Puerto Rico grocers tackle rising food prices differently than U.S. retailers
The island’s food industry is subject to additional inflationary pressures.
While stateside food retailers move to lower prices to alleviate inflation-fatigued consumers, local Puerto Rico food retailers bank on a different strategy.
In recent weeks, as consumers pull back their spending, retailers such as Target, Aldi and Walgreens have announced lower prices in campaigns meant to counteract the effects of inflation prompted by the COVID-19 pandemic.
From January 2020 to April 2024, U.S. inflation rose 19.32%. By 2022, inflation had risen to levels not seen in 40 years, reaching 9.1% in June of that year. As of April 2024, the year-on-year inflation rate was 3.4%.
Food prices have skyrocketed, up 25% since before the pandemic, according to data from the U.S. Bureau of Labor Statistics. And, now, consumer spending, which accounts for more than two-thirds of U.S. economic activity, is slowing down, rising only 0.2% in April compared to 0.7% in March.
Last week, Walgreens announced it is lowering prices on more than 1,300 products, including some food items, to help consumers under financial strain. These savings apply to local stores.
On May 20, Target announced it will lower prices on approximately 5,000 frequently shopped items, including staples such as meat, milk, produce, bread and coffee, as well as diapers, paper towels and pet food. The price drops will “collectively save consumers millions of dollars this summer,” the Minneapolis-based company said in a news release.
Aldi, the fastest-growing grocery chain in the U.S., said it is cutting prices on 250 items to combat “persistent inflation,” passing along $100 million in savings through Labor Day. The privately held German company also announced it will add 800 stores across the U.S. over the next five years.
Amazon Fresh, too, is cutting prices to help inflation-fatigued consumers. The Seattle-based retailer said customers will save up to 30% on 4,000 grocery items in categories such as meat, seafood, frozen food, dairy, beverages, snacks and pastas.
Meanwhile, Walmart recently launched a line of more than 300 new products under a new private label called Bettergoods at prices ranging from under $2 to under $15, with most products available for less than $5. It is unclear whether the new line will eventually be available in Puerto Rico, but the retailer will continue to offer “everyday low prices,” a representative told News is my Business.
A different strategy in Puerto Rico
While post-pandemic inflation also affects consumers on the island, local supermarkets face more challenges that call for a different strategy.
Puerto Rico’s food industry is subject to additional inflationary pressures stemming from factors such as costly maritime transportation, high electricity prices, the Sales and Use Tax (IVU, in Spanish), and other fees, Manuel Reyes, executive vice president of the Puerto Rico Chamber of Marketing, Industry and Food Distribution (MIDA, in Spanish), told News is my Business.
As a result, local retailers cannot lower prices across food categories as their stateside counterparts are doing, but they can do something else — what they always do.
“What the U.S. retailers are doing by lowering the prices is what we do here every week with the shoppers (weekly ads/flyers),” Reyes explained. “This is very particular to this market. Hundreds of items are discounted every week, resulting in double-digit savings for consumers.”
To offer inflation-fatigued consumers the lowest possible prices, local supermarkets have been increasing the number of items discounted on their weekly ads, Félix Aponte, president of Supermercados Agranel and vice chairman of MIDA’s board of directors, told News is my Business.
“One shopper can have from 150 to 200 discounted items. It’s a strategy that the retailers, along with the distributors, have been working on. Our profit margins may go down, but we get the volume,” Aponte said.
Together, Puerto Rico supermarkets offer discounts on thousands of products each week, Reyes noted.
Another key strategy involves independent local supermarkets joining forces and forming groups to obtain lower prices from food distributors, Aponte said.
“There are five supermarket chains here that join under one brand to enhance their purchasing power and be able to compete [with mega stores like Walmart],” he said.
These unions take place under a local law known as Cadena Voluntaria (Voluntary Chain), which allows the retailers to engage in joint purchasing and marketing without violating monopoly laws, Reyes said.
Being able to join and buy in much larger quantities has enabled local supermarkets to compete effectively and maintain their market share, the MIDA executives said.
“This has been a total success in Puerto Rico,” Aponte added.
