According to retailers, consumer goods companies, and investors, shoppers around the world will pay even more for groceries this year than they did in 2022, unless commodity costs fall or the shift to cheaper store-brand products accelerates.
Retailers and consumer goods manufacturers have been locked in price wars for more than a year, with conflict looming in 2021 due to COVID-related supply chain bottlenecks.
Following Russia's invasion of Ukraine, this has escalated into fights over the high cost of raw materials and energy, with rising prices of basic foodstuffs ranging from bread to milk and meat exacerbating Europe's cost-of-living crisis.
According to Kantar, Britons paid a record 16.7% more for food in the four weeks ending January 22 compared to the same period last year. The food index in the United States, which includes meals eaten at home as well as in cafes and restaurants, increased 10.4% in the year ending in December.
Nestle CEO Mark Schneider told a German newspaper last week that the company would have to raise food prices further this year to offset higher production costs that it has yet to fully pass on to consumers.
"Investors will pay a premium for companies that exhibit pricing power in their portfolio without adversely impacting volumes and market share," Jack Martin, a fund manager at Oberon Investments, said.
For more than a year, big packaged-goods companies' margins have been squeezed by higher input costs as the price of ingredients like wheat and sunflower oil has skyrocketed since the Ukraine war began in February.
Unilever, which will report full-year results on Thursday, reported in October that its underlying price growth - a pricing indicator - reached a record 12.5% in the third quarter. Nestle and dairy behemoth Danone are set to report earnings later this month.
Tineke Frikkee, portfolio manager at Waverton Investment Management, believes Unilever will raise prices selectively in 2023.
"The last time we heard from Unilever, it was made clear that they prefer to sell fewer products at higher prices, to keep prices below peers and gain market share," Frikkee said.
According to Bernstein analyst Bruno Monteyne, consumer goods manufacturers will continue to raise prices until they regain profitability.
"The only thing that can stop this is...consumers starting to trade down to private-label products at a more rapid pace ... (and) if commodities keep declining, then there may be no need for more price increases."
The chief executive officer of Walmart, the largest retailer in the world, issued a warning in December, stating that "packaged goods suppliers are still pointing us towards more inflation next year on top of the mid-double digits this year."
"Dry grocery and consumables have double-digit to mid-double-digit inflation that feels stubborn to us," Doug McMillon said, adding that suppliers were being encouraged to focus on "the longer term with us".
Retailers in Europe are also fighting back.
"With the big suppliers, we do insist on long-term contracts that do not have to be renegotiated," Belgian discount retailer Colruyt told Reuters.
Tesco, the largest supermarket chain in Britain, and Kraft Heinz last year were unable to come to terms on prices for some brands, which led to the removal of several items from shelves. Due to price inflation, Unilever's Hellmann's mayonnaise was removed from South African shelves this month.
The CEO of Tesco, Ken Murphy, expressed optimism that inflation would peak in the middle of 2023 before beginning to decline.
Although the average price of food commodities was 20% lower than March's peaks, according to Barclays analyst Warren Ackerman, it will take time for this to show up in businesses' costs.
(Source:www.reuters.com)
Retailers and consumer goods manufacturers have been locked in price wars for more than a year, with conflict looming in 2021 due to COVID-related supply chain bottlenecks.
Following Russia's invasion of Ukraine, this has escalated into fights over the high cost of raw materials and energy, with rising prices of basic foodstuffs ranging from bread to milk and meat exacerbating Europe's cost-of-living crisis.
According to Kantar, Britons paid a record 16.7% more for food in the four weeks ending January 22 compared to the same period last year. The food index in the United States, which includes meals eaten at home as well as in cafes and restaurants, increased 10.4% in the year ending in December.
Nestle CEO Mark Schneider told a German newspaper last week that the company would have to raise food prices further this year to offset higher production costs that it has yet to fully pass on to consumers.
"Investors will pay a premium for companies that exhibit pricing power in their portfolio without adversely impacting volumes and market share," Jack Martin, a fund manager at Oberon Investments, said.
For more than a year, big packaged-goods companies' margins have been squeezed by higher input costs as the price of ingredients like wheat and sunflower oil has skyrocketed since the Ukraine war began in February.
Unilever, which will report full-year results on Thursday, reported in October that its underlying price growth - a pricing indicator - reached a record 12.5% in the third quarter. Nestle and dairy behemoth Danone are set to report earnings later this month.
Tineke Frikkee, portfolio manager at Waverton Investment Management, believes Unilever will raise prices selectively in 2023.
"The last time we heard from Unilever, it was made clear that they prefer to sell fewer products at higher prices, to keep prices below peers and gain market share," Frikkee said.
According to Bernstein analyst Bruno Monteyne, consumer goods manufacturers will continue to raise prices until they regain profitability.
"The only thing that can stop this is...consumers starting to trade down to private-label products at a more rapid pace ... (and) if commodities keep declining, then there may be no need for more price increases."
The chief executive officer of Walmart, the largest retailer in the world, issued a warning in December, stating that "packaged goods suppliers are still pointing us towards more inflation next year on top of the mid-double digits this year."
"Dry grocery and consumables have double-digit to mid-double-digit inflation that feels stubborn to us," Doug McMillon said, adding that suppliers were being encouraged to focus on "the longer term with us".
Retailers in Europe are also fighting back.
"With the big suppliers, we do insist on long-term contracts that do not have to be renegotiated," Belgian discount retailer Colruyt told Reuters.
Tesco, the largest supermarket chain in Britain, and Kraft Heinz last year were unable to come to terms on prices for some brands, which led to the removal of several items from shelves. Due to price inflation, Unilever's Hellmann's mayonnaise was removed from South African shelves this month.
The CEO of Tesco, Ken Murphy, expressed optimism that inflation would peak in the middle of 2023 before beginning to decline.
Although the average price of food commodities was 20% lower than March's peaks, according to Barclays analyst Warren Ackerman, it will take time for this to show up in businesses' costs.
(Source:www.reuters.com)
