Grocery prices are expected to ease this year as the threat of the discounter and falling oil and raw material prices looms.
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The European Grocery Retailers 2009 report by Verdict Research showed that price inflation drove the European grocery sector in 2008 to EUR901.5bn (US$1.19 trillion).
Food price inflation ran at “unprecedented levels”, and enabled retailers to prop up their cash profits, Verdict said.
However, the trends in both high food price inflation and high oil prices have now reversed with the oil price falling back to below US$50, less than a third of its peak of more than $150 just a year ago.
Adding to the downward spiral of prices are discounters such as Aldi and Lidl and the influence they exert on price, Verdict said.
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By GlobalDataVerdict’s European retail analyst and report co-author Daniel Lucht believes the effect of the downturn is likely to bring a halt to most M&A activity
“Tightened credit has made financing for any major deal almost impossible to get a hold of,” he said. “Furthermore, while opportunities may exist, in the wake of the crisis any risky investments on the part of both retailers and the financial community are off the agenda for the time being.”
Now could be the time for Europe’s privately-owned grocers such as Rewe, Auchan and E. Lerclerc to further strengthen their positions in the region’s food and grocery market, Simon Chinn, co-author of the report believes.
“Being privately-owned, such retailers are not under the same kind of pressure from investors that publicly-listed retailers have to deal with.
“The companies are able to take a more long-term view of investment, which has been a key driver for many of these retailers’ expansion strategies in the Central and Eastern European region. However raising capital is far from easy at the moment, even for players of the stature of Rewe and Auchan.”
Despite all the doom and gloom, Verdict believes that organics will be one of the first sectors to bounce back in the post-credit crunch era.
