Food Players Face Tougher Times Yet as Prices Continue to Rise: Study
As higher commodity prices become “the new normal” rather than a temporary peak, grocers and suppliers could see more dramatic impacts on consumer behavior as well as their own strategies, according to a new report, “Food and Beverage 2012: a taste of things to come,” from Deloitte Touche Tohmatsu.
While current food commodity prices may come down from current levels, the increases already seen in the real cost of food represent a permanent step change, the study said. With consumers also being affected by higher energy costs, economic uncertainty, and a reduction in the availability of cheap credit, the impact could be significant.
“We are already seeing signs of higher food prices leading to a shift in purchasing patterns towards lower-priced private label and discount products and shopping at low-priced retailers,” said Bruce Westbrook, Deloitte’s consumer products consulting leader in the U.S.. “It could also result in a shift away from eating meals in restaurants and bars -- as was the case in the last economic downturn.
“In poorer countries, where governments are less able to afford food price subsidies, the increases in food prices are far more serious and have resulted in violent protests in parts of Asia, Latin America, and Africa,” Westbrook continued.
Retailers operating in price-competitive markets such as the U.S. and UK, meanwhile, face the dilemma of to what extent they absorb these increased costs, said Deloitte’s study.
Rising prices also present growth opportunities for food retailers, the firm said. “Consumers switching from eating out to shopping for food for home should protect growth. Price inflation also presents retailers with an opportunity to protect and enhance margins as consumers become more accepting of price increases,” said Pat Conroy, vice chairman and Deloitte’s US Consumer Products leader.
The report suggested that because of the uncertainty of the future, retailers and suppliers must prepare for various scenarios, including the worst, with continued increases in commodity prices and slowing consumer spending. They must exhibit flexibility, minimize costs, maintain multiple supply chain choices, and clearly differentiate from competitors.
“Food and Beverage 2012” is based on over 90 interviews with board-level executives at manufacturers, retailers, and foodservice companies from around the world; and as well on a survey of over 1,000 consumers.
While current food commodity prices may come down from current levels, the increases already seen in the real cost of food represent a permanent step change, the study said. With consumers also being affected by higher energy costs, economic uncertainty, and a reduction in the availability of cheap credit, the impact could be significant.
“We are already seeing signs of higher food prices leading to a shift in purchasing patterns towards lower-priced private label and discount products and shopping at low-priced retailers,” said Bruce Westbrook, Deloitte’s consumer products consulting leader in the U.S.. “It could also result in a shift away from eating meals in restaurants and bars -- as was the case in the last economic downturn.
“In poorer countries, where governments are less able to afford food price subsidies, the increases in food prices are far more serious and have resulted in violent protests in parts of Asia, Latin America, and Africa,” Westbrook continued.
Retailers operating in price-competitive markets such as the U.S. and UK, meanwhile, face the dilemma of to what extent they absorb these increased costs, said Deloitte’s study.
Rising prices also present growth opportunities for food retailers, the firm said. “Consumers switching from eating out to shopping for food for home should protect growth. Price inflation also presents retailers with an opportunity to protect and enhance margins as consumers become more accepting of price increases,” said Pat Conroy, vice chairman and Deloitte’s US Consumer Products leader.
The report suggested that because of the uncertainty of the future, retailers and suppliers must prepare for various scenarios, including the worst, with continued increases in commodity prices and slowing consumer spending. They must exhibit flexibility, minimize costs, maintain multiple supply chain choices, and clearly differentiate from competitors.
“Food and Beverage 2012” is based on over 90 interviews with board-level executives at manufacturers, retailers, and foodservice companies from around the world; and as well on a survey of over 1,000 consumers.