Street talk: Shopper recession impacts food prices
The latest just-food international basket, compiled exclusively by SymphonyIRI, highlights the circular influence of rising food prices and purchasing power. Despite what some commentators feel, the shopper is not powerless in the face of food inflation and that can be seen in this quarter's barometer.
In every country on our barometer (covering seven European countries and the US) except Greece, our representative basket saw food price increases in the last quarter of 2011 compared to the same period in 2010. In some cases the price rises have been dramatic. Margarine has jumped in most countries by well over 10%. In Germany and the Netherlands this has been a rise of as much as 16-18%. Elsewhere it has been a more muted but still significant in most countries.
When you see price rises like this, which are often commodity cost driven, then many might see it as uncontrollable. They take the same view that the Bank of England has on recent high inflation rates in the UK: it is driven by outside factors that must simply be accepted and left to flow through the system.
But the reality is different. The shopper really does influence price increases. The average price increase across all categories in our basket is around 7% over the last year in the UK, the US, Netherlands and Germany. However, it was less than 3% in Italy, Spain and Greece, the southern European economies that have suffered so much in the last few years.
Already under immense pressure, shoppers here can only sustain so much and this pressure translates itself into a strong downward force on inflation. Suppliers are fearful of raising prices or breaking the cycle of promotions. Those who push up price in these severely challenged economies lose more share and either accept the loss or retreat with deeper promotional deals to regain their position. Either way average prices do not rise as fast or as far.
The overall basket price even went down in Greece where the severe economic dislocation is having an impact even on these essential goods. Here the decline in the basket cost is mostly due to shoppers shifting demand to cheaper retailer own-label products.
While it is easiest to observe this pressure in the differential price increases, the same pressures are being played out even in the North American and northern European markets. The frugal shopper is pressing for maximum value for their family all across the world. Leveraging promotions and cheaper retail own labels to reduce the cost of their shop, consumers are also and even cutting back on buying product and picking lower cost categories to squeeze more out of their tighter household budget.
The reduction in the amount of product that people are buying (highlighted in our latest European Topline FMCG Trends report) is helping to mask the intensity of the price pressure evident in most categories and the increasingly sophisticated way shoppers are securing more value – planning more completely their shop, using internet price comparisons, and changing the balance of their baskets between stores and brands to reduce effective costs.
And the game is dynamic. The pressure is closing the branded price gap with retailers' own label as suppliers try to keep prices as low as possible with more promotions. This can be seen most strongly in Greece where it moved nearly 3% but it has also dipped in markets like the Netherlands and Italy.
Some see power having moved from the national brands to the retail brands. But this quarter's basket demonstrates that the true power is increasingly with a smarter, better informed and more vigorous shopper and their product switching, buy-less agenda.
Sectors: Baby food, Bakery, Canned food, Cereal, Chilled foods, Condiments, dressings & sauces, Confectionery, Dairy, Emerging markets, Fresh produce, Frozen, Ice cream, Meat & poultry, Natural & organic, Private label, Retail, Seafood, Snacks, World foods
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