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How grocery stores are adjusting for rising prices

MARY LOUISE KELLY, HOST:

The cost of food and rent have been outpacing people's paychecks over the last year, and that has more and more families watching their pennies. Well, neighborhood retailers have spotted those changes and have been making adjustments as customers switch to less expensive items. NPR's Scott Horsley has been talking with shopkeepers around the country for an up-close view of how consumers are faring and what it means for the U.S. economy.

SCOTT HORSLEY, BYLINE: Tom Charley's family has been selling groceries in the Pittsburgh area for four generations - through lots of economic ups and downs. Charley says even his father, who ran stores during the high inflation of the '70s and '80s, has never seen a period quite like this.

TOM CHARLEY: We're taking a hit on items. Like, I'm looking at something like bananas. We've just had another price increase on bananas. There are certain items that we're just not going to increase prices on no matter what happens because it's such a staple for those customers. But it's a challenge for sure. There's no doubt about it.

HORSLEY: The three Charley Family Shop N' Save markets pride themselves on high-quality service, with in-store butchers and bakeries. The stores employ more than 200 people and could use additional help. But Tom Charley says they also have to be cost-competitive at a time when grocery prices are climbing at a double-digit annual rate.

CHARLEY: We've never said that we're going to be the cheapest. And we've also never said we're going to be the Whole Foods of the market. But I would also say that we are as focused today as we've ever been on price and making sure that we can get items that people care about at the best price possible.

HORSLEY: These days, Charley's weekly newspaper ads are less likely to feature luxury items like T-bone steaks and more likely to spotlight bargains, such as yogurt cups - 10 for 10 bucks. The stores also get a lot of mileage from offering customers a discount at the gas station - 10 cents a gallon off for every $50 they spend on groceries.

CHARLEY: Our customers love that promotion - that we have that. Everyone I know that shops in my store uses it.

HORSLEY: Overall, consumer spending continues to grow faster than inflation, thanks in part to a strong job market. But as prices climb, shoppers are becoming more selective. The Commerce Department said today that Americans spent less money at gas stations last month as gas prices fell from a record high in June. Shoppers spent more money on home and garden products, electronics and hobby supplies.

(SOUNDBITE OF TRAIN WHISTLING)

HORSLEY: The Smoke Stack Hobby Shop in Lancaster, Ohio, sells train sets, radio-controlled cars and model airplanes. Patti Riordan, who runs the shop with her husband, says sales boomed early in the pandemic. But now, some of the most elaborate model kits - priced at $70 or more - are out of reach for some customers.

PATTI RIORDAN: The guy who buys a lot of those for us said, these kits - they're great, but I just don't see many people buying them right now. So we're still going to get some of those high-end ones, but it's definitely going to be a lot less.

HORSLEY: Riordan is stocking more mid-priced models - around $35. And a growing share of her sales now come from used items that another hobbyist has traded in.

RIORDAN: You're almost a little bit of a scavenger these days. It's a lot of work to go get things. It's a lot of work to sort through. But it really allows a lot more flexibility to keep the shop going. And that, I think, gives us the strength to weather through some of these things.

HORSLEY: Victor Garcia runs a Mexican-style ice cream company in the Fort Worth area. He specializes in flavors like mango, tres leches and tequila.

VICTOR GARCIA: Our whole mission is to make people happy by sharing a piece of our Mexican culture.

HORSLEY: Garcia's two Sol Dias stores cater to a lot of couples and families. This summer, he noticed many customers were scaling back their orders - maybe buying just one item instead of two.

GARCIA: That was the first real indicator that, hey, maybe a recession is coming, and maybe we do have to be a little bit more flexible with our budget-conscious consumers.

HORSLEY: Garcia started offering smaller portion sizes, and he's hunting around for cheaper supplies. Even though his own costs have soared, Garcia says he's determined to keep prices affordable. The last thing he wants is for customers to go elsewhere.

GARCIA: Whether it's with inflation or with anything else that comes our way, the customer speaks. They tell you what they want. It's up to us as the businesses to really listen and pivot and give the customer the experience that they want.

HORSLEY: Businesses of all sizes are having to pivot now and listen to their customers as prices and preferences continue to change. Scott Horsley, NPR News, Washington. Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.