Grocery Market Weakening

March 2026 Forecast & Outlook

The grocery market was already softening before the first shot was fired and the president has yet to offer a credible plan for ending the conflict. The markets are jittery and oil prices are headed up while February U.S. grocery sales dipped into negative territory for the first time in two years.

This month’s Outlook covers where we stand on oil, food inflation, and grocery demand. Then we explore what this might mean for retailers and manufacturers over the next 12 months.

The President’s Speech Missed the Mark

On April 1st, the President addressed the nation. Markets responded by pushing oil higher. That’s not a coincidence.

Oil had stabilized around $100/barrel before the speech. It has since climbed above $110. The core problem is no clear plan, no clear exit strategy, and a continued pattern of inconsistent statements that strain credibility. Markets price uncertainty. When a president says something that doesn’t hold up, uncertainty goes up.

Goldman Sachs is forecasting oil at roughly $85/barrel for full-year 2026, with April likely landing between $110–$115/barrel. That baseline assumes the Strait of Hormuz returns to near-normal levels within six weeks. Their worst-case scenario, which is a prolonged conflict, puts oil at $147/barrel. Goldman is also flagging that elevated oil prices will suppress new job creation and slow the broader economy.

February Grocery Sales: Already Softening Before the Conflict

The current situation is interesting because the grocery market was already weakening before the conflict began.

Grocery Sales have been trending down and February 2026 grocery sales came in at -0.16% year-over-year per the Census Bureau’s Advanced Retail Series. Negative year-over-year territory is rare for U.S. grocery sales. It has happened only once since Covid (February 2024) and only four times in the past decade. The U.S.-Iran conflict didn’t start until February 28th, so this number is largely untouched by geopolitical factors. The weakness is likely structural.

Food Inflation: Manageable — If the Conflict Is Short

The relationship between oil prices and food inflation is real but lagged and often overstated in the short term. Based on my model (https://www.derivzero.com/post/oil-prices-are-up-50-what-does-that-mean-for-your-grocery-bill), a temporary oil spike typically adds only 50–100 basis points to food inflation. In addition, supply chain costs and sales were both declining heading into the conflict, so a short conflict will likely keep CPI Food At Home (FAH) in a manageable 2.0%–3.5% range.

My updated forecast, using Goldman’s initial $80/barrel average for 2026, puts food inflation at approximately 2.4% over the next 12 months, with a likely range of 2.1% to 2.8%. To put that in context: my January 2025 forecast was 1.7% so the conflict and oil prices are adding roughly 70 basis points.  I also think the current forecast is a bit soft and expect the final number to end up at the higher end of the range.

Four percent food inflation is where things get interesting. Once food inflation approaches and crosses 4%, we see meaningful unit declines. We’re not there yet, but we’re also not operating with the same consumer tailwinds we had during Covid, when stimulus money created a feedback loop that pushed prices higher. Today’s consumer is worn out and cash-constrained. They will not absorb price increases passively which will shift much of the margin compression upstream.

If the conflict extends beyond four to six months, the calculus changes. Margin compression has limits. Costs will start to pass through, and food inflation will move higher. That’s why a credible timeline for resolution matters so directly to this industry.

Units Are the Real Problem

With all the focus on oil prices, units are not getting enough attention.  Even before the weak February number landed, my forecast had grocery units at flat to slightly negative over the next 12 months. The February data pulls that estimate down another 30 basis points, from -0.2% to -0.5% YOY. The forecast distribution puts units in a range of -1.25% to +0.2%.

Given Goldman’s expectation that oil prices will suppress job growth and slow the economy, I think -0.5% year-over-year unit growth is reasonable.

For total grocery sales, the 12-month estimate is approximately 2%, with a range of 1.0%–2.8%. The long-run trend is about 3% YOY. We’ll likely land 1% or more below that. Breaking it apart: price is contributing roughly +2.4% (food inflation); units are dragging it down by -0.5%. The math works out to about 1.9% in real dollar growth with inflation doing most of the work. 

What This Means for Retailers and Manufacturers

The large national banners — Walmart, Target, Amazon, Kroger, Aldi, Ahold Delhaize, and Walgreens — recently made very public commitments to lower prices on thousands of items. They cannot turn around and raise prices two months later without taking a hit. They will likely absorb as much of the cost pressure as they can.

Smaller regional banners are more exposed. Many have already been struggling to hold units flat over the past few years, largely because consumers perceive them as overpriced relative to the nationals. In a soft demand environment with price-sensitive consumers, this channel is likely the most vulnerable to unit declines.

Food manufacturers are in a similarly uncomfortable spot. With consumers unwilling to pay more and retailers under pressure to hold prices down, manufacturers are going to be asked to share the pain. This is the Covid hangover. The industry still hasn’t fully reset to a post-stimulus, post-supply-chain-crisis baseline which is now amplified by geopolitical risk.

The Bottom Line: Play Defense in 2026

My call for 2025 was to play offense because the outlook was solid even with the tariff specter. Just last month, I suggested a more neutral stance for 2026 but am shifting to a more defensive position based on the declining year-over-year sales trend and specifically the negative sales data for February. The signals show a softening consumer, inflation that is moderate but not negligible, unit growth that is flat to negative, and a geopolitical backdrop that could deteriorate quickly.  Whereas the 2025 forecast would likely miss on the low side, the 2026 forecast feels like it could be too optimistic.  Goldman has revised oil prices up four times since the conflict began so even the most informed have had some challenges reading the tea leaves.

The playbook for 2026 is efficiency, cost discipline, and keeping prices as low as operationally possible. The retailers and manufacturers who defend margin through operations — not through price — will be best positioned when the environment eventually turns.

The wildcard, as always, is the length of the conflict. A short resolution keeps operations, supply chain, and pricing reasonable. A prolonged one makes everything worse and difficult to project at this time. Right now, the President has given us no reliable basis for estimating which is more likely.