With the sun shining over much of the UK today - and England in the driving seat in the Test match against India at Lord's - just-food is reluctant to dampen the mood but, in recent days, there has been yet more evidence of how tough trading conditions are.

On Tuesday (19 July), Kantar Worldpanel said UK grocery sales rose 4.6% in the 12 weeks to 10 July but, with food prices up by 4.6-4.8% over the period, volumes are clearly under pressure. The analysts at Kantar also had a warning on food inflation. They had believed food prices would not rise by more than 5% in 2011 but said inflation was now likely to move above that level. No wonder, then, that consumers, keeping a tight control over their spending, are buying less.

Two days later, data from the UK's Office of National Statistics showed that, in June, sales in the country's food retail sector - when measured in volume terms - had fallen by the most since records began in 1988. The 4.2% drop emphasised how challenging the UK grocery market is right now. However, it also compounded the ongoing trend of falling volumes. According to the ONS, there have been only two occasions in the last 18 months when food sales volumes have risen.

And the trend is not just confined to the UK. On Friday, a report from analysts at SymphonyIRI claimed a "consumer recession" had hit food sales volumes in other parts of Europe. After looking at food retail sales in seven European markets for the first quarter of 2011, SymphonyIRI said consumer confidence was at an "all-time low".

SymphonyIRI's research showed that FMCG volumes in the UK fell 1.8% during the first quarter of the year. Volumes in Italy also dropped by 1.8% while, in Germany, they were down 1.6%.

Sales held up in some markets. In the Netherlands, volumes were up, climbing 1%. Sales volumes also rose in France, increasing 1.2% and, further south in Spain, volumes grew 2.2%.

However, in a bid to drive sales, manufacturers are turning to promotions more often, SymphonyIRI said. In the UK, the research firm claimed, over 50% of FMCG products were sold on deal in the first quarter. Combine that to the fact that commodity costs are still weighing on manufacturers, particularly in markets like the UK with a weak domestic currency, and profits are set to come under pressure.

Even a giant of the industry like PepsiCo is facing that problem. The weakness of the US dollar means PepsiCo's raw-material bill is now at the top end of its forecasted range and the company said last week that it has upped prices to compensate. 

Will its volumes suffer? And how will other manufacturers react? We may not have to wait long to find out, with PepsiCo's peers set to announce their own second-quarter results in the coming weeks.

Until next time...

Dean Best
Managing Editor
Web: http://www.just-food.com
Email: editor@just-food.com
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