Grocery Sales Outlook - May 2025

Back in December 2024, we released our calendar year forecast for 2025. Expectations were 2.2% to 3.0% YOY growth.

https://www.derivzero.com/post/wrapping-up-24-and-forecasting-25

In the chart below we can see CPI FAH has been climbing gradually since August 2024 and that has been a nice tailwind for grocery, but the key to the grocery sales pattern is units. They were largely flat, trending at about 1% growth YOY, which is the expected long run trend. But then in December, January, and February, unit growth doubled to 2%. This is a significant swing and represents about an additional 1.6B units sold versus the same three months last year. Even more interesting is the rapid decline after hitting the peak 2.4%. Was this weather? Are we lapping a really poor December through February last year? Are consumers doing some stockpiling ahead of potentially higher prices?

Digging into the weather data, it was a fairly normal winter so I think we can count that out. We are lapping a weak period with October through March being the lowest YOY sales in 2023 and 2024. It is also likely that consumers did some minor stockpiling for shelf stable items which helped to amplify the unit bump in those three months. These same forces are also contributing to the rapid decline in units for April and May.

The good news is both of these factors are temporary so we should expect to see units and sales rebound. We might have another soft month or two as consumers use up their inventories, but I expect units and sales will rebound in July. The models are showing CPI FAH will likely increase in the 2%-3% range over the summer due to elevated food manufacturing prices. As such, when units rebound in July, we should see grocery sales approach 3% once again.

Below is the six month rolling forecasts. The first was from February (blue), the second from May(red), and the third from June(green). Actual sales (black) have been flat at $760B for the last three months, while the forecast expects us to be around $770B given the expected inflation. It will be a nice test for the forecast because visually both CPI FAH and sales are moving more down or horizontally while the both forecasts expect increases. The next few months will be a nice test.

Converting the dollars to YOY growth, the model is expecting grocery sales to grow between about 2.6% and 3.5% over the next six months.

Overall, given the chaos of Tariffs, the sour consumer sentiment, and the high levels of uncertainty, grocery is doing pretty well. It appears to be slowing down, but the drivers appear more temporary than structural. Food is also an essential good so it is less impacted by the economy compared to discretionary items like cars and appliances. So even is we hit some turbulance with the recent Israel and Iran conflict, I think there is a good chance that grocery finishes the near its long term trend of 2.8%.

I will update this forecast every month and we can see how this uncertainty unfolds and how it impacts both the price of food and the industries overall sales growth.