Finish 2024 and Forecast 2025

After a rough first six months of 2024, Grocery sales appear to be easing into those more familiar long run trends. November was solid as both price and units improved.  November grocery sales YOY were up 1.8% and 1.5% YTD. With only one month left, we will likely see 2024 up about 1.7% YOY.

Price was up 1.6% YOY in November which is still below the long run average of about 2%.  Prices were up 1.1% YTD and are expected to come in at 1.2% for CY 2024. 

Units have been the story in 2024.  After 2 years of -2% growth, we will likely see positive growth in 2024.  YTD units were up 0.4% and will likely come in around 0.4%.  This does not seem like much, but we were expecting units to be flat coming off the big negative numbers from the previous two years. 

The momentum from the back half of 2024 will likely feed into 2025. Based on our assumption for food inflation (CPI FAH), read disposable income (RDI), and housing prices, we expect CY 2025 grocery to grow between 2.2% and 3.0%. This assumes CPI FAH will grow at about 1.6% and grocery units will grow at about 1.0%. 

Wrapping up 2024

Sales rebounded in the back half. The first half of 2024 grew at about 1% and the back half at 2%. We expect 2024 to finish out at about 1.7% which is not that far off our initial forecast of 2.0%.

The chart below shows how the actual versus estimated YOY sales progressed over 2024.

Look forward to 2025

The 2025 model passes the eye test. The chart below shows how closely our model aligns with historical values. The red forecast line is based on past values for CPI FAH, RDI, and housing prices. On average the red forecast line is about 1% off the actual sales which is the blue line.

• CPI FAH is the most significant variable because retailers usually pass on cost increases to consumers, so more inflation typically means higher sales

• RDI or real disposable income is income after taxes and adjusted for inflation. When wages grow faster than inflation, we tend to spend more on food and groceries

• Housing prices might seem a bit odd when forecasting groceries. This is a proxy for the wealth effect. When consumer are feeling more wealthy, they tend to spend more overall.

The 2025 grocery forecast is below. We expect grocery sales to grow between 2.2% and 3.0%. The long run average, not including the crazy Covid years is about 2.8%. As we distance ourselves from the Covid chaos, we expect grocery trends to return to pre Covid levels.

The 2.6% sales increase aligns with a 1.6% increase in prices and a 1.0% increase in units. The 1.0% growth for units is close to the long run trend, but CPI FAH is expected to be a bit soft at 1.6% versus the long run trend of 2.0%.

Where does the uncertainty reside?

As with any forecast, it is an educated guess. There are many things that can throw us off the current historical trend.

• Black swan events are like Covid, Financial Crisis, Natural disasters, Wars, etc. – big unpredictable events

• CPI FAH is the biggest driver of grocery sales, so if it deviates from the expected 1.6%, it will likely impact the sales number for 2025

• If we return to 2% inflation growth, we will like see a 200 or 300 basis improvement in the grocery sales number, placing us much closer to 3% which is the long run trend

• If we see a significant increase in inflation, say above 4%, we will also likely see a significant reduction in units. The consumer tolarance for price increases will be non existent in 2025.

• A recession could also impact grocery sales. Typically, we need a bigger than average recession to have a significant impact on grocery sales, but an inflation weary consumer might be a bit more sensitive today than they were pre Covid.

Parting Shot

As I have quoted more than a few times before, "All forecasts are wrong, but some are useful." This is a famous quote from George Box. Our 2024 forecast was pretty close because there were not any significant unplanned events. In today's world, I cannot say there will not be any Black Swan's in 2025. If CPI FAH continues it's slow recovery and we don't see a significant recession, I would expect grocery sales to come in between 2%-3%, which is pretty positive given the big swings in everything over the last five years.

Just when it looks like the political drama will be increasing in 2025, hopefully the grocery drama will remain limited and we can return to those calmer pre Covid days. I hope you all have a great holiday and a productive 2025.

Data Sources

Grocery Sales - Advanced Retail Sales, US Census Bureau

CPI Food-at-home – U.S. Bureau of Labor Statistics

Real Disposable Income - U.S. Bureau of Economic Analysis

Housing Prices - S&P CoreLogic Case-Shiller U.S. National Home Price Index