1. Annual food inflation at 6.6% (Retail Price Index) is indeed higher than consumers have been used to recently, but despite the increases food remains a small proportion of household spend.
2. There is little sign of consumers spending less, or of any flight from premium quality food.
3. Supermarkets are keeping price inflation well below published figures because of heavy price promotions.
4. There's an almighty battle ahead on farmgate prices as supermarkets fight ferociously to keep prices low and stop consumer defections to a rival store.
Food Inflation
The rate of inflation varies by sector. Bread and cereal suppliers continue to rack up prices, as do egg producers. By contrast, after a run of monthly increases dairy prices are now dropping compared with March. The biggest change is red meat pricing which has shown price rises in April of 7.2% for pork, 4.2% for beef, and 5% for home produced lamb. All connected to the industry need to remember that until the last couple of months beef and lamb prices were dropping, and that these rises are a much needed correction to help farmers recover their input costs.
Consumer purchases
There is no evidence of a downturn in consumer purchasing of basic products. As reported in May 5th's blog, liquid milk sales have dropped very slightly, but Taylor Nelson Sofres data, published by the British Pig Executive (BPEX), shows volume sales of beef for January to March up 3%, lamb up 4%, and pork up 10%. Neither are consumers trading down to cheaper cuts of meat.
Indeed, the trend to buying top quality food is not just continuing but actually accelerating. Morrisons have said that sales of their value range are up 13%, but it's premium ranges have grown by 22%. ASDA have said their total food range grew by 6.4% in the first three months of 2008, but their premium lines are up 30%. Sainsbury's have said they reckon that quality food is resilient in when the economy is sluggish, in their view because people eat out of home less often. Latest figures show that Waitrose, purveyor of top quality and fairly expensive food is holding market share. The only sign of slowing down is organics, according to the Guardian, where growth is 10% year on year compared with about 30% recently. But 10% is still healthy.
The only sign of consumers being price conscious is that discount stores who sell at rock bottom prices, such as Netto, Lidl, and Aldi are gaining market share, which could signal more willingness on consumers part to seek the best price for basics, but on the other hand, the share gain could be due to consumers who used to shop in the now defunct Kwiksave turning to a similar type of shopping outlet.
The big issue
The big issue is not whether food inflation will stop consumers buying. Rather, its the declared intent of the major supermarkets to keep prices low. Tesco last week announced 1000 price related promotions. Justin King of Sainsbury yesterday said he reckoned inflation was nearer 2% because of the steps big grocers have taken to keep prices down. King saw this fight for low prices continuing because of the competition between them. Andy Bond of ASDA is at this square also. His results statement yesterday ended with the words "We have a duty to lock down inflation by working with our suppliers to cut costs to ensure that our customers are always getting the best possible deal on their weekly shopping."
A pricing battle seems inevitable, and its difficult to see how farmer producers can remain unaffected. Three things need to be regularly and widely communicated, particularly as prices to livestock and dairy farmers are on the rise. The first point is that prices might be rising now but they have been unprecedentedly low for years. Secondly, input prices are rocketing and must be recovered, and thirdly, farm incomes still remain too low to be viable at a time when the country should be producing more to ensure food security.
No comments:
Post a Comment