Grocery Sales Outlook - July 2025

The Census Bureau released U.S. grocery sales and food inflation data last week. July Grocery Sales were up a solid 2.6% YOY. Of this 2.2% was from food inflation and the remaining 0.4% was driven by unit growth. Grocery sales were up 3.2% YTD and 2.9% over a rolling 12 month period. Overall, grocery sales have been trending near historical long run trends.

Turning to the chart below, the unit growth line below is particularly interesting because of the strong growth in December through February and then the rapid decline. As I have mentioned in previous posts, this bump was due to lapping weak months in the previous year and then the possibility of some minor stockpiling of consumer staples. We can also see that units have stabilized in the last couple of months but at a weak level. We would expect units to be closer to 1% in a healthy market. Units have been a bit weak, but CPI FAH has been keeping grocery sales up.

So what is expected in the next five months and how do we expect to finish out 2025? Let's start by looking at the inputs and where we expect them to trend. The first and most important input to grocery sales is food inflation (CPI FAH). In the chart below, we can see a largely horizontal trend is expected with a bit of an uptick in the latter part of the year. The movement in the latter part of the year has shifted from previous CPI FAH forecasts because of the increase in farm product prices. If this trend continues, it will also push food manufacturing and the food inflation higher. We are watching the grocery supply chain closely and you can view my latest CPI FAH post for more detailed information.

https://www.derivzero.com/post/food-inflation-outlook-july-2025

Our next input is Real Disposable Income, which is a gauge of HH's spend after taxes. The growth trend has been largely horizontal and we are projecting a minor slowdown. The recent data is showing the consumer slowing and many economists are also expecting a slow down but not much recession talk at this point.

The final input is housing prices. We can see from the chart below that home price growth has been trending down and is expected to continue on this path. My estimate is conservative with many thinkng we could see negative home price growth in the future. Zillow recently released it's housing forecast, expecting home prices to fall by 1% in the next year.

Based on the charts above, we expect the economy inputs to slow, but food inflation is expected to remain at current levels and keep grocery sales relatively healthy.

In the chart below, we can see our rolling forecasts over the last five months. Actual sales is the black line and the yellow line is the most recent forecast. Each forecast has come down in response to CPI FAH falling over this same time period. We do see the forecast has been consistently on the high side but only by about 0.5%. This bias is due in large part to CPI FAH which has also been consistently high. Our forward projection is in the $76.5B to $77.0B range per month for the rest of the year which is a slight increase over where the actual values are trending.

In the final chart below we see the expected YOY increase over the next six months. This is showing expected YOY growth in the 1.7% to 2.6% range with a mean just under 2.2%. If we grow at 2.2% for the rest of the year, we will finish 2025 at about 2.8% growth YOY. With the current forecast being a skosh on the high side, we expect grocery sales to end 2025 in the 2.2% to 3.0% range.

Overall we are tracking largely as expected. As I have maintained for much of the year, the current administration's shenanigans were not impacting the grocery data nor the forecasts significantly. Many economists expect tariffs to play a bigger role in pricing over the upcoming months. We are watching the forward data and will let you know if we see anything systemic. In the meantime, grocery is on a good path and I don't expect anything to knock it off in 2025. Even if we see food inflation kick up a 100 basis points, which would be significant, I don't see it impacting grocery sales significantly. We would likely see some unit softness but that would largely be countered by the higher grocery prices.