price for turkey is 3 cents to 7 cents per pound higher than in 2007, driven by higher export demand for U.S. turkey.

Still, "turkey is a favorite loss leader item for grocery stores, where they'll offer you a coupon or a discount to give you a really great price on turkey," Alexander said. "The reason is that grocery stores are hoping that when you come to pick up that turkey you're also going to buy your potatoes, your cranberries and all of the other items that you serve at Thanksgiving."

Many side items should be moderately priced this Thanksgiving, Alexander said.

"Cranberry supplies are up 5 percent from last year because we've got the second largest crop ever. We should see very good cranberry prices this year," she said. "When you look at potatoes, we've seen white potato prices go up 35 percent this fall because white potato acres were down 8 percent from last year. In contrast, sweet potato prices have come down because we have a record sweet potato crop in North Carolina."

Those serving ham will pay up to 4 percent more than one year ago, although that price increase is below the general 6 percent food inflation rate, Alexander said.

"There's a little bit of bad news for health-conscious consumers who have been trying to increase their consumption of fruits and vegetables," she said. "We've seen reduced acreage of fruits and vegetables this fall and, as a result, food shoppers are seeing higher prices for both fresh and processed fruits and vegetables."

Preparing the feast will be more expensive, but consumers will spend less to transport it to grandma's house. Natural gas costs are 18 percent higher and electricity up 7 percent from fall 2007. Conversely, gasoline prices have fallen 20 percent in the past month.

U.S. consumers can be thankful they have plenty of food and that they spend little, in comparison to some parts of the world, for that food, Alexander said.

"Although Americans eat very well, we spend only 9.8 percent of our average income on food," she said.

Writer: Steve Leer, (765) 494-8415, sleer@purdue.edu

Source: Corinne Alexander, (765) 494-4249, cealexan@purdue.edu

Ag Communications: (765) 494-2722;
Beth Forbes, forbes@purdue.edu
Agriculture News Page

To the News Service home page